[ecis2016.org] Here is all you need to know about a partnership deed
What is partnership deed?
Among the many legal options available to entrepreneurs to start a business, is a partnership firm. A partnership deed is that documentary proof which binds one professional partner with another.
You are reading: Partnership deed: All you need to know
Partnership deed meaning
To summarise the future working pattern and nature of the partnership, the partners in a firm must execute a partnership deed, which is a registered legal documents that clearly states the rights and obligations of each party involved in the partnership.
Partnership deed registration
As mentioned already, a partnership deed must also be registered with the sub-registrar to have a legal validity and be binding on all parties concerned. The parties will also have to pay a stamp duty, to get the partnership deed registered.
At the outset it also begs a mention that while it is incumbent upon the partners to get the partnership deed notarised, it is in their best interest to get the partnership deed registered before a magistrate. This provides the document the legal backing – an important contract of this nature must have legal enforceability.
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Partnership deed: Legalities
A partnership deed is an agreement between the partners of an enterprise that establishes the nature, character and the terms and conditions of a business partnership. It also specifies the terms pertaining to profit-sharing, salaries, liabilities of the partners, exit process, admission of new partners, etc. and thus, could be termed as the business blueprint.
According to Section 4 of the Partnership Act, 1932, a partnership deed is ‘an agreement between persons who have agreed to share profits of the business carried on by all or any one of them acting for all’.
While business partners can form joint ventures, without creating a written document, legally speaking, it is necessary to get a deed drafted, considering the complexities involved in business dealings.
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Partnership deed contents
Even though the format of a partnership deed can vary, in the absence of any predetermined standard, the document should broadly cover the following details:
- Details of business.
- Duration of the partnership.
- Details of salaries and commission.
- Profit/loss sharing ratio among the partners.
- Monetary contribution by partners and interest on said capital to be paid to partners.
- Details of partners’ drawings.
- Rights and duties of partners.
- Policies for admission, retirement and exit of partners.
- Details of loans.
- Details of accounts.
Partnership deed format sample
Here is a sample format for a partnership deed:
DEED OF PARTNERSHIP
This deed of partnership is made on (date, month and year] between:
- Name of the first partner, Son of (father’s name), residing at (full address] hereinafter referred to as FIRST PARTNER.
- Name of the second partner, Son of (father’s name), residing at (full address] hereinafter referred to as SECOND PARTNER.
Whereas, the parties hereto have agreed to start business in partnership, and it is expedient to have written instrument of partnership. Now this partnership deed witnesses as follows:
Business activity
The parties here to have mutually agreed to carry on the business of (Description of the proposed business activity).
Place of business
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The principal place of the partnership business will be situated at (Address Line 1, Address Line 2, City, State, Pin Code)
Partnership duration
The duration of the partnership will be (time frame, if any)
Initial capital
Initially, the capital of the firm shall be Rs. (partnership contribution share wise)
Profit/loss-sharing ratio
The profit or loss of the firm shall be shared equally among all the partners and transferred to partner’s current account. (Mention otherwise if the profit-sharing ratio is not equal for all partners.)
Management
Both partners of the firm shall be managing partners and they will look after all the day–to-day transaction of the firm.
Operation of bank accounts
The company shall open a current account in the name of [Partnership Firm Name] at any bank and such account shall be operated by [First Partner] and [Second Partner] jointly as declared from time to time to the banks.
Borrowing
The written consent of all partners will be required for the partnership to avail credit facilities from any financial institution.
Accounts
The firms shall regularly maintain in the ordinary course of business, true and correct accounts of all its transactions and also of all its assets and liabilities, the property books of account, which shall ordinarily be kept at the firm’s place of business. The accounting year shall be the financial year from 1st April onwards and the balance sheet shall be properly audited and the same shall be signed by all the Partners. Every Partner shall have access to the books and the right to verify their correctness.
Retirement
If any partner shall at anytime during the subsistence of the partnership, be desirous of retiring from the firm, it shall be competent from his to do so, provided he shall give at least one calendar month notice of his intention of doing so. The remaining partner shall pay to the retiring partner or his legal representatives of the deceased partner, the purchase money of his share in the assets of the firm.
Death of partner
In the event of the death of any partners, one of the legal representatives of the deceased partner shall become the partner of the firm and in the event the legal representative show their denial to point the firm, they shall be paid the part of the part of the purchase amount calculated as on the date of the death of the partner.
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Arbitration
Whenever there by any difference of opinion or any dispute between the partners the partners shall refer the same to an arbitration of one person. The decision of the arbitration so nominated shall be final and binding on all partners, such arbitration proceedings shall be governed by Indian Arbitration Act, which is in force.
In witness whereof, this deed of partnership is signed sealed and delivered this [Day, month, year] at [City, State]:
FIRST PARTNER SECOND PARTNER
[Address Line 1] [Address Line 1]
[Address Line 2] [Address Line 2]
[City, State, Pin Code] [City, State, Pin Code]
WITNESS ONE WITNESS TWO
[Address Line 1] [Address Line 1]
[Address Line 2] [Address Line 2]
[City, State, Pin Code] [City, State, Pin Code]
Registration of partnership deed
While it is not mandatory to register a partnership deed, partners must get this document registered to make it legally enforceable. As there is no value attached to the partnership as such, the partners are required to pay only a nominal court fee and stamp duty, for the registration of the partnership deed. Each partner has to submit an affidavit on a stamp paper of Rs 10, iterating their intention to enter into a partnership. On the application form, court fees stamp of Rs 3 must also be affixed.
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Documents needed for partnership deed registration
Among the documents required to register a partnership deed are:
- Application form in the prescribed format.
- Partnership deed.
- Affidavit of acknowledgement of all the details mentioned and attested by notary.
- Office address proof.
- Identity proofs of the partners.
- Address proofs of the partners.
- Photographs of the partners.
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Stamp duty on partnership deed
The stamp duty on partnership deeds has to be paid under Section 46 of the Indian Stamp Act, 1899. Even though stamp duty charges differ across states, the deed has to be notarised on a non-judicial stamp paper with a minimum value of Rs 200 or more. These charges need to be paid to the sub-registrar.
In Delhi, the minimum stamp duty payable on a partnership deed is Rs 200. The minimum stamp duty in Mumbai, payable on a partnership deed is Rs 500. In Bengaluru, Rs 500 must be paid as the stamp duty, if the capital of the firm exceeds Rs 500. In Kolkata, too, the deed has to be printed on a stamp paper of Rs 500.
Under Article 44 of Schedule I to the Gujarat Stamp Act, 1958, stamp duty on partnership deed is 1% of the partnership capital, subject to a maximum of Rs 10,000.
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FAQs
What is a partnership firm?
Partnership firm is managed by two or more partners, whose purpose is to run a business and share profits.
What is the validity of stamp paper bought for partnership deed registration?
The stamp paper meant for the execution of the partnership deed should not be older than six months of the date of issue of such stamp paper.
Is it necessary to form a partnership firm through a document?
Although it is not mandatory, a deed must be executed to have clarity about the nature of the partnership. While the charges vary across states, stamp duty of Rs 200 has to be paid if the capital of the firm does not exceed Rs 500 and Rs 500 if the capital exceeds Rs 500 for the document.
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