If one needs to understand the partnership deed, before that he/she needs to know how does the partnership deed come into existence. When two or more people want to start a new business & to share the profits & losses they come together to form a partnership such written agreement is known as ‘Partnership Deed’. One can also call it is a ‘Partnership Agreement’. And when such business gets registered by its own name the same is called as a ‘Partnership Firm’.
Key Points to Remember While Drafting Partnership Deed
Number of Members:
In a Partnership, there is a minimum requirement for two members. Previously there was a limitation on the number of partners as follows:
- Banking business-Less than or equal to ten
- Non-Banking business- Less than or equal to twenty
If there are more partners than the given above then it becomes illegal to continue the business of the partnership.
Minimum capital requirement:
There’s no limitation on the requirement of capital at the beginning of the business. Partners can start of the business with as much as minimum capital they want. The calculation of stamp duty also depends on the amount of capital which has been put by partners.
The name should be different:
While deciding a name for the firm the care has been taken that it should not indicate any undesirable intention, it should be simple & easy.
WHAT FACTORS ARE NEEDED TO FORM A PARTNERSHIP DEED?
A Partnership Deed is mainly formed on the basis of the following five factors which are given as under:
- A partnership deed is basically said to be a contract between the partners of the business. Which binds all the partners in a legal relationship between the partners.
- The minimum requirement for forming a partnership is of two members & there is a limitation of ten in case of banking & twenty in case of non-banking business.
- All partners should have a mutual understanding for doing a business.
- The ratio for profits & losses should be decided among all the partners well in advance.
- All partners should maintain the relationship as a principal-agent. Every partner is answerable for the actions of other partners.
IMPORTANT CLAUSES/CONTENTS OF THE PARTNERSHIP DEED
Any standardized partnership deed format should have the following clauses which are important from the firm point of view:
- Names and Addresses of the firm and its main business;
- Names and Addresses of all partners;
- A contribution of the amount of capital by each partner;
- The accounting period of the firm;
- The date of commencement of partnership;
- Rules regarding an operation of Bank Accounts;
- Profit and loss sharing ratio;
- The rate of interest on capital, loan, drawings, etc;
- Mode of auditor’s appointment, if any;
- Salaries, commission, etc, if payable to any partner;
- The rights, duties, and liabilities of each partner;
- Treatment of loss arising out of insolvency of one or more partners;
- Settlement of accounts on the dissolution of the firm;
- Method of a settlement of disputes among the partners;
- Rules to be followed in case of admission, retirement, the death of a partner; and
- Any other matter relating to the conduct of business. Normally, all the matters affecting the relationship of partners amongst themselves are covered in partnership deed.
As such there is no such standardized format of Partnership Deed, all the relevant topics should get covered in the partnership deed & same should be signed by all the partners.
PARTNERSHIP FIRM REGISTRATION
- Registration of a Partnership firm is optional under Indian Partnership Act, 1932
- Registration of the partnership firm can be done at any time before starting of the business of while business is in its continuation.
- It is always recommended to register the firm as it enjoys more benefits rather than unregistered ones.
WHAT IS THE NECESSITY TO CREATE A PARTNERSHIP DEED
A partnership is a business concern which deals with purely business aspects among its partners. A written document is much more useful than the oral agreement made between two or more person. As to outline & clearly specify business needs we should the creation of partnership deed is the foremost factor. The importance of creating a partnership deed is given as under:
- A well-drafted partnership deed specifies the rights, liabilities of the partners, profit sharing ratio among partners, capital requirement, etc.
- It avoids the confusion among the partners & state clearly about each & every partner in detail.
- In future, if any dispute has arisen then it can be settled through referring the partnership deed