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?
- 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.
- 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
- 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
- Related to the partners
- Names and addresses of the partners
- Capital contributed by the partners
- Profit-Sharing Ratio among the partners.
- 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.
- 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.
- 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.
- Rules related to the dissolution of the partnership
- The mode of dissolution of the partnership
- Use of the decision of Garner vs Murray.
- Rules related to Settlement of Disputes among the partners.
Importance of partnership deed
- It defines the rights, duties, and responsibilities of the partners.
- It helps to avoid any type of misunderstanding among partners.
- 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. | Item | Treatment |
| 1 | Profit-Sharing Ratio | Equal |
| 2 | Interest on capital | No interest is allowed on capital. |
| 3 | Interest in Drawings | No interest will be charged on drawings. |
| 4 | Interest on loan | Interest rate 6% p.a.Allowed even in case of loss. |
| 5 | Salary or Commission | Not allowed |
| 6 | Admission of a new partner | By consent of all partners |
| 7 | Participation in the business | Each partner is allowed to participate in the conduct of the business. |
| 8 | Access to books of accounts | Each partner can inspect and take a copy of the books of accounts of the firm. |