Partnership Deed

A Partnership Deed is the most important document required while entering into a partnership. Although a partnership deed can be an oral or written, an agreement for partnership needs to be written. A Partnership Deed outlines the rights and responsibilities of all the parties to a business operation. It is designed to guide the partners for conducting the business.

Why is Partnership Deed required?

A Partnership Deed is needed in order to outline the rights, responsibilities and duties of all the parties to a business operation. It is designed to guide the partners for conducting the business. A Partnership Deed can also protect all the partners in case a partner dies, or in the event of a dispute, a sale to a new partner or even in the event of dissolution of business. A Partnership Deed spells out who exactly owns what percentage of business/share.

What should a Partnership Deed cover?

  1. The relevant personal details of the parties such as full name, residential addresses and ages of all the partners,
  2. Nature of business carried on,
  3. Date of commencement of business,
  4. Duration of partnership,
  5. Capital contribution,
  6. Profit and loss share ratio of each partner,
  7. Obligations, rights and duties of each partner,
  8. Salaries and commissions payable to each partner,
  9. Rules in case of death or retirement of partner,
  10. Interest on capital payable to partners,
  11. Extent of borrowings that a partner can draw,
  12. Preparation of accounts of firm,
  13. Procedure to be followed in case disputes arise between parties,
  14. Penalty clause explaining the details of what the penalty would be if a partner defaults in performing his/her duties as per the agreement,
  15. Clause stating the right to call off the deal,
  16. General clauses such as termination of agreement, applicable laws, arbitration clause, etc. and
  17. Date of signing of the deed.

Format for Partnership Deed

DRAFT OF PARTNERSHIP AGREEMENT

This Deed of Partnership is made at. on this . day of . by and between: Shri . aged about . years, son of Shri . resident of ………………………………………… (Hereinafter to be called the First Party); Shri . aged about . years, son of Shri . resident of ………………………………………(Hereinafter to be called the Second Party); Shri . aged about . years, son of Shri . resident of (Hereinafter to be called the Third Party); Shri . aged about . years, son of Shri . resident of (Hereinafter to be called the Fourth Party);

WHEREAS, the parties to this deed have been carrying on the business of . under the name and style of M/s. . with its principal place of business at . on the terms and conditions incorporated in the Partnership Deed executed on .

AND WHEREAS, vital amendments have been made by the Finance Act, 1992 in the procedure for assessment of firm. Consequent to the said amendment, the parties to this deed had a meeting and have orally and mutually agreed to amend and alter some of the terms and conditions contained in the aforesaid partnership deed with effect from ____.

AND FURTHER WHEREAS the parties to this deed have been carrying on the above said business in partnership on the terms and conditions orally and mutually agreed amongst themselves as aforesaid;

AND NOW WHEREAS, the parties to this deed desire that the terms and conditions on which they have been carrying on the above said business in partnership since . and propose to continue in future be reduced to writing to avoid future difficulties or misunderstanding.

NOW, THEREFORE THIS DEED WITNESSETH as under, incorporating the aforesaid amendment/ alteration in the terms and conditions of the partnership:

1. That the partnership business has been and shall continue to be carried on under the name and style of M/s. .

2. That the partnership business has been and shall continue to be that of . with its principal place of business at . The parties by mutual consent may carry on business at such other place or places, in such other name or names and of such other nature or natures, as they may deem fit and proper from time to time.

3. That the amount lying to the credit of the partners as on ______shall be deemed as their capital investment. Further capital, loans or deposits looking to the needs/requirements of the partnership firm shall be arranged, invested or contributed by the partners.

4. That interest at the rate of __ per annum or as may be prescribed under section 40(b)(iv) of the Income-tax Act, 1961 or any other applicable provisions as may be in force in the income-tax assessment of the partnership firm for the relevant accounting period or at a lower rate as may be agreed to by and between the parties from time to time shall be paid to the partners or credited to the partners on the amount standing to the credit of the account of the partners.Such interest shall be considered as an expenditure of the firm and shall be debited to the Profit & Loss Account of the firm before arriving at the divisible profit or loss. The interest to persons other than partners shall be paid or credited to their accounts at the rate or rates as may be agreed to by and between the partners and such persons from time to time.

5. That Shri . Shri . and Shri . the parties of the . parts have agreed to keep themselves actively engaged in conducting the affairs of the business of the partnership firm. The said partners shall be working partners. It is hereby agreed to that in consideration of the said parties keeping themselves actively engaged in the business of the partnership firm and working as working partners, shall be entitled to remuneration.

The remuneration payable to the said working partners shall be computed in the manner laid down or deduction under section 40(b)(v), read with Explanation 3 of the Income-tax Act, 1961 or any other applicable provision as may be in force in the income-tax assessment of the partnership firm for the relevant accounting year. Such amount of remuneration shall be distributed between the said working partners in the following proportion:

A. Shri . . per cent of such amount

B. Shri . . per cent of such amount

C. Shri . . per cent of such amount

The partners shall be entitled to increase or reduce the above remuneration and may agree to pay remuneration to other working partner or partners as the case may be. The partners may also agree to revise the mode of calculating the above said remuneration as may be agreed to by and between the partners from time to time.

6. That the parties hereto shall be true and faithful to each other and shall not do or cause to be done anything which may be detrimental to the interest of the firm.

7. That the parties shall keep or cause to be kept proper books of account and documents and shall make entries therein of all receipts, payments and other matters as is usually done and entered in the books of account kept by persons engaged in business similar to that of the firm. Each partner shall have a right to have access to and to inspect and take copy of the same.

8. That the partnership has been and shall be a partnership at will.

9. That the net profit of the partnership firm after deduction of all expenses including rent, salaries, other establishment expenses, interest and remuneration payable to the partners in accordance with this deed of partnership or any supplementary deed as may be executed by the partners from time, to time, shall be divided and distributed amongst the partners in the following proportion:

Sr. No. Name of Party Share in profits

The losses, if any, including loss of capital suffered in any year shall also be apportioned in the above said proportion.

10. That the bank account or accounts have been and shall be maintained in the name of the firm and shall be operated singly or jointly by the partners.

11. That the books of account shall be closed on 31st day of March each year. The net profit or loss after deducting all expenses, interest, remuneration, outgoings shall be divided between the parties in proportion to the sharing ratio referred to hereinabove.

12. That notwithstanding anything contained in the Indian Partnership Act it is hereby mutually agreed to by and between the parties that in case of death of any one or more partners, the firm shall not be dissolved but shall continue to be carried on by and between the surviving partners and legal heirs and/or representatives of the deceased partner, as a continuing concern, on the same terms and conditions as incorporated in this Deed or on such terms and conditions as may be agreed to by and between them from time to time. It is hereby further clarified that it shall be deemed as change in constitution and not succession.

13. That with respect to any matter connected with the affairs of the firm, which is not specifically provided for herein, the partners may make such agreements therefor and may set in such manner with regard thereto as may be agreed upon by and between themselves.

14. That if the partners deem proper and in their interest, they may admit any other person or persons as partners on the terms and conditions as may be mutually agreed amongst themselves.

15. That the partners to this deed are partners in their individual capacity/representing HUF styled as M/s. . The parties do not represent any other person.

16. All bonds, bills, notes, bills of exchange, hundies or promissory notes or other securities given on behalf of the partnership (except cheques) shall be signed, endorsed, accepted or executed jointly by all the partners and any bond, bill, note, bill of exchange, etc. to which any partner may be a party contrary to this provision shall be deemed to have been on the personal account of such partner and he shall pay and discharge the same out of his own moneys and indemnify other partners and the firm against payment thereof and against all actions, proceedings, costs, charges, expenses, claims and demands in respect thereof.

17. That the parties of . part are not working partners but are only financing, dormant and sleeping partners. The parties of . part need not be in charge of, responsible to the firm for the conduct of the business of the firm and need not take interest in day-to-day working and business of the partnership firm.

That the parties of the . part shall not be liable to any criminal action for the business or working of the partnership firm or for the acts of the other partners or its employees or its representatives for and on behalf of or on account of the partnership firm or for the purposes of the partnership firm. The said partners shall not be liable for any liability, civil or criminal, against the partnership firm or other partners.

That the said partners shall not become and shall not be liable for any criminal action for any default or offence committed by other partners or employees or authorised representatives of the firm under the Income-tax Act, Customs Act, Foreign Exchange Regulation Act, Sales tax Laws or other Central or State Acts, laws, Rules or Regulations.

18. That the partners shall be entitled to modify the above terms relating to remuneration, interest, etc. payable to partners by executing a supplementary deed and such deed when executed shall have effect unless otherwise provided from the first day of accounting period in which such supplementary deed is executed and the same shall form part of this deed of partnership.

19. That all disputes and questions in . connection with the partnership or this deed arising between the partners or between any one of them or their legal representatives and whether during or after the partnership, shall be referred to the arbitrator in accordance with the provisions of the Arbitration and Conciliation Act, 1996 then in force.

IN WITNESS WHEREOF the parties to this deed have set their hands on the day and year first above written and in the presence of:

First Party Second Party

Third Party Fourth Party

Documents Required for Partnership Deed

There are no specific documents required for the drafting and execution of a Partnership Deed. However, ID proofs of the partners in order to confirm the names and permanent addresses of the parties should be scrutinised. Documents evidencing clear title of the properties/businesses etc. must also be examined. The partners should be trustworthy and documents for a thorough background check of each partner should be scrutinised. Bonafide documents regarding shares of the partners may also be needed.

Procedure for Partnership Deed

No set procedure is applicable in the making of a Partnership Deed. However, once the agreement has been drafted by a lawyer, it should be specifically and carefully read by the partners to the Partnership Deed. Any necessary changes required to be made shall be carried out and once the agreement is finalised, it shall be signed by the partners along with the requisite witnesses. The Partnership Deed has evidentiary value when it is printed on proper stamp paper and signed by both the parties. The stamp paper value depends on the particular State in which it is executed. Each party should thereafter keep a signed copy of the Partnership Deed.

Legal Considerations for Partnership Deed

Partnerships in India are governed by the Partnership Act 1932. The Partnership Deed created by and between the partners is required to be stamped properly, in accordance with the Indian Stamp Act. Each partner should also have a copy of the partnership deed. A copy of the partnership deed must be filled with the registrar of the firm if it is being registered. Even though it is not mandatory to register a partnership firm, it is recommended to register the same due to the several benefits that registration offers.

How can a lawyer help to draft Partnership Deed?

One of the first and the most important steps that you must undertake is to hire a good documentation lawyer as he/she is aware of the nitty gritty of the legal procedures and necessary requirements involved in drafting a Partnership Deed. A lawyer would draft a Partnership Deed since a lawyer has the necessary legal knowledge and experience to handle and draft such documents. He/She will be able to guide you and draft for you according to your particular situation - the facts, circumstances and needs involved. A documentation lawyer is aware of good drafting technique and the clauses that must be included in your agreement. Hiring a good lawyer in order to draft such important legal documents is a prerequisite and will help you in more ways than one.