In Today’s global market, most of the business owners are choosing for a business solely while some want to do partnership business. As per the individual’s path of doing business, the business proceeds. For individual owner, all business related decision are made by a single person. While on the other side, if the business is on partnership basis, at that point it becomes much important for all the partners to have the right and proper information about the roles and its responsibilities. So, having a much better understanding of roles and responsibilities of partners a document which is framed is known as a ‘Partnership Deed’.
It contains the terms and conditions by which a partnership between two or more individuals or entities get engaged in business. With proper rights, roles and responsibilities, a business based on partnership can perform better and have less business related issues.
Types of Partnership Deed
There are Three forms of partnership agreements:-
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Common Partnership Form:
:- The most popular form of Partnership in which all partner had no boundaries and duties for the debts and commitments in the partnership. It suggest that if partners default on debt, the creditors can pursue the assets of any of the partners, even who are not engaged in the decision to bear the debt.
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Limited Partnership Form:
:- It has two types General Partners and Limited Partners. General partner have unlimited liability whereas limited partners have limited responsibility. Also, the responsibility of limited partner is constrained till the investment in partnership.
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Limited Liability Partnership (LLP) Form:
:- It is an amalgamation of partnership and corporation. The partners in LLP have limited liability but are taxed as in a partnership.
Before Proceeding with the Elements Firstly, let’s understand some key points to pay attention while drafting a Partnership Deed:-
1. Understand Partnership Types
:- Identify the type of Partnership you need to form and understand the legal requirements for the same.
2. Partnership Details and Partners Details
:- Start with the name of the partnership, address and date when it was formed. List all the partner’s name, address and their contribution as whether they are general or limited partner.
3. Business Purpose
:- Define the partnership Primary and Secondary Purpose clearly.
4. Capital Contribution
:- In detail provide the initial capital contributions of all partners which includes cash, assets or services.
5. Profit and Loss Allocation
:- Clearly state that how the profit and loss shall be distributed between the partners which could differ from their capital contributions.
6. Management and Decision Making
:- Elaborate the decision making process, the roles and responsibility of each partner also mention the voting rights, specially if not based on the ownership percentages.
7.Duration of Partnership
:- Always mention whether the partnership has a specific end date or indefinite.
8.Addition of New Partner
:- Mention the procedure to bring new partners which includes the capital contributions and the voting rights.
9. Withdrawal and Retirement
:- Provide the process for partners who want to withdraw, retire or transfer their share of partnership.
10. Financial Records
:- Provide how financial records are to be maintained and who has access to them.
11.Profit and Drawing
:- Clarify how partners can withdraw profits and under what circumstances.
12. Dissolution and Liquidation
:- Provide the process to dissolve the partnership while closure.
13. Taxation
:- Provide the implication of Taxation of partnership and how these tax responsibilities are to be handled.
14.Insurance and Indemnification
:- See whether the partnership needs to carry insurance and provide how partners are to be indemnified in case of liabilities.
15. Amendments to the Deed
:- Provide a part in the Partnership Deed which states that how this partnership deed can be amended and the requirement for doing this.
16. Legal Compliance
:- Make it sure that the partnership deed fulfills local partnership laws and regulations.
17. Signature and Witnesses
:- All the partners need to sign the partnership deed before witnessing to make it legally binding.
Key Elements to include in Partnership Deed
1. Name and Address of the Partnership Business:
It mentions the official name of partnership, which accurately reflects the nature of the business and branding. It includes the registered address of Partnership’s primary place of operation. This address is where legal notices and document are to be sent.
2. Name and Address of Partners:
The Full names, residential address and contact details are to be mentioned here. Its essential to give accurate and up to date information for ensuring effective communication among the partners.
3. Nature of Business:
It describes the activities of the partnership, its objectives and the industry in which it operates. It also provides clarity on the type of products or services the partnership offers which helps in defining the scope of the business.
4. Capital Contributions:
Partners need to contribute capital to partnership for financing its operations. The Partnership deed outlines the starting capital contributions made by all the partner, specifying the amount and the form of contribution (e.g., cash, assets, property, or equipment) it is made. It can also address the procedure for subsequent capital contributions if required.
5. Profit and Loss Sharing:
A major concern is Sharing the profit and loss in a partnership. The partnership deed defines the distribution of profits and loss among the partners. This part provide the agreed ratios or methods of allocating profits and bearing the losses. Common methods can include equal sharing, percentage-based sharing, or a combination of both.
6. Management and Decision-Making:
The roles and responsibilities of all partner in managing the partnership is clarified here. The roles and responsibilities of all partner is mentioned. As who will have the decision making authority and when there is an unanimous decision to be made. Details of Partners involvement in day to day operations are also included in this.
7. Salaries and Withdrawals:
This addresses partner compensation. It provides how the partner salaries, drawings and withdrawals will be determined and distributed. Its essential to define this for ensuring transparency and prevent further disputes over financial matters.
8. Duration of Partnership:
Partnerships can have a fixed term which means they are for a particular period or until the dissolution of the partnership. The Partnership deed specifies the duration and conditions under which the partnership can come to an end.
9. Dissolution and Exit Strategies:
It outlines the procedure and circumstance under which the partnership could be dissolved. It includes provisions for buyout arrangements, selling partnership assets, settling debts and distribution of assets among the partners while dissolution happens.
10. Dispute Resolution
Dispute between the partners is a common occurrence. This part provides the mechanisms for resolving the disputes. It includes option such as mediation, arbitration or litigation. Having a clear dispute resolution process helps in preventing any conflict from escalation.
11. Admission of New Partners:
If the partnership is intending to admit any new partner, this provides the process and the criteria to do so. This generally involves obtaining the consent of existing partners and providing the financial and operational requirements for the new partners.
12. Death or Withdrawal of Partners:
In case when a partner passes away, retires or chooses to withdraw from the partnership this part provides the procedures in such events. It also addresses how the partner share is valued and transferred to the remaining partners or heirs.
13. Capital and Loan Accounts:
Partners sometime maintain a capital and loan accounts for tracking their contributions or loans made in the partnership.
14. Restrictions and Non-Compete Clauses:
For protecting the partnership’s interests, this part can include restriction on partners activity outside of partnership.
15. Taxation and Financial Reporting:
Partnerships have tax obligations, and this part of the deed clarifies the responsibilities of each partner regarding tax filings and payments. It may also address financial reporting requirements, including the timing and format of financial statements.
16. Miscellaneous Provisions:
Any other provisions specific to the partnerships needs and goals could be included in this part. These provisions cover a wide range of topics, such as the intellectual property rights, confidentiality agreements or specific operational policies unique to the partnership
It’s important to note that a partnership deed is a customizable document, and its content can vary based on the partnership’s specific circumstances and the partners’ agreements. Consulting with legal professionals experienced in partnership agreements can help ensure that the deed effectively addresses the partnership’s unique requirements while complying with relevant legal regulations.
CONCLUSION
In Conclusion, a partnership deed is a legal document which not only defines the structure but also gives a legal framework for the operation. Partners shall approach the creation and execution of this document with careful consideration, possibly with guidance of legal professionals, which ensures that it aligns with the objectives and provides legal protection to parties involved.
