Success Roar Classes

Partnership Deed

Partnership Deed - Success Roar Classes

What is the Partnership Deed?

A written document that consists of the terms of agreement or rules relating to the partnership, is called Partnership deed.

  • It is also called “Articles of Partnership”.

What are the Features of Partnership Deed?

  1. Is it mandatory to make a partnership agreement? – It is not mandatory to have a partnership agreement? Partners can work without agreement among them. In such a case provisions of the Indian Partnership Act, 1932 will apply.
  2. What should be the form of such agreement?– A partnership agreement can be in oral or written form. It is not mandatory to have a written agreement. But to avoid any kind of misunderstanding among partners, it is always advisable to have a written partnership deed.

Content of Partnership Deed

  1. Related to the firm
    • Name and address of the firm
    • The type and nature of the business
    • Date of Commencement of partnership
    • Duration of partnership
    • Principle place of business
  2. Related to the partners
    • Names and addresses of the partners
    • Capital contributed by the partners
    • Profit-Sharing Ratio among the partners.
  3. Related to the various treatments
    • Rules related to the payment of interest on capital and its rate.
    •  How much amount the partners are entitled to withdraw for personal use. Interest on such drawings is chargeable or not and if yes then rate.
    •  Salary to the partners. (Payable or not if yes then amount)
    •  Method of valuation of goodwill in case of admission or retirement of a partner.
  4. Rules related to accounts of the firm
    • Accounting Period of the Firm- The date on which accounts shall be closed every year. Normally accounts are closed on 31st March every year.
    • Method of recording of firm’s accounts and the safe custody of the books of accounts and other documents of the firm.
    •  Bank Accounts -Whether the account in the bank will be opened in the firm’s name or some partner’s name? Who will have the right to sign the cheques?
    • Whether the firm’s books will be audited or not? If so, the mode of auditor’s appointment.
  5. Rules related to change in the constitution
    • Rules related to the admission of a new partner
    • Rules to be followed while settling the Accounts on Retirement/death-The manner in which the amount due on the retirement or death of a partner will be calculated and the manner in which it will be paid.
  6. Rules related to the dissolution of the partnership
    • The mode of dissolution of the partnership
    • Use of the decision of Garner vs Murray.
  7. Rules related to Settlement of Disputes among the partners.

Importance of partnership deed

  1. It defines the rights, duties, and responsibilities of the partners.
  2. It helps to avoid any type of misunderstanding among partners.
  3. In case of any misunderstanding or dispute among the partners, it provides the method or way to settle such a dispute. Hence this helps in the easy Settlement of disputes.

Rules applicable in the absence of Partnership Deed

S. NO.ItemTreatment
1Profit-Sharing RatioEqual
2Interest on capitalNo interest is allowed on capital.
3Interest in DrawingsNo interest will be charged on drawings.
4Interest on loanInterest rate 6% p.a.Allowed even in case of loss.
5Salary or CommissionNot allowed
6Admission of a new partnerBy consent of all partners
7Participation in the businessEach partner is allowed to participate in the conduct of the business.
8Access to books of accountsEach partner can inspect and take a copy of the books of accounts of the firm.

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