All About a Partnership Deed

What is Partnership?

A Partnership Firm is a business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in the Partnership Deed. It is an important document that outlines in detail, the powers, duties, rights, and responsibilities of all the Partners.

Convert:  sole proprietorship firm in to Partnership Firm

Whats is Partnership Deed?

The documents in which the respective rights and obligations of the partners are written is called the partnership deed. It may be written or oral. However, practically Oral agreement does not have any value for tax purpose and there for partnership agreement should be written.

The essential characteristics of a well drafted Deed

• Name and Address of the Partnership firm and 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

Major Benefits or importance of Partnership Deed

Having a proper deed provides a legal responsibility between partners of the firm.  However, it need not be registered. Hence, you can run an unregistered partnership firm as well.
Following are some points to prove Importance of partnership deed:

• It regulates the rights, duties, and liabilities of each partner.
• It helps to avoid any misunderstanding between the partners because all the terms and conditions of the partnership have been laid down beforehand in the deed.
• Any dispute between the partners may be settled easily as the partnership deed may be readily referred to.
• It clears confusion as to what should be the profit and loss sharing ratio between partners.
• It clearly mentions who does what. Individual partner’s roles can be defined.
• Partnership deed can also contain clauses which clarifies what should be remuneration (salary) to partners. Usually, remuneration is paid to working partners. However, interest payment is done to all partners who have brought in capital in the business.

Hence, it is always the best course to have a written document instead of oral agreements.

Recommended Quick Read: Advantages of Partnership Firm over a private limited company

EbizFiling will help you to draft a deed which will keep all ambiguities away and set rights and responsibilities of partners in a partnership firm.

If you wish to get started with a more organised form of organisation, you may also opt for LLP Registration or Private Limited Company Registration.