PARTNERSHIP DEED

A Partnership Deed is a legal document that outlines the terms and conditions of a partnership agreement between two or more individuals who come together to run a business. This document serves as the foundation for the partnership, specifying each partner's rights, duties, profit-sharing arrangements, and other important aspects of the partnership. A well-drafted partnership deed helps avoid disputes among partners and ensures the smooth functioning of the business.

1. Key Components of a Partnership Deed:

A partnership deed typically contains the following elements:

A. Name of the Partnership Firm:

• The legal name of the partnership under which the business will be carried out.

• It can be a trade name chosen by the partners.

B. Details of the Partners:

• Names, addresses, and contact details of all the partners involved.

• Each partner's contribution to the firm, whether it be in the form of capital, assets, or services, should also be mentioned.

C. Nature of the Business:

• The type of business activities the firm will engage in, including its objectives and scope.

• The primary business operations should be defined to ensure clarity.

D. Date of Commencement:

• The date when the partnership officially starts.

• It is crucial to specify this date, especially if the partnership was formed at a particular time or for a specific project.

E. Duration of Partnership:

• The partnership can be formed for a fixed duration or for an indefinite period.

• If there is a specific end date or event after which the partnership will dissolve, it should be mentioned.

F. Capital Contribution:

• Each partner's contribution to the firm's capital should be clearly stated. Contributions can be in cash, assets, or even services.

• The percentage of each partner's ownership in the business is typically based on their capital contribution.

G. Profit and Loss Sharing Ratio:

• How profits and losses will be shared among the partners must be specified in the deed.

• Partners may choose to divide profits and losses equally or in proportion to their capital contributions or any other agreed ratio.

H. Interest on Capital and Loans:

• If partners are entitled to interest on their capital contributions or loans given to the firm, the rate of interest must be mentioned.

• The deed should clarify whether interest will be paid to partners on their capital contributions, regardless of the firm's profits.

I. Salaries and Other Remunerations:

• Any partner entitled to a salary, commission, or bonus for their active participation in the business should have this specified.

• The deed can also include terms for future salary increases or performance-based bonuses.

J. Rights and Duties of Partners:

• Each partner's role, authority, and duties in the day-to-day management of the business should be clearly defined.

• This section outlines the extent of decision-making powers that each partner holds and the responsibilities they must fulfill.

K. Admission of New Partners:

• The procedure for admitting new partners into the firm should be included.

• The consent of all partners is typically required before a new partner can be admitted.

L. Retirement, Resignation, or Expulsion of Partners:

• Terms for the voluntary retirement, resignation, or expulsion of a partner should be defined.

• The deed must also state the process for the valuation and settlement of accounts for a retiring or expelled partner.

M. Dissolution of the Partnership:

• Conditions under which the partnership will dissolve must be outlined.

• Procedures for settling debts, distributing assets, and managing any pending obligations upon dissolution should be specified.

N. Dispute Resolution:

• The procedure for resolving disputes between partners should be included in the deed.

• This could involve arbitration or mediation to avoid lengthy court battles.

O. Bank Accounts and Financial Matters:

• Details regarding the operation of the firm's bank accounts, including who is authorized to sign checks and manage financial transactions.

• The accounting method (cash or accrual) to be used, and the firm’s fiscal year-end should also be mentioned.

P. Auditing and Accounting:

• The deed should define how and when the firm's accounts will be audited.

• The accounting method to be used and the appointment of an auditor may also be included.

2. Registration of a Partnership Deed:

While partnership firms can operate without being registered, registering a partnership provides legal benefits. The process of registration is governed by the Indian Partnership Act, 1932. Although registration is not mandatory, it offers certain legal advantages, such as the ability to enforce rights against other partners or third parties in court.

Steps for Registration:

• Step 1: Drafting the Partnership Deed: Prepare the partnership deed, incorporating all necessary terms and conditions.

• Step 2: Stamp Duty: The partnership deed must be printed on non-judicial stamp paper, and the stamp duty applicable varies by state. The stamp duty should be paid as per the value of the capital contribution of the partners.

• Step 3: Application for Registration: Submit an application in Form 1 to the Registrar of Firms of the jurisdiction where the business is located.

• Step 4: Required Documents:

  • Partnership deed (original or certified copy)

  • Proof of identity and address of all partners

  • Proof of principal place of business (utility bill, lease agreement, etc.)

  • Application form and filing fee

• Step 5: Certification of Registration: Once the Registrar verifies the documents and approves the application, the partnership firm is registered, and a certificate of registration is issued.

3. Advantages of Registering a Partnership:

• Legal Recognition: A registered partnership is legally recognized, and the firm can sue or be sued in the name of the firm.

• Ability to Enforce Rights: A registered firm can enforce contracts and agreements in court. An unregistered firm cannot sue third parties or partners for enforcing claims.

• Settling Disputes: Disputes between partners or third parties are easier to resolve legally if the firm is registered.

4. Types of Partnerships:

A. General Partnership:

• All partners share equal liability and responsibility for the firm's debts and obligations.

• Partners are personally liable for the firm's debts, and their personal assets can be used to settle these liabilities.

B. Limited Partnership (LP):

• Consists of general partners and limited partners. General partners manage the business and are personally liable for its debts, while limited partners contribute capital but have limited liability.

• Limited partners are not involved in the day-to-day management and are only liable for debts up to the amount they invested.

C. Limited Liability Partnership (LLP):

• A hybrid between a general partnership and a corporation, where all partners have limited liability.

• In an LLP, partners are not personally liable for the firm’s debts beyond their capital contribution, and their personal assets are protected.

• LLPs must be registered with the Ministry of Corporate Affairs (MCA) and follow specific regulatory requirements.

5. Amendment of Partnership Deed:

• A partnership deed can be amended at any time if all partners agree.

• Any changes to the capital contribution, profit-sharing ratio, or other terms must be incorporated into the amended deed.

• It is advisable to register any amendment to the deed with the Registrar of Firms.

6. Duties and Rights of Partners:

A. Duties:

• Loyalty and Good Faith: Partners must act in the best interest of the firm and not engage in activities that conflict with the firm’s interests.

• Contribution to Losses: Partners must contribute to losses in the same ratio as they share profits unless stated otherwise in the deed.

• Participation in Management: Unless otherwise agreed, all partners have the right to participate in the management of the firm.

B. Rights:

• Profit Sharing: Partners are entitled to share profits based on the ratio mentioned in the partnership deed.

• Access to Books: Partners have the right to access and inspect the firm’s books of accounts at any time.

• Indemnification: Partners have the right to be indemnified for expenses or liabilities incurred while managing the firm’s affairs.

7. Termination and Dissolution of Partnership:

• A partnership may be dissolved voluntarily by the partners or by court order in cases such as insolvency, breach of agreement, or misconduct.

• Upon dissolution, the firm's assets are liquidated, debts are paid off, and any remaining assets are distributed among the partners based on their respective shares.

8. Tax Implications:

• Tax Treatment of the Firm: Partnership firms are taxed as separate entities. Profits are taxed at the firm's level, and the firm’s income is subject to tax as per the Income Tax Act, 1961.

• Partner’s Income: Partners receive a share of the firm’s profits, which is exempt from tax, but any salary, bonus, or commission received by partners is taxable under personal income tax.

9. Advantages of a Partnership:

• Ease of Formation: A partnership is relatively easy to form, requiring only a deed and, in some cases, registration.

• Shared Resources and Expertise: Partners bring together financial resources, skills, and experience for the benefit of the business.

• Flexibility in Management: Partners can structure the management and operation of the firm as per mutual agreement.

• Shared Risk: The risk and liabilities of the business are distributed among the partners, reducing the burden on a single individual.

10. Disadvantages of a Partnership:

• Unlimited Liability: In general partnerships, partners’ personal assets can be used to satisfy the firm’s liabilities.

• Potential for Disputes: Differences in opinion and conflict over management or profit distribution can lead to disputes between partners.

• Instability: A partnership may dissolve upon the death or exit of a partner unless specific provisions are made in the deed.

Summary:

A Partnership Deed is an essential document for any business partnership, clearly defining the roles, responsibilities, profit-sharing ratio, and other important terms of the partnership. While registration of a partnership is not mandatory, it offers legal benefits, including the ability to sue or enforce claims in court. Partnerships are easy to form and allow for shared management and financial responsibilities but come with potential risks such as unlimited liability in general partnerships. Properly drafting and maintaining a partnership deed can help avoid conflicts and ensure the smooth running of the business.

Procedure:-

1st Step – Collect all the Details information from the Partners and Check Title details from the Concern authority and then make/draft for WILL deed and finalize through the the Partners.

2nd Step: - Then submit to the Concern Sub Register Office for registration through Online or Offline and make registration on the fixed date in front of sub register with the presence of the Partners and two no’s witnesses.

3rd Step: - Then after Registration take the Registered Partnership deeds original copy from the Sub Register Office and give whole documents to the Partners.