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How to draft a Partnership Deed

A partnership deed is a document in which the respective rights and obligations of the members of a partnership are written. The partnership deed may be oral or written and is not necessarily required to be registered. However, registering the deed helps when disputes arise as partners can sue and be sued as per the terms of the deed.

By: Naman Gujral, Delhi Metropolitan Education.

Introduction

A partnership is a unique form of business in which partners work together to achieve common goals. Due to this feature of partnerships, the partners are allowed to decide the terms of their relationship with each other. In India, many people tend to work together in a partnership rather than being the sole proprietor and agree on some terms that they will share in the business between them. The documents in which they do so are called partnership deeds.

In India, Partnerships are governed by the Indian Partnership Act, 1932.

The Indian Partnership Act, 1932 governs the partnership form of businesses in India. This act contains several provisions defining the rights, duties, liabilities, and powers of partners. These provisions, however, are not always binding on them. Partners are free to bind themselves with contrary provisions. Partnership deed does not have to be mandatorily registered unlike the article of association of companies.

However, registration can ensure the prevention of legal challenges to its validity when disputes arise. 

How to create a Partnership Deed?

The document in which the respective rights and obligations of the members of a partnership are written is called the Partnership Deed.

A partnership deed agreement may be written or oral.

However, practically, an oral agreement does not have any value for tax purposes and therefore the partnership agreement should be written.

The following are the essential characteristics of a partnership deed:-

  • Name and Address of the firm as well as 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
  • The profit-sharing ratio among the partners

The above-mentioned are the minimum essentials that are required in all partnership deeds. The partners may also mention any additional clauses. Some of the examples of additional clauses which may be mentioned in the partnership deed are mentioned below: –

  • The interest on Partner’s Capital, Partners’ Loan, and Interest, if any, to be charged on drawings.
  • Salaries, Commissions, etc, if any, payable to partners
  • Method of preparing accounts and arrangement for audit
  • Division of task and responsibility i.e. the duties, powers, and obligations of all the partners.
  • Rules to be followed in case of retirement, death, and admission of a partner.

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