Sunday, 17 July 2022

Partnership deed

                                         Partnership deed

A partnership is a kind of business where a formal agreement between two or more people is made. They agree to be co-owners, distribute responsibilities for running an organisation and share the income or losses that the business generates. These features of partnerships are documented in a document which is known as partnership deed. A partnership deed is a legal agreement when two or more than two people come together to run an enterprise. This document mentions all the essential terms and conditions related to the business, such as profit/loss sharing, obligations, admission of new partner’s, decided rules, salaries, exit process, etc. 

       This document plays a vital role, and if the firm ends up in a courtroom for some reason, it can be served as a legal document. A Partnership deed, also known as the Partnership Agreement, is registered under the Indian Registration Act 1908, so there's no risk of the Deed of partnership being destroyed in possession of the partners. Also, registration of the partnership deed provides several benefits such as - it makes the organization eligible for PAN, opening of bank account, helps in obtaining GST registration or FSSAI licence in the name of the organization. 

       The Partnership comes into the limelight when There is an outcome of agreement among the partners, also when the agreement can be either in written or oral form and when the Partnership Act does not demand that the agreement has to be in writing. Wherever it is in the form of writing, the document, which comprises terms of the agreement is called ‘Partnership Deed.’ It usually comprises the attributes about all the characteristics influencing the association between the partners counting the aim of trade, the contribution of capital by each partner, the ratio in which the gains and losses will be divided by the partners and privilege and entitlement of partners to interest on loan, interest on capital, etc.

     Partnership Deed is important because it controls and monitors the rights, responsibilities and liabilities of all the partners and Avoids dispute between the partners. And Avoids confusion on profit and loss distribution ratio among the partners. Individual partner’s responsibilities are mentioned clearly. Partnership deed also defines a remuneration or salary of the partners and working partners. However, interest is paid to each partner who has invested capital in the business.


There are also different types of partnership such as:

 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.


Documents Required for partnership deed:

 1. Form No. 1 (For registration under Partnership Act) 

2. Signed Original copy of Partnership Deed by every partner

3. Affidavit that declares the interest of an individual of becoming a partner.

4. Property’s rental or lease agreement All the existing partnership firms are registered under the law governing partnerships in India that comes under the Indian Partnership Act, 1932. 

       After registering as a partnership firm, all the partners are required to sign and date the partnership deed. This signed document needs to be witnessed by an individual above 18 years of age who shall not be among the partners or members (excluding spouses or family members of any partner). A copy of the partnership deed should be kept with each and every partner of the firm. This deed ensures the defined roles and responsibilities of each partner. It supports in evading unrequired misunderstanding, harassment, or conflict between the partners.




Partnership Deed Registration Process:

Although having a partnership deed is not mandatory, it is advisable to get it as it helps 

regulate each business partner's rights, duties, and liabilities. According to the Indian 

Partnership Act 1932, there is no specific duration to register a partnership firm. After the 

consent of all the partners, the company can either be registered at the time of its 

establishment or after its commencement. Here's the stepwise process:

1. Application to the Registrar of Firms in Form A with all the vital information about the 

Firm.

2. A signed copy of the agreement that specifies all the rules and policies must be filed with 

the registrar.

3. Pay the affidavit fee, stamp duty charges, and other essential charges.

4. After the registrar approves the registration application, the company name is added to the 

government records, and the partners can collect the incorporation certificate.


    And lastly there are accounting rules that apply if the business partners fail to get the Partnership deed. All the partners are accountable for sharing the profit/loss regardless of the conditions, and Partners are not liable to receive a fixed salary at regular intervals. With this the drawings made by any of the partners will not be charged with interest.


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