Partnership Deed
PARTNERSHIP DEED
INTRODUCTION:-
The partnership is one of the most common forms of business structure in India. In
this minimum of two persons combine their investments, abilities, experience,
and other things to start a business. Thus we must tend to study partnership
deed and, therefore the registration of such acts. A partnership deed or we can
also say a partnership agreement is formulated
when the company is formed, primarily, to ensure that partners of a company
share a common understanding from each other and the company. Ensuring
that partners have an agreement can reduce disagreements later on and will
ensure the smooth functioning of the role of partners. The purpose of a written
agreement is to protect investments of the partners, ensure that issues related
to governing and controls are mentioned in the agreement, defines the
obligations and rights of partners. A written partnership agreement will reduce
the risk of disagreements, misunderstandings, and disputes between partners of a
company.
IMPORTANCE OF PARTNERSHIP DEED
·
Firstly, without an agreement, the company will have to
resort to the default rules of the state. A written agreement allows for
partners to have more control of their company and allows them to dictate the
rules which would reflect the best interests of the company.
·
Secondly, a partnership agreement includes
information on sales and transfer of interests. The written agreement is
particularly important, as without it an owner can sell their interests to
anyone, including a competitor. The agreement further discusses measures such
as the death of an owner and makes provisions for all types of scenarios. The
agreement describes in detail if written well who the interests of a company
can be sold to or transferred to, to avoid any uncertainty.
·
Thirdly, a partnership agreement will ensure that partners
agree on important issues well in advance such as dispute resolution. Partners need to address how to handle disputes if they arise and a
dispute resolution clause in the agreement can be helpful in the long run.
Dispute resolution such as mediation and binding arbitration in writing can be
beneficial to partners and the company if a dispute arises, which would avoid
costly and time-consuming litigation. The agreement should also contain a
provision if a nonperforming or disruptive partner wants to leave the company
and join a competitor's company. The agreement also protects the business, the
partner's investment, the minority, and the majority owners.
PARTNERSHIP DEED FACTS AND FORMATS:
This
Deed of Partnership is made at…………………. on this………………day of ……………. between [Name
of party 1], [Name of Party 2].
1. First
partner’s name………. aged about…………. years, [son/daughter] of Shri……………….,
residing at [Address ………………. city, state, Pin code…………………….] hereinafter to be
called the First Party.
2. Second
partner’s name………. aged about…………. years, [son/daughter] of Shri……………….,
residing at [Address ………………. city, state, Pin code…………………….] hereinafter to be
called the Second Party.
Whereas,
the parties hereto have agreed to commence the business of……………. with its
principal place of business at…………………..under the name and style of …………..on the
terms and conditions incorporated in the Partnership Deed executed on ……………………
The above is a simple format of how a
Partnership Deed recitals have to be made. However, one needs to keep in mind
that a Partnership Deed must contain 2 or more partners to start with.
Here are few clauses that must be in the
Partnership Deed—
1.
BUSINESS
ACTIVITY
The
Partnership Deed must state the business purpose clearly and elaborately. One
sample clause can be— “The parties hereto
have mutually agreed to carry on the business of ……………………”
2.
PLACE
OF BUSINESS
The deed must clearly state the place of business or address of the partnership
firm. Generally, it is the place where the business is conducted or the place
where the account books are kept. One sample clause can be— “The principal place of the partnership business will be situated at
……………………………”
3.
TERM
OF THE PARTNERSHIP
There
is no limit to the term of the partnership. However, it should contain a
restrictive clause stating the termination of the Partnership. One sample clause can be— “The partnership shall begin on…………………………… date, and
shall continue until terminated”.
4.
CAPITAL
OF THE FIRM
One
of the advantages of the Partnership, the firm is that it doesn’t require minimum
capital to start with the business. However, it can mention capitals to start
with the business. One
sample clause can be— “The capital
of the Firm shall be contributed in cash
by the Total Partners Contribution”.
5.
PROFIT
AND LOSS
One
of the disadvantages of partnership is that the liability is unlimited, i.e., the
partners are equally liable for the default of one partner. Therefore, the loss
suffered by one partner may affect the other partners as well. One sample clause can be— “The profit and loss of the Partnership Firm
shall be equally divided among all the Partners and transferred to Partner’s
current account.”
6.
SHARE OF PROFIT
One
sample clause can be— “Name of the party
share in profits (i)………….. (ii)…………..”
7.
SALARIES AND WITHDRAWALS
The salaries of the partners are only paid to working partners. One sample clause
can be— “The Firm shall open a Current
account in the name of ……………. Firm at ………. bank and that account shall be
operated by partners jointly. Whereas, each partner shall, from time to time,
withdraw and credit balance in their income account.”
8.
MANAGEMENT
DUTIES
One
sample clause can be— “The First partner in
the partnership firm shall be Managing Partner and he shall manage all the day
to day business function of the firm along with the legal activities. The
remaining partners shall also devote their entire time to the conduct of the
partnership business”.
9.
RETIREMENT
One sample clause can be— “Any partner willing to retire from the Partnership Firm during its
subsistence, he/she shall be competent in his/her capacity do so, provided he/she
shall give at least ……………….. months’ notice in writing to the others; but
none shall leave the firm until and unless all the pending commitments are
carried out, liabilities paid off, assets realized and accounts are rendered
fully and settled finally to the entire satisfaction of each of the partners.
The remaining partners shall compensate the retiring partner, the purchase the money of his/her share in the assets of the firm.”
10. DEATH OF PARTNER
This clause shall be included in the event of any unforeseen
situation arises that may harm the business of the partnership directly. One
sample clause can be— “In the event of
the death of any partners, hereto the partnership firm hereby formed shall not
dissolve, but shall continue. The legal heir or the representative of the
deceased shall become the partner of the firm”.
11. ARBITRATION
One of the major disadvantages of Partnerships is often
disagreements between the partners and such disagreements may lead to a dispute
between the partners. Therefore, the inclusion of these clauses can resolute
the dispute between the parties without major prejudice to the parties or
without affecting the business severely. One
sample clause can be— “Whenever there by
any difference of opinion or any dispute arises, or the breach thereof, shall
be referred by arbitration under the rules. The decision of the
arbitration shall be final and binding on all partners, and the Indian Arbitration Act shall govern all the arbitration
proceedings.”
12.
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