One of the most common types of organisations for starting a new business is a partnership firm. An agreement that lays out terms and conditions between the partners of a firm is referred to as a partnership deed.
Partnership firms must have a clear understanding of the policies that govern them in order to run smoothly and successfully. This is accomplished by the partnership deed. The document specifies a variety of terms, such as profit/loss sharing, salary, interest on capital, drawings, and the admission of new partners, so that partners can understand the terms.
Despite the fact that partnership deeds are not mandatory, it’s always a good idea to have them in place to avoid disputes and litigation among partners. You can enter into an agreement with more than one partner. All partners must sign and stamp the agreement.
Features of a partnership
- A partnership is a contractual relationship between partners.
- Two or more partners are required to form a partnership.
- There is a sharing of profits and losses in predefined ratios amongst the partners.
Contents of partnership deed
The partnership deed includes the following details:
- Partners of the firm who will conduct business on behalf of the firm.
- Partnership Duration: Whether the partnership is for a limited period of time or a specific project.
- Share of profits/losses: Share of profits and losses of a business between partners.
- Paying partners their salaries and commissions, if any.
- Capital contribution: Each partner makes a capital contribution, and partners are entitled to interest on that capital.
- Partner’s Drawings: The company’s policy governing partner’s drawings permits each partner to pay interest, if any, to the company on such drawings.
- Partner’s Loan
- Duties & Obligations of partners
- A partner’s admission, death, or retirement
- Accounts & Audit
Is a partnership deed mandatory for the registration of a partnership firm?
Yes. To register a partnership firm, a true copy of the partnership deed must be filed with the Registrar of Firms. The Registrar of Firms must receive this document.
What is the process for creating a partnership deed?
The state registrar’s office issues partnership deeds on judicial stamp paper. A partnership deed must be created by all partners on a stamp paper in accordance with the Indian Stamp Act. The partnership deed must be signed by all partners, and each partner should have a copy. The partnership firm must be registered with the Sub-Registrar/Registrar Office of the jurisdiction where it is located. Registration makes the partnership deed legally enforceable.
Stamp duty on partnership deed
The Stamp Acts of the respective states prescribe the stamp duty to be paid to the Sub-Registrar at the time of partnership deed registration. Regardless of the stamp duty charges, the partnership deed must be notarised on a non-judicial stamp paper with a minimum value of Rs 200 or more.
Importance of a partnership deed
- Helps define the roles and responsibilities of all partners.
- Helps avoid conflicts between partners.
- No confusion regarding profit and loss ratio between partners.
Does an oral partnership deed have any validity?
An oral partnership deed is valid. But, it is practical to have a written partnership deed as it helps avoid future conflicts. In addition, a written partnership deed is required for tax purposes and registration of the partnership firm.