Understand the Partnership Deed and Its Elements

A Partnership Firm Registration hinges on the quality of the partnership. Being an essential document, it has several nuances that you have to keep in mind at the time of drafting. Therefore, this article will reveal to you the elements of the partnership deed to keep in mind when you try to incorporate a partnership firm in India.

But first, let us get a clear picture of partnership deed registration.

What is a Partnership Deed?

A partnership deed is the foundation document that governs a partnership entity. During the online registration of partnership or offline registration, this document plays a vital role in informing the State government about the nature of the partnership and the structure of the firm.

Simply put, this document assembles a clear picture of your business in front of state government.

Why is it important to draft the deed correctly?

If you don’t draft the deed correctly, you put the future of your business entity in jeopardy. Without it:

1. There is no proper structure when you finally obtain a partnership firm registration certificate. The powers and responsibilities of partners aren’t clearly defined.
2. The nature of the business venture isn’t clear to authorities.
3. The government of India doesn’t perceive you as a legitimate business entity.

If you want to be perceived as a business entity that can deliver on its promises, you must be careful about the details of the deed.

Elements of the Partnership deed?

Here are the elements of the partnership deed:

1. Name of your firm: Be vigilant when you provide the name of your firm. Use the correct words and make sure that each term is free from any mistakes
2. Details of all the partners: Provide the name and other details of all the partners involved in the partnership firm registration process.
3. Date of commencement of business: Provide the date when you plan to start your business. Make sure that you stick to it once you have established your firm.
4. Profit and loss sharing ratio: Provide comprehensive details about how you will share the profits that your firm generates.
5. Interest on capital payable to the partners of the firm: Provide the details of the interest your firm will pay to the partners depending upon their capital contribution.
6. The salary you intend to pay to the partners: Provide the details of the salary you want to pay to the partners.
7. Borrowing amount a partner is allowed to draw: Specify the maximum amount a partner has permission to draw from the partnership firm.
8. Accounting standard of the firm: Specify the accounting standard that you intend to follow post-partnership registration.
9. Mode of settlement of dues: Frame the procedure of settling the remaining amount of deceased partners of the firm.
10. Dispute settlement procedure: Provide details of the dispute settlement procedure you intend to follow for your partnership firm.

What happens if you do not adopt a partnership deed?

A partnership deed is essential to the process of partnership firm registration, but it is not “mandatory”. If you don’t adopt a partnership deed, then the following is going to be the structure of your partnership firm:

1. Profits and losses will be shared equally.
2. There won’t be any concept of salary.
3. Interest in capital won’t exist.
4. Drawing from, the partnership firm won’t draw interest.
5. Partners will get 6% interest on loans to the firm based on mutual agreements.

Conclusion

A partnership deed is a critical document for a partnership firm. Without it, the firm’s rule reflects the default rules of the partnership registration act. Therefore, make sure to draft a customized partnership deed when establishing a firm.

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.