What is deed?
A Deed means a legal document signed and executed by parties containing some legal transfer and which defines rights and obligations of each parties and consequences of non-performing thereof.
Similarly, Partnership Deed is a written agreement between the parties to achieve common goals in respect of business and explains vital points which minimize the clashes and disagreements between the parties participating in a venture. In other words, a document which defines rights and obligation of each party to a business operation for conducting smooth business and which has the force of law and is primarily designed to guide partners in conducting business.
Partnership agreement may be oral or written. However, it is advisable that Partnership Deed/Agreement should be executed by all the parties to partnership Deed. The abandonment of this provision has shortened life of many partnership firms.
Partnership deed is not a public document like Memorandum of Article of a Company.
DRAFTING A PARTNERSHIP DEED
Section 58 of the Indian Partnership Act 1932, defines some of the contents which are to be included in a Deed of Partnership such as :
- a) Name of the Firm
- b) Nature of the business of firm
- c) Name of partners
- d) Principal place of business of the firm
- e) Names of any other place where Firm carries on business
- f) Dates on which each partner joined the firm
- g) Duration of the firm
In addition to above mentioned particulars, one should provide details of the following mentioned contents to avoid any discrepancy :
- h) Profit ratio
- i) Salary and commission
- j) Duties and obligations of partners
- k) Audit & Accounts
- l) Mode of valuation of goodwill in case of admission, retirement or death of a partner
- m) Arbitration Clause for resolving any dispute
- n) Arrangement if any partner becomes insolvent
Registration of Partnership Deed
Registration is not mandatory for Partnership Deed under Indian Partnership Act, however one should get it registered as it brings additional benefits to the firm. In case, Original Deed is misplaced, a copy will be retained in the Office of Registrar. Further, it shall grant rights to sue to other partners or any third Party.
Effects of Non-registration
Section 69 of the Partnership Act elucidates the effect of non-registration of firm. There are certain disadvantages attached to non-registration of Firm such as a partner of any unregistered firm cannot file any suit against firm or its partner for enforcement of any right arising out of the contract/agreement/Deed of Partnership. Further, the firm or any of its partner cannot file a suit against a third party to enforce a right which is arising out of the Partnership Deed. An unregistered Firm cannot file a case against its partners such as mismanagement, theft etc. Hence every firm finds it is advisable to get the firm registered sooner or later.
Procedure for registration
a) Capital Contribution- Most of the times, partnership is about money of one and brain of other, therefore it is advisable to clarify any disproportionate contribution in Deed. The agreement should also state how much money all the partners will put in. furthermore, there should be a clarification with respect to the situation if more money is required to expand the business. For eg, whether partners would invite more partners and in what manner?
b) Payout-It is advisable to incorporate this clause because many partners like to have their contribution back as soon as possible while others would like to re-invest their contribution in marketing or any other incidental work of the Firm. One should address in the Deed about what would happen to initial contribution if firm is profitable.
c) Decision Making- This is also an important clause to enter into agreement it would help in situations when there is no consensus.
d) Death and Disability- Bad things happen all the time. It is always better to be prepared for the worse and hope for the best. While drafting Partnership Deed, one must always deal with this Clause in elaborate manner. Partners should decide to who would inherit their shares, would nominee should be having any say in the business or can he be inducted as partner after death of the partner by entering into new deed. e) Dissolution- Disagreements bring dissolutions. This exit strategy has to be discussed at the very beginning of the partnership because reaching at unanimous decision at the time when arguments are at their peak would be a complicated and intricate task.
Note: This discussion is only for informational purpose. You should discuss it with your lawyer and obtain advice with respect to any issue.
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