Partnership Deed is a Document where two or more people come together for running a business. The required documents mentions all essential terms and conditions which are related to the business such as profit and loss. Many Business constitutes in partnership form. Terms and Conditions are mutually agreed, governing inter relationship between the partner. Partnership Act provides particular useful rules.
When any Admission, Retirement, Death or Change in Profit Sharing ratio is there the partner’s mutual rights can get disturbed this means one will win and one will lose till certain adjustment which relate to unaccounted profit and loss is made. New Agreed ratio is applicable to the future profit and loss. An unexplained or undivided profit or loss form a earlier period. Although it will be shared in future in some other ratio then the previous ratio, this to the extent shows one individual will gain while the other loses. This needs to be adjusted at time of change in Partnership.
Partnership
Partnership is a relationship between two or more people who work together for doing business activities for the benefit of both the parties. This task is completed as mutually agreed by everyone on their behalf. This created entity is called a firm.
Partnership Deed?
Partnership deed is a Document where two or more people come together for running a business. The required documents mentions all essential terms and conditions which are related to the business such as profit and loss sharing, obligations, admission of partner, rules , salaries, exit process, etc.
It plays an important role and incase the firm ends up in courtroom for any reason, it could be served as legal document. Partnership Deed also known as Partnership Agreement are registered under Registration Act, 1908 so there is not any risk of getting the deed destroyed.
Also registering the partnership deed gives some benefits such as making the organisation eligible for PAN and opening bank account. It also help in acquiring GST registration or FSSAI licence in organisation name.
Features of Partnership Deed
Following are some important partnership deed:-
- Members in Partnership Business:- It is important to have atleast two members in a partnership business. For avoiding any future legal issues, partner’s rights, responsibilities and liabilities are to be mentioned clearly.
- Profit/Loss sharing ratio:- Before starting a firm, partners shall decide the ratio mutually. Any profit and loss shall be distributed according to the ratio which is decided in partnership deed. It helps in signifying financial of company.
- Profit from Capital:- Partnership Deed help in keeping a check on salary, commission and interest rate capital. It should be in writing with everyone’s approval.
Types of Partnership Deed
General Partnership Deed
- It is the most common type of deed
- It dilenates the roles and responsibilities of each partner its capital contribution, profit sharing ratio and management of the business.
Limited Partnership Deed
- It includes both general and limited partners.
- Management of company is under control of general partners who have all liability for debts.
- Partners act as passive investors and have limited liability, which restricts their liability in capital contributions.
Limited Liability Partnerships (LLP) Deed
- Limited Liability Partnership (LLP) is partnership structure in which the partners benefit from the limited liability.
- It mentions the roles and responsibility of each partner with their capital contributions, profit sharing ratios and managing the LLP business.
- It denies the relation between Partners and LLP.
Every type of partnership agreement acts for establishing a framework for partnership’s operation and the extent of liability to be borne by the partner this offers flexibility in establishing business relationships.
Importance of Partnership Deed
Few Advantages of Well Drafted Deed are :
- Managing and overseeing all the partners obligation, liabilities and rights.
- For avoiding disputes between partners
- To Avoids disputes between partners
- Avoids confusion on profit and loss Distribution of assets ratio among the partners.
- Individual partner’s responsibilities are mentioned clearly.
- Partnership deed also defines a remuneration or salary of the partners and working partners. However, interest is paid to each partner who has invested capital in the business.
Contents of Partnership Deed
Partnership Deed could protect the your interest if any legal dispute or confusion over specific matter. So, the deed shall include all details of partnership firm, Although there is not any standard format for drafting partnership deed, for providing a better understanding of the content.
Partnership includes :-
a. Partnership Purpose:-
Name and Address of the partners and necessary detail explaining type of business.
b. Place of Business of Partnership:-
The firm shall operate from an location as Partners determine from time to time.
c. Duration:-
Deed shall mention the establishment date and time period of the partnership.
d. Capital Contribution:-
Partner’s contribution in capital, cash, property, goods or any service which is agreed value.
e. Withdrawing Capital:-
Detail of withdrawing the capital allowed to each partner and whether interest will be paid to firm for capital withdrawal.
f. Salary & Commission:
Detail of Ratio or Salary of Partners.
g. Profit & Loss Ratio:-
Profit and Loss Ratio to be accrued and borne out by the partners.
h. Regulation for dissolving Partnership:-
Detail of firm’s account and how it would be treated if firm dissolves.
i. Rules for Admission of New Partner:-
Details in regarding with admitting new partner or retirement or exit of a partner.
j. Rules to follow:-
Guidelines as per such are to be followed if partner gets bankrupt.
k. Account and Audit Details:-
Accurate and the complete book of account of the firm transaction and available at all the reasonable time and open for inspecting and examination by any of the partner.
l. Voluntary withdrawal from Partnership:-
Rules regarding the voluntary withdrawal need to be mentioned in the Partnership.
m. Duties of Partners:-
Mention the roles and responsibilities of all partner.
n. Banking and Partnership Funds:-
Funds which are held in firm name shall be placed in bank account provided by partners.
o. Borrowings:-
Written consent of all partners is required for taking up loans from the banks, financial institutions or from any third parties for firm’s financial requirements.
p. Accounting Year:-
Financial Year of Partnership.
Benefits of Partnership Deed
Partnership agreement could be orally given, but its necessary that it is in written. Disadvantage of Oral Agreement is that it has no tax value and can’t be used if there is a disagreement among partners. So having a written agreement is much preferable.
If there is a conflict between partners it allows the partners to file a lawsuit in court. It also helps in avoiding misunderstandings and conflicts between the partners because all the terms and conditions are already decided and given in the deed.
- It mentions the duties of all partners.
- Gives out the detail of the Profit and Loss ratio and decreases the chance of misunderstanding.
- It states the amount which is invested by each partner.
- It details salary and commission which is paid to the partners and if any partners are withdrawing capital and the interest which they need to pay.
Partnership Deed Registration Fees:-
For registering a Partnership Deed , the partners in the business shall pay partnership deed registration fee. Partners shall pay for the affidavit which is made on non-judicial stamp paper of Rs.10 with court fees.
Partnership Deed Stamp Duty Charges
Section 46 of Stamp Act, 1899 governs the stamp duty charges on the partnership deed. This fees can differ from state to state; it shall be notarised on non judicial stamp paper for fee of Rs. 200 or more.
Article 44 of Schedule I of Gujarat Stamp Act, 1958 provides that the stamp duty on Partnership Deed is 1% of Capital . Maximum limit is Rs.10,000.
Documents Required to Form Partnership
Documents required for forming a Partnership Deed are:-
- PAN Card of Partners
- Application form No. 1
- Partnership Deed Copy signed by all the Partners
- PAN Cards of firm
- Address Proof of all the Partners
- Address Proof of Organization
- Affidavit of Acknowledgement with all details and attested by Notary.
- Photographs of all partners
An official authority must sign the documents that are required for the registration of the partnership deed.
In Absence of a Partnership Deed?
Accounting rules apply if the business partners fail to get the Partnership deed.
- All the partners are accountable for sharing the profit/loss regardless of the conditions.
- Partners are not liable to receive a fixed salary at regular intervals.
- The drawings made by any of the partners will not be charged with interest.
Partnership Deed Registration Process
Some can say partnership deed is not required, it recommended as it helps in controlling each business partner’s rights, duties and liabilities. Indian Partnership Act, 1932 has no time barred for registering Partnership firm. It can be registered either at moment of formation or after it from the approval of the partner. Steps are as follows:-
- Application to Registrar of Firms in Form A with all the vital information about the firm;
- A signed copy of the agreement that specifies all the rules and policies must be filed with the registrar.
- Paying the affidavit fee, stamp duty charges and other essential charges.
- After the registrar approves the registration application, the company name is added to the government records, and the partners can collect the incorporation certificate.
Foundation for Successful Business
A successful business collaboration doesn’t rely on a single definitive model or way of working. All businesses are different. Depending on your operational, cultural and financial approach, certain types of business collaboration may suit you better than others.
Nevertheless, some common elements make collaborative networking success more likely. For example:
- transparency and trust – between different members working as one team
- mutuality and solidarity – working together for the benefit of each other
- information exchange – communicating openly about problems and ways of working
Businesses that collaborate may also find it helpful to have a similar culture, operational synergies and a desire to make collaboration work. Support from top management and key people within a business will also contribute to successful collaboration.
