A partnership is the kind of business where formal agreement is made between two or more individuals. They agree to be co-owners as well as distribute responsibilities for running an organisation and share the income or losses which their business shall generate. The features of partnerships will be documented in a contract known as the partnership deed.
What is a Partnership Deed?
Partnership deed will be an agreement between the partners of the firm outlining the terms and conditions of the partnership between the partners. The purpose behind signing a partnership deed is to have a clear understanding of the roles of every partner, therefore ensuring a smooth running of the operations of the firm.
Advantages of a partnership deed-
It would help in regulating the liabilities, rights and duties of the partners.
It shall also help in avoiding misunderstandings between the partners by having all the terms and conditions written and accepted beforehand.
Partnership Deed
Business generalities- The agreement has to start with the name of the business, legal structure as including the location of the business i.e. under which state’s jurisdiction such business shall be governed.
Business operations- provides for the partnership purpose and an explanation should be given for the activities the business would or would not get engaged in, should be explained in the business experiment as well. and will not engage in.
Ownership stake- In the business partnership agreement, along with the partners' rights and obligations, it should be stated what portion of the company each partner owns.
Decision-making process- The partnership agreement outlines how decisions shall be made. The responsibility of each partner as well as how the decisions are to be made in the particular business shall be included in the agreement. Decisions such as who will have the financial control of the company and who would approve the addition of new partners in the partnership will be included in the agreement.
Liability- If the business partnership is set up as an LLC, the business partnership agreement would have to limit the liability which each partner will face in the event a lawsuit has been filed against the business. In order to do so in an effective manner, the partnership agreement will have to be paired with other documents. A mere business partnership agreement alone, in such a situation may not be enough to protect the partners from liability in a complete manner.
Dispute resolution- A business partnership agreement must include a dispute-resolution process. Even when the business is being operated amongst family manners or best friends, disagreements are common in business.
Business dissolution-when one or more partners decide to dissolve their business, their business partnership agreement must outline as to how such dissolution shall occur. It must explain the procedures for partners to join or leave their partnership. It will have to outline continuity or any succession planning for when partners decide to leave the business.
A partnership deed must also include the clause describing how the partnership’s finances will be managed.
Registration of Partnership Deed:
A few essential characteristics of a partnership deed are:
The name of the Partnership firm.
Name and addresses of the partners.
Nature of the business of the partnership.
The term or duration of the partnership.
The amount of capital which shall be contributed by each partner.
The drawings which could be made by each partner.
The interest which shall be allowed on capital and charged on drawings.
Rights of the partners.
Duties of the partners.
Remuneration to partners.
The method which shall be used for calculating goodwill.
Profit and loss sharing ratio
Contents of the Partnership Deed
While drafting a partnership deed, all provisions and the legal points related to the partnership shall be included. This deed would also include the basic guidelines for future projects and could be used as evidence at times of conflict or legal procedures. For a general partnership deed, the information mentioned below shall be included.
Name of the firm has been determined by all partners.
Name and details of all the partners of the firm.
The date on which business had commenced.
Duration for the firm’s existence.
Amount of capital contributed by each partner.
Profit sharing ratio between the partners.
Duties, obligations and power of the partners of the firm.
The salary and commission if applicable that shall be payable to the partners.
The process of admission or retirement of the partner.
The method which had to be used for calculating goodwill.
The procedure that shall be followed in cases of dispute arising between the partners.
Procedure for situations where the partner has become insolvent.
Procedure related to the settlement of accounts in the case of dissolution of a firm.
Importance of partnership deed
Advantages of a well-drafted deed have been enlisted:
A partnership deed controls and monitors the rights, responsibilities as well as liabilities of all the partners of the partnership deed
A partnership deed avoids dispute between the partners.
Partnership deed avoids confusion on the ratio of profit and loss distribution amongst the partners.
Individual partner’s responsibilities have been mentioned clearly.
Partnership deeds would also define remuneration or salary of the partners and working partners.
Conclusion
Partnership deeds help define as well as legalise the relationship between different partners and includes their rights as well as responsibilities. The partnership deed would help explain the liability of the partner and would also help resolve these issues. As can be understood from the above discussion, though a partnership agreement could be created by the respective parties personally, it is important that the involved parties at least get those documents reviewed by an experienced advocate.
Lead India offers you a team of experienced advocates who could help you draft as well as review such agreements. In case you wish to seek free legal advice online or talk to a lawyer for matters related to civil suits or for any other matter, you may contact us.
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