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Partnership Deed (Drafting)

Partnership Deed (Drafting)

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What is a Partnership Deed?

Partnership deed is a partnership agreement between the partners of the firm which outlines the terms and conditions of the partnership between the partners. The purpose of a partnership deed is to provide clear understanding of the roles of each partner, which ensures smooth running of the operations of the firm.


The document is a critical foundational document for running a new business and sets the business up for success by ensuring clear communication and defined responsibilities for all of the partners. This Agreement documents both contingency plans for when things go wrong as well as descriptions of the partnership’s day-to-day operations. A Partnership Deed protects all of the partners involved in the business and any individuals who plan to do business together should complete a Partnership Deed.

Why is a Partnership Deed needed?

A partnership deed format briefs the legal possibilities of the partners of the firm. Here we have listed down the importance of a partnership deed:
•   It regulates the rights, duties, and liabilities of each of the partners.
•   Helpful to avoid misunderstandings between the partners as all of the terms and the conditions of the partnerships are specified in the deed.
•   In case of any dispute amongst the partners, it will be settled easily as the partnership deed will be readily referred to.
•   The confusion between the partners concerning the compensation of the profits and loss sharing with the partners.
•   Mentions the role of each individual partner

The partnership deed will also contain the clauses that clarify what should be the remuneration that is to be paid.
Also, registration of a Partnership will make the firm eligible for obtaining PAN, applying for a bank loan, opening a bank account in Partnership Firm name, obtaining GST registration or IE Code or FSSAI license in partnership firm name, and more.
Hence, it is always better to execute a Partnership deed.

How to create a Partnership Deed?

A partnership deed agreement may be written or oral. However, practically oral agreement does not have any value for tax purposes and therefore the partnership agreement should be written. The following are the essential characteristics of a partnership deed:-
•   Name and Address of the firm as well as all the partners
•   Nature of business to be carried on
•   Date of Commencement of business
•   Duration of Partnership (whether for a fixed period/project)
•   Capital contribution by each partner
•   Profit sharing ratio among the partners

The above are the minimum essentials which are required in all partnership deeds. The partners may also mention any additional clauses. Some of the examples of additional clauses which may be mentioned in the partnership deed are mentioned below:-
•   Interest on Partner’s Capital, Partners’ Loan, and Interest, if any, to be charged on drawings.
•   Salaries, Commissions etc, if any, payable to partners
•   Method of preparing accounts and arrangement for audit
•   Division of task and responsibility i.e. the duties, powers and obligations of all the partners.
•   Rules to be followed in case of retirement, death and admission of a partner.

The Partnership Deed created by the partners should be on a stamp paper in accordance with the Indian Stamp Act and each partner should have a copy of the partnership deed. A Copy of the Partnership Deed should also be filed with the Registrar of Firms in case the firm is being registered.

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Frequently Asked Questions (FAQs)

The Partnership Act, 1932 is responsible for governing Partnership deeds.
No, registration is not compulsory for business firms.
Form no. 1 is required to register a firm under the Partnership Act.
Legal age for registering as a partner in 18 years.
Even though the definition of partnership deed remains the same, it can be written for three types of partnership.
1. General Partnership – Governed under The Partnership Act, 1932, the general partnership involves two or more partners who carry equal responsibilities and rights with unlimited liability.
2. Limited partnership – Also governed under The Partnership Act, 1932, limited partnership means that one partner has unlimited liability while the other has limited liability. Partner with limited liability cannot partake in the firm’s day-to-day decisions and has limited control access.
3. Limited Liability partnership – Governed according to The Liability Act, 2008, LLP means that each partner holds limited liability that is decided according to the extent of their investment in the firm.
Indian Partnership Act, 1932 is the official Act according to which partnerships are governed. It is entirely up to partners to decide if they want to get their firm registered or not. If they do not register, they won’t be allowed the benefits of a registered partnership firm. The registration process can happen anytime from the start of the business. However, your firm must be registered by law if a legal dispute before the court case is filed.

For registration of a partnership firm, submit an application and prescribed fees to the Registrar of Firms of the respective state in which the business is operable. You must also include the following documents –

Registration of Partnership Application in Form No. 1
Affidavit duly filled and signed
The original copy of the partnership deed
Ownership proof of the business space or the rental/lease agreement
All partners must sign the submitted application. After checking the contents of the partnership deed that explain the intention of the business firm, the Registrar of Firms will record an entry in the Register of Firms and issue the Certificate of Registration.

It is also compulsory for all firms to register themselves with the Income TaxDepartment and receive a PAN Card for official purposes. After the PAN Card is issued, the firm can open a current account in any bank and handle all financial transactions through it.
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