Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The contract or the agreement that forms the basis of the relationship between the partners specifies the terms and conditions that bind the partners into the relationship. This agreement may be written or oral.
Thus, a Partnership Deed is the agreement between the partners, containing the various aspects agreed upon by the partners. It is sometimes also called as ‘Partnership Agreement’ or ‘Articles of Partnership’.
Contents of the Partnership Deeding clauses:
The partnership deed generally includes the follow
●Names of the partners of the firm and their addresses;
●The period for which the partnership has been established and the mode of dissolution of partnership;
●Capital contributed by each partner;
●Arrangement in relation to introduction of additional
●Arrangement in relation to drawings that can be made;capital;
●Arrangement in relation to interests to be paid on
●Arrangement in relation to loans given by partners to the firm;
●Arrangement in relation to charges on drawings and the relevant rates of interest;
●Aspects relating to salaries, commissions, etc., to be paid to partners;
●Ratio in which the profits and losses are to be shared among partners;
●Method of valuation of goodwill in case of admission or retirement of a partner;
●Rights and duties of partners;
●Name of the bank or banks where the business banking accounts should be maintained;
●Person or persons who are vested with the power to operate the bank accounts;
●The period after which the final accounts of the firm are to be prepared, whether yearly or half-yearly and the date on which accounts are to be closed every year;
● Person or persons responsible for accounting for the business transactions;
● Place where the books of accounts are to be kept;
●Whether the firm’s books will be audited or not? If so, the mode of auditor’s appointment;
● Method for settlement of disputes, in case of dispute among the partners;
●Any other matter which is deemed necessary to be incorporated in the deed.
Effects of Not Having a Partnership Deed
According to Indian Partnership Act, 1932, the following provisions are applicable in the absence of a partnership deed:
1.All partners will share profits or losses in equal ratio in the absence of a partnership deed.
2.No interest shall be given to partners on their capital in the absence of a partnership deed. In case, there is a partnership deed, which allows interest on capital, it shall be allowed in case of profit but not in case of loss in the business.
3.No interest shall be charged on drawings in the abSpence of a partnership deed.
4.No salary or commission shall be given to any partner in the absence of a partnership deed.
5.Interest on partners loan shall be given @ 6% p.a. In case of partnership deed, interest will be allowed at the agreed rate.