Partnership Deed and its Contents
Though a partnership agreement need not necessarily be in writing, it is important to have a written agreement in order to avoid misunderstandings; it is desirable to have a written agreement. A carefully drafted partnership deed helps in ironing out differences which may develop among partners and in ensuring smooth running of the partnership business. It should be properly stamped and registered.
i. Name of the Firm
ii. Nature of the proposed business
iii. Duration of partnership
Duration of the partnership business whether it is to be run for a fixed period of time or whether it is to be dissolved after completing a particular venture.
Iv. Capital contribution
The capital is to be contributed by the partners. It must be remembered that capital contribution is not necessary to become a partner for one who contributes his organising power, business acumen, managerial skill etc., instead of capital.
v. Withdrawal from the firm
The amount that can be withdrawn from the firm by each partner.
vi. Profit/loss sharing
The ratio in which the profits or losses are to be shared. If the profit sharing ratio is not specified in the deed, all the partners must share the profits and bear the losses equally.
vii. Interest on capital
Whether any interest is to be allowed on capital and if so, the rate of interest. If the deed is silent on interest on capital, the rules for interest on capital in partnership act will take effect.
viii. Rate of interest on drawing
Whether any interest is to be allowed on drawing, the rate of interest is to be specifird
ix. Loan from partners
Whether loans can be accepted from the partners and if so the rate of interest payable thereon.
x. Account keeping
Maintenance of accounts and audit.
xi. Salary and Commission to Partners
Amount of salary or commission payable to partners for their services. (Unless this is specifically provided, no partner is entitled to any salary).
Matters relating to retirement of a partner. The arrangement to be made for paying out the amount due to a retired or deceased partner must also be stated.
xiii. Goodwill valuation
Method of valuing goodwill on the admission, death or retirement of a partner.
xiv. Distribution of responsibility
The work that is entrusted to each partner is better stated in the deed itself.
xv. Dissolution procedure
Procedure for dissolution of the firm and the mode of settlement of accounts thereafter.
xvi. Arbitration of dispute
Arbitration in case of disputes among partners. The deed should provide the method for settling disputes or difference of opinion. This clause will avoid costly litigations.