PARTNERSHIP DEED
A partnership deed, also known as a partnership agreement or articles of partnership, is a legal document that outlines the rights, responsibilities, and obligations of partners in a partnership. It serves as a contract between partners, establishing the terms and conditions under which the partnership will operate.
The provisions of a partnership deed can vary depending on the specific needs and circumstances of the partnership. However, here are some common provisions that are often included in a partnership deed:
- Name and Address: The full names and addresses of the partners involved in the partnership.
- Name and Nature of Partnership: The name under which the partnership will operate and a description of the business or activity to be conducted.
- Capital Contributions: The amount of capital each partner will contribute to the partnership and the mode of payment (cash, assets, etc.). It may also specify the timing of the contributions and any provisions for additional contributions.
- Profit and Loss Sharing: The ratio or percentage in which profits and losses will be distributed among partners. This section may also include provisions for salaries, interest on capital, and drawings by partners.
- Meetings and Voting: Procedures for conducting partnership meetings, including frequency, notice requirements, and quorum. It may also outline voting rights and procedures for making decisions within the partnership.
- Authority and Powers: The scope of authority and powers granted to each partner, including limitations and restrictions on their actions on behalf of the partnership.
- Duties and Obligations: The duties and obligations of each partner, such as fidelity, good faith, and loyalty to the partnership. It may also outline requirements for full-time commitment, non-competition, and confidentiality.
- Financial Matters: Guidelines for maintaining proper books of accounts, financial reporting, and the preparation of partnership financial statements. It may also include provisions for audits, bank accounts, and borrowing powers.
- Dispute Resolution: Mechanisms for resolving disputes among partners, such as mediation or arbitration, to avoid potential conflicts.
- Partnership Dissolution: Conditions under which the partnership may be dissolved, including withdrawal or retirement of partners, death or incapacity of a partner, or mutual agreement.
- Method of valuation of goodwill
- Admission and retirement procedure of a partner.
- Accounting procedure and audit of the firm.
- Amendments: Procedures for amending or modifying the partnership deed, including obtaining the consent of all partners and the legal formalities required.
CONSEQUENCES OF NOT HAVING PARTNERSHIP DEED
Suppose you didn’t draft a deed, when you go on about conducting business through this partnership, you realise certain important terms such as profit-sharing ratio among the partners, interest on capital and drawings of partner, interest on partners loan, and remuneration to be given to partner are missing. it really become difficult to conduct your business as there is no proper discipline or certainty about accounting now, this is where the Indian partnership act, 1932 comes in to play. This is what provisioning od partnership deed mean. when in the absence of partnership deed, the Indian partnership act 1932 will apply.
The Indian Partnership Act, 1932 is the governing law for partnerships in India. It outlines various provisions that regulate the formation, operation, and dissolution of partnerships. Here are some key provisions of the Indian Partnership Act:
- Definition of Partnership: A partnership is a form of business organization in which two or more individuals or entities come together to carry out a business venture with the aim of making a profit. In a partnership, the individuals or entities involved are known as partners, and they pool their resources, skills, and expertise to operate the business.
- Partnership Agreement: The Act recognizes that a partnership may be formed either orally or in writing. However, it is advisable to have a written partnership agreement to avoid disputes and clearly define the rights and obligations of partners.
- Mutual Rights and Duties: The Act specifies the rights and duties of partners towards each other. These include acting in good faith, sharing profits and losses as per the partnership agreement, contributing capital, and exercising mutual trust and confidence.
- Authority of Partners: Each partner is considered an agent of the firm and other partners. The Act defines the extent of the authority of partners to bind the partnership and outlines the circumstances where the acts of a partner can be binding on the firm.
- Partnership Property: The Act distinguishes between partnership property and personal property of partners. Partnership property includes assets acquired in the course of partnership business and is held in the name of the partnership.
- Liability of Partners: Partners in a general partnership have unlimited liability, which means they are personally liable for the debts and obligations of the partnership. Limited partners in a limited liability partnership (LLP) have limited liability as per the provisions of the Act.
- Shared Profits and Losses: Partnerships are characterized by the sharing of profits and losses among the partners based on the terms agreed upon in the partnership agreement.
- Retirement and Expulsion of Partners: The Act specifies the procedures for the retirement and expulsion of partners. It outlines the rights and liabilities of retiring or expelled partners, including the settlement of accounts and the release of liabilities.
- Dissolution of Partnership: The Act provides various grounds for the dissolution of a partnership, such as the expiry of the partnership term, completion of a specific venture, mutual agreement, death, insolvency, or lunacy of a partner. It also covers the settlement of accounts and the distribution of assets upon dissolution.
- Registration of Partnership: The Act makes it optional for partnerships to register with the Registrar of Firms. However, an unregistered partnership faces certain disadvantages, such as the inability to file a lawsuit against third parties or claim set-offs.
The process of provisioning a partnership deed involves several steps. Here’s a general outline of the process:
- Consultation and Planning: Before drafting the partnership deed, partners should have thorough discussions and consultations to establish the terms, conditions, and objectives of the partnership.
- Engage a Legal Professional: It is advisable to engage a qualified legal professional experienced in partnership law to assist in drafting the partnership deed.
- Drafting the Partnership Deed: The legal professional will draft the partnership deed based on the discussions and consultations with the partners. The deed will include provisions such as the name and address of the partners, capital contributions, profit sharing, management responsibilities, decision-making processes, dispute resolution mechanisms, and dissolution procedures.
- Review and Amendments: The initial draft of the partnership deed should be carefully reviewed by all partners. They should thoroughly examine the provisions and seek clarification on any areas of uncertainty or concern. If necessary, amendments or modifications can be made at this stage to ensure that the partnership deed accurately reflects the agreed-upon terms.
- Signing the Partnership Deed: Once all partners are satisfied with the content of the partnership deed, they can proceed to sign the document.
- Registration (Optional): While the Indian Partnership Act does not mandate the registration of partnerships, it is advisable to consider registration with the Registrar of Firms. Partnerships registered with the Registrar enjoy certain advantages, such as the ability to file a lawsuit against third parties and claim set-offs.
- Retaining Copies: It is essential for all partners to retain copies of the signed partnership deed for their records. These copies can serve as evidence of the partnership’s existence and the agreed-upon terms.
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