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What is Partnership Deed?
A partnership deed is a legal document that outlines the terms and conditions governing the relationship between partners in a business partnership. In India, it is a vital document that helps prevent disputes by clearly defining the rights, duties, profit-sharing ratios, and responsibilities of all partners. Although it is not mandatory to register a partnership deed, doing so adds legal validity and facilitates smoother resolution of disputes in court.
The process of drafting a partnership deed involves mutual agreement among the partners on key aspects of the business. It typically includes details like the firm’s name, business address, capital contribution by each partner, profit and loss sharing ratio, rules for the admission of new partners, dispute resolution mechanisms, and the procedure for dissolution of the partnership. The deed must be written on stamp paper of appropriate value as per the state laws, and in most cases, it is advisable to register it with the Registrar of Firms.
A well-drafted partnership deed ensures clarity and smooth functioning of the partnership business. For reference, you can see the sample draft provided.
Law Governing Partnership Deeds in India
In India, partnership deeds are governed by the provisions of the Indian Partnership Act, 1932. This Act establishes the legal framework for the creation, operation, and regulation of partnership firms. It defines the key aspects of a partnership, such as the mutual rights and duties of partners, and provides mechanisms for dispute resolution and the dissolution of firms.
Under Section 4 of the Indian Partnership Act, 1932, a partnership is defined as a relationship between individuals who agree to share the profits of a business carried on by all or any of them acting for all. While both oral and written agreements are recognized, a written partnership deed is strongly recommended for clarity and legal enforceability. According to Section 5 of the Partnership Act, a partnership is not created by status but by contract. Therefore, having a well-drafted partnership deed becomes crucial for any business venture. In this blog, I will guide you through the process of making a partnership deed step-by-step.
The execution of a partnership deed must adhere to the applicable state stamp duty laws as prescribed by the Indian Stamp Act, 1899. Additionally, although registering the partnership firm with the Registrar of Firms under the Indian Partnership Act, 1932, is not mandatory, it is crucial for accessing legal remedies in case of disputes.
Drafting a partnership deed in compliance with these laws ensures legal recognition of the partnership and protects the interests of all partners involved.
Sample Draft of Partnership Deed
PARTNERSHIP DEED
This agreement of partnership is made and executed as on the 27th day of October 2023 at Dehradun between:
Mr Aditya Singh S/o Mr. Paras Singh R/o Prem Nagar, Dehradun (hereinafter the party of the FIRST PARTNER)
AND
Mr Boni Kapoor S/o Shahid Kapoor R/o Kandoli Chowk, Dehradun (hereinafter the party of the SECOND PARTNER)
AND
Mr Prakhar Chatterjee, S/o Sumit Chatterjee R/o Pondha, Dehradun (hereinafter the party of the THIRD PARTNER).
All are adults and, on the terms, and conditions set forth as under
WHEREAS all the parties have mutually decided to start a business firm for doing the business of Hotels, Hostels, Restaurants and PGs under the name and style of “M/S SKC”
AND WHEREAS with a view to define their relationship and record their rights and obligations, it is deemed desirable to reduce in writing the terms and conditions of the partnership, so as to avoid any possible dispute in the future.
THE PARTIES ABOVE NAMED MUTUALLY AGREED THAT-
- The name of the partnership shall be “M/S SKC”
- The business of the firm will be to construct and allocate the services of Hotels, Hostels, Restaurants and PGs.
- The partnership shall commence from the 4th day of December.
- The partnership shall continue for 5 years unless determined earlier by notice in writing by any party to the other parties.
- The business of the partnership firm shall be carried at Dehradun or in such other place or places as may be mutually agreed upon between the parties in the future.
- The capital of the partnership shall be Rs 25,00,00,000/- (Rupees Twenty-Five crores only) which shall be contributed in equal shares by the parties. Any additional fund advanced by any party to the partnership firm named above shall carry interest @ 12 % per annum.
- The loan if taken by any partner in the interest of carrying business will be considered as the liability of the firm to repay the loan amount.
- The share of the parties in the profit and losses of the firm shall be equal.
- That proper and regular accounts of the affairs and transactions of the partnership shall be maintained and kept at the principal place of business and 6 monthly (six-monthly) profit and loss accounts and the balance sheet shall be prepared under the supervision of all the parties and shall be signed by each party, who shall be bound thereby.
- That minor can also be appointed as a partner if agreed by the majority of the parties in the firm.
- That no partner shall carry on his own business which is identical or similar to the business of the partnership firm. Each partner shall devote his whole time diligently to the affairs and business of the partnership as aforesaid.
- That in case of death of a partner the business of the firm shall continue. In other words, the death of the partner shall not operate as a dissolution of the partnership. The Legal Representative or heir of the deceased partner shall have a right to substitute him in place of the deceased as a new partner.
- That any dispute which may arise out this partnership shall be referred for adjudication to the arbitrator appointed with the consent of all the partners or by Court and the decision of the arbitrator so appointed to decide the dispute between the parties shall be final and binding on all parties and legal representative.
- That the dissolution of the firm can be done on completion of the time period or before if mutually agreed by all the partners. If the firm is not doing the object of the business, then it can be dissolved anytime if the majority of partners agree with it.
- That out of the monthly profits of the business, the financial burdens of the firm shall be meted out first and the remaining funds shall be utilized in carrying out the regular affairs of the partnership business and lastly the remaining surplus amount shall be distributed as profit among the partners equally. If in a month no profit arrives at the firm or the partners, it shall be joint and several obligations of the partners to carry on the business of the firm without break or intervals.
IN WITNESS WHEREOF the parties above-named have signed this deed of partnership in the presence of the witnesses and the witnesses have also signed this deed before the partners on the 27th day of October 2023 at Dehradun.
SIGNATURE OF PARTNERS
1. Aditya Singh
2. Boni Kapoor
3. Prakhar Chaterjee
Witnesses
1. Jeet Sinha
2. Samay Singh
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