Partnership Deed

What is a Partnership Deed?

Are you considering collaborating with others to establish a new business venture or expand your existing enterprise? A Partnership Deed is an indispensable document that solidifies the foundation of your partnership, outlining crucial aspects of your collaboration. A Partnership Deed serves as the cornerstone of any partnership, setting clear guidelines and expectations for all parties. This document establishes the roles and responsibilities of each partner, defines profit-sharing ratios, outlines the contribution of capital, and addresses decision-making processes. By having a well-drafted Partnership Deed, you can prevent potential misunderstandings, conflicts, and disputes that may arise during the course of your business operations.

Partnership Deed Contents

The partnership deed encompasses the following information:

Firm Name

The partners must collectively decide on a suitable name for the firm that complies with the Partnership Act of 1932. This name represents the business.

Partner Details

Each partner's complete information, including names, addresses, phone numbers, titles, and other pertinent details, is included in the deed.

Nature of Business

The deed specifies the type of business activities undertaken by the firm, whether it involves producing goods or providing services.

Duration of the Firm

The deed clarifies the duration of the partnership firm, indicating whether it is established for a specific period, a particular project, or an indefinite period.

Place of Business

The deed states the primary location where the partnership conducts its business. It might also include a list of any further locations where business operations are conducted.

Capital Contribution

Each partner's capital contribution to the firm is documented in the deed, including the total capital of the firm and the individual share contributed by each partner.

Profit/Loss Sharing

The agreed-upon ratio or procedure for allocating profits and losses among the partners is laid forth in the deed. This can be equal sharing, based on capital contributions, or another mutually agreed ratio.

Salary and Commission

The deed contains information on the wage and commission due to partners. The criteria for determining these payments can be based on roles, capabilities, or other agreed-upon factors.

Partner's Drawings

The deed outlines the allowances for partners to make drawings from the firm and any applicable interest to be paid on such drawings.

Partner's Loans

It is indicated in the deed whether the business is permitted to borrow loans, including information on interest rates, pledged properties, and whether partners can borrow loans from the firm.

Duties and Obligations

In order to avoid future disagreements, all partners' rights, liabilities, and duties are spelt out in detail in the deed.

Admission, Death, and Retirement of Partners

The deed includes provisions regarding the admission of new partners, regulations for such admissions, as well as procedures in the event of a partner's resignation, death, or retirement.

Accounts and Audit

The deed provides details on the audit procedures to be followed by the firm and outlines how partnership accounts should be prepared and maintained.

Partnership Deed Format

[Your Name]
[Your Address]
[City, State, ZIP]
[Email Address]
[Phone Number]

[Partner 1 Name]
[Partner 1 Address]
[City, State, ZIP]

[Partner 2 Name]
[Partner 2 Address]
[City, State, ZIP]

This Partnership Deed ('Deed') is entered into on [Date], between [Partner 1 Name], residing at [Partner 1 Address], hereinafter referred to as 'Partner 1,' and [Partner 2 Name], residing at [Partner 2 Address], hereinafter referred to as 'Partner 2.' Collectively, Partner 1 and Partner 2 are referred to as the 'Partners.'

WHEREAS, the Partners wish to form a partnership to carry out [nature of business] under the name of [Partnership Name].

THEREFORE, the Partners concur as follows in consideration of the mutual covenants and pledges set forth herein:

1. Name and Location of Partnership:

a. The partnership shall be known as [Partnership Name].

b. [Address] or any other site chosen by the Partners shall serve as the partnership's principal place of business.

2. Nature of Business:

The partnership shall engage in the business of [describe the nature of the business].

3. Duration of Partnership:

The partnership will begin on [Commencement Date] and last until it is dissolved by the partners amicably or as otherwise required by law.

4. Capital Contribution:

a. Partner 1 shall contribute [Amount] in cash or assets to the partnership.

b. Partner 2 will give the partnership [Amount] in cash or assets.

c. Any additional capital contributions required in the future shall be agreed upon by the Partners in writing.

5. Profit and Loss Sharing:

Unless otherwise specified in writing, the Partners shall split the partnership's gains and losses equally.

6. Management and Decision-Making:

a. The Partners shall jointly administer and manage the affairs of the Partnership.

b. Decisions relating to ordinary course of business shall be made by mutual agreement of the Partners. However, any decisions that may significantly impact the partnership or require additional capital contributions shall require the unanimous consent of the Partners. c. In the event of a disagreement between the Partners, the matter shall be resolved through mediation or arbitration, as agreed upon by the Partners.

7. Bank Accounts:

A bank account or accounts must be opened in the partnership's name by the partners. All partnership monies must be placed into this account, and withdrawals can only be performed with the partners' agreement.

8. Books and Records:

The partnership is required to keep accurate books of account that represent all financial activity and transactions. The partnership's books and records must be kept in a place of business that is easily accessible to both Partners.

9. Amendments and Modifications:

Any amendments or modifications to this Deed shall be in writing and signed by both Partners.

10. Dissolution:

Any circumstance that makes it illegal or impractical to conduct business may result in the dissolution of the partnership, or the Partners may choose to do it themselves. The partnership's assets must be liquidated in the case of dissolution, and the proceeds must be divided among the Partners in proportion to their capital investments.

11. Governing Law:

The laws of [State/Country] shall apply to this Deed and be followed in construing it.

The Partners have signed this Partnership Deed as of the date first above stated in WITNESS WHEREOF.

_________________________

[Partner 1 Name]

_________________________

[Partner 2 Name]

_________________________

Date

Importance of Partnership Deed

The Partnership Deed holds immense importance for a partnership for several reasons:

• 1. Clarity and Understanding: The Partnership Deed clearly outlines the terms and conditions of the partnership, including the roles and responsibilities of each partner, profit-sharing ratios, capital contributions, decision-making processes, and more. This clarity helps avoid misunderstandings and ensures that all partners have a shared understanding of their rights and obligations.
• 2. Legal Protection: The Partnership Deed provides legal protection to all partners by serving as evidence of the agreed-upon terms. In case of disputes or disagreements, the Deed can be referred to for resolution, potentially preventing costly and time-consuming legal battles.
• 3. Conflict Resolution: As it establishes procedures for dispute resolution, the Partnership Deed helps partners handle conflicts in a structured manner. This can prevent conflicts from escalating and negatively impacting the business.
• 4. Smooth Operations: By defining each partner's roles and responsibilities, the Deed promotes efficient business operations. Partners can focus on their respective areas of expertise, leading to better productivity and a stronger business foundation.
• 5. Financial Clarity: The Deed outlines the capital contributions and profit-sharing arrangements, reducing the likelihood of disputes over financial matters. Partners can be confident about how profits and losses will be distributed.
• 6. Admission and Retirement of Partners: The Deed specifies the process for admitting new partners and the terms for partner retirement or resignation. This ensures a structured approach to partnership changes, maintaining stability in the business.
• 7. Partnership Continuity: The Deed helps address the duration of the partnership, whether it is intended to be long-term or for a specific period. This clarity allows partners to plan for the future and make informed decisions.
• 8. Legal Compliance: A well-drafted Partnership Deed ensures that the partnership adheres to the relevant laws and regulations, safeguarding partners from potential legal liabilities.
• 9. Confidentiality and Non-Compete Clauses: The Deed can include clauses to protect sensitive business information and prevent partners from engaging in activities that compete with the partnership's interests.
• 10. Partner Accountability: The Deed can include provisions to hold partners accountable for any breach of the agreement, ensuring that all partners act in the best interest of the partnership.
• 11. Basis for Growth: A clear and comprehensive Partnership Deed provides a strong foundation for the partnership to grow and adapt to changing circumstances. It allows partners to revisit and amend terms as the business evolves.

Types of Partnership Deeds

1. General Partnership Deed: A General Partnership Deed is the most common and traditional form of partnership agreement. It is used when two or more individuals or entities come together to carry out a business venture with shared responsibilities, profits, and liabilities. In a general partnership, all partners have equal rights in the management and decision-making process unless stated otherwise in the Deed. The partners also have unlimited liability, which means their personal assets can be used to satisfy business debts and obligations.

Key features of a General Partnership Deed:

• Equal sharing of profits and losses among partners.
• Joint decision-making and management authority for all partners.
• Unlimited personal liability for all partners.

2. Limited Partnership Deed: A Limited Partnership Deed is a special form of partnership where there are two types of partners: general partners and limited partners. General partners are responsible for the day-to-day management of the business and have unlimited liability. On the other hand, limited partners are passive investors who contribute capital but have no active role in managing the business. Their liability is limited to the extent of their capital contribution.

Key features of a Limited Partnership Deed:

• Distinction between general partners (active management, unlimited liability) and limited partners (passive investors, limited liability).
• Limited partners' liability is restricted to the amount they have invested in the partnership.
• General partners have joint decision-making authority and management responsibilities.

3. LLP Agreement (Limited Liability Partnership): An LLP Agreement, also known as the Limited Liability Partnership Agreement, is a partnership structure that offers limited liability protection to its partners, similar to that of a company. It combines the flexibility of a partnership with the limited liability feature of a company. Each partner's liability is limited to the extent of their capital contribution, and partners are not personally liable for the debts and obligations of the LLP caused by other partners.

Key features of an LLP Agreement:

• Limited liability protection for all partners.
• Flexibility in management and decision-making, as agreed upon by the partners.
• Partners are not responsible for the actions of other partners.

How to Draft a Partnership Deed

The partnership deed may be expressed orally or through a written document. However, it is highly recommended to have a written partnership deed as it helps prevent potential conflicts in the future, facilitates tax-related matters, and aids in the registration of the partnership firm. The drafting of the partnership deed can be done by all partners collectively, after reaching a consensus on its clauses, or it can be prepared by a legal professional.

When drafting the partnership deed, the following considerations should be kept in mind:

• Inclusion of the required clauses mentioned above
• Execution of the deed by a minimum of two or more partners
• Drafting should be based on mutual agreement among the partners
• Clarity is crucial, avoiding ambiguous language or sentences
• Clauses should provide clear details and descriptions
• The partnership deed should be printed on an e-stamp paper valued at ₹200 or higher

Documents Required to Register a Partnership Deed

To register a Partnership Deed in India, certain documents and information are required to complete the process. The exact requirements may vary depending on the state in which you are registering the partnership, but the general documents typically needed include:

1. Application Form: You will need to fill out the prescribed application form for partnership registration. This form contains essential details about the partnership, such as the name, address, and nature of the business, as well as the names and addresses of all partners.

2. Partnership Deed: The Partnership Deed itself is a crucial document that outlines the terms and conditions of the partnership agreement. It should include details such as the name of the partnership, the capital contributions of each partner, profit-sharing ratios, roles and responsibilities, and other essential clauses.

3. Address Proof: You will be required to submit address proof for all partners, which may include Aadhar card, voter ID, passport, or any other government-issued identity document with the current address.

4. PAN Card: The Permanent Account Number (PAN) card of all partners is necessary for partnership registration.

5. Identity Proof: A valid identity proof, such as Aadhar card, passport, voter ID, or driver's license, for all partners will be required.

6. Passport-sized Photographs: Recent passport-sized photographs of all partners need to be submitted along with the application.

7. Registered Office Address Proof: You will have to provide proof of the registered office address of the partnership. This could be a rental agreement, electricity bill, or property tax receipt, along with a No Objection Certificate (NOC) from the property owner.

8. Ownership Proof: If the partnership office is owned by one of the partners, relevant ownership documents like the sale deed or property tax receipt need to be submitted.

9. Additional Documents: Depending on the state or specific requirements, additional documents or affidavits may be needed, so it is essential to check with the concerned authorities or legal experts.

10. Partnership Registration Fee: Finally, the prescribed fee for partnership registration must be paid. The fee varies from state to state.

Stamp Duty and Registry Charges on Partnership Deed Registration

According to the partnership deed, the capital investment is limited to ₹500, with an initial contribution of ₹50 and subsequent investments equivalent to 1% of the total capital.

**To get accurate information get in touch with our experts.

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