A Step-by-Step Guide to Drafting an Effective Partnership Deed

A legal document which outlines the terms and condition of a partnership is called a ‘Partnership Deed’ it acts as a contract between partners which specify the roles, responsibility and rights of all partners involved in the business. Partnership deed are typically used in general, limited and limited liability partnership.

For understanding every partner’s roles and responsibilities, by including the terms and condition which govern a partnership between two or more individuals/entities which are engaged in Business. By having a clarity of roles, rights and responsibilities, a partnership business could grow faster and does not creates any problem for the business partners.

It also helps in making it clear and transparent partnership operation for all partners of a partnership firm. It provides that all partner understand their obligations with the framework in which their business work. Its an important legal document for smooth functioning of all interests.

What is A Partnership?

:- A partnership is a business organisation where two or more individuals/entities come together for conducting a business according to the terms and objectives which are laid in partnership agreement/partnership deed. It is a popular option for small and medium sized businesses as it allows shared responsibility and resources while offering flexibility of management and taxation.

What is a Deed?

:- A Deed is a legal document which serves as an evidence of ownership or a property right. Its commonly used in real estate transactions but also used in theoretical context. Deeds generally include important information such as the names of parties involved in transaction of a property or right being transferred, terms and condition of transfer. There are several types of deeds which include warranty deeds, quitclaim deed, grant deeds, special warranty deeds, etc.

A Step-by-step Guide to help you create a Partnership Deed

1. Understand Partnership Types

:- Identify the type of Partnership you’re forming (general, limited partnership) and understand the legal requirements.

2. Partnership Details and Partners Details

:- It begins with the name of the Partnership, registered address and the date when it was formed. Mention all partner name, address and contribution which specify whether they are general or limited partners.

3. Business Purpose

:- Define the primary purpose of the partnership and secondary objectives if any.

4. Capital Contribution

:- Mention the initial capital contribution of all partners including the cash, assets or the services.

5. Profit and Loss Allocation

:- Evaluate how profits and losses are to be distributed between the partners. As, it differs from capital contributions.

6. Management and Decision Making

:- Provide the decision making process, roles and responsibility of all partners and mention the voting rights, especially if not based on ownership percentages.

7. Duration of Partnership

:- State if the partnership has a specific end date or if it is indefinite.

8. Addition of New Partner

:- It outlines the procedure for bringing new partners which include their capital contributions and the voting rights.

9. Withdrawal and Retirement

:- Provide a process for the Partners who want to withdraw, retire or transfer their partnership’s interest.

10. Financial Records

:- Mention how the financial records are to be maintained and who have access to them.

11. Profit and Drawing

:- Clarify how the partners could withdraw profits and under what circumstances.

12. Dissolution and Liquidation

:- Discuss the process for dissolution of the partnership by selling and distributing the remaining assets among the partners.

13. Taxation

:- If possible, mention tax implications of partnership structure and the way tax are to be handled.

14. Insurance and Indemnification

:- Determine if the partnership will have insurance and provide details as to how partners are to be indemnified in case of liabilities.

15. Amendments to the Deed

:- Include a section on how the partnership deed can be amended and the requirements for doing so.

16. Legal Compliance

:- Ensuring that partnership deed complies with local laws and regulations.

17. Signature and Witnesses

:- All the partners shall sign the deed before witnesses to make it legally binding.

Drafting the Contract

Drafting a Partnership Deed from an expert which has all terms and conditions discussed with all the partners. It should include the following:-

1. Name and address of the firm/partnership property.
2. Title and Addresses of all partners.
3. Nature of the business.
4. Duration of the Partnership (if its fixed term).
5. Capital contribution of all the Partners Capital contribution ratio from each partner.
6. Profit and Loss sharing between the Partners.
7. Salaries of any partner(if any)
8. Rights, Duties and responsibility of each partner.
9. Rules for making withdrawals by partners. 
10. Procedure for admitting new partners.
11. Procedure for retirement or withdrawal of Partners.
12. Rules for dispute redressal among the Partners
13. Process of Dissolution and winding up the Partnership.
14. Any other specific clause or terms agreed by the partners.

Disadvantages of Partnership Deeds

• Limited capital: All business capital is a main element but partnership could struggle in raising sufficient capital compared to the corporation because it depends on the contribution of the partners.
• Unlimited liability: In general partnership have an unlimited liability for business debts and liabilities which mean their assets are at risk.
• Profit sharing: The sharing of profit doesn’t depends on the efforts of the partners but according to the  contribution of the partners.
• Decision making:  Partners shall sometimes reach on a consensus on major decision which leads to delays and disagreements.

Conclusion

A Partnership Deed is an important document which formalises the partnership by clarifying roles and responsibilities. The applicable laws and regulations and accurately reflecting the intention of partners a well constructed partnership deed could contribute for smooth operation and success of partnership. It also establishes confidence, clarity and responsibility between the partners. This provides a feeling of togetherness, objectivity and protects the interest of all partners Which makes this legal document a tool for boosting the business growth.