Partnership Deed

Partnership Deed Explained:

A partnership deed is one other name for a partnership agreement. It is, in short, a written document that exists between persons or companies who team up to start a business venture. It represents a legally binding contract specifying each party's rights and obligations as well as their percentages of the venture. In India, and specifically under the Indian Registration Act 1908, the partnership deed registration is actually done for authentication purposes as well as for the safekeeping and validation of the deed.

Types of Partnerships:

Each time business partners come together, they usually draw up a partnership deed. A partnership deed is a simple document that describes how they'll work together. There are several ways to structure partnerships based on which way the partners want to run a business. There are the following main types:

1. General Partnership: A general partnership involves two or more people coming together for a business. All the members share equal rights and obligations. Any one member of the group can make decisions on behalf of all members. Everyone shares the fruits of profit equally. Each member has equal responsibility for the liabilities/debt or the problems faced.

2. Limited Partnership: In this type of partnership agreement, one partner has more responsibility and risk (unlimited liability), while the other or the others have less responsibility (limited liability). Those with limited liability do not usually manage day-to-day tasks or make significant decisions.

3. LLP: The liability of each member is proportionate to the amount that he has invested in the business. Good news: The debts of the businesses are not personal.

Key Elements of Partnership Deed:

A comprehensive partnership deed should contain the following:

•  Business purpose and principal place.

•  Duration of partnership.

•  Capital contributions and withdrawal procedures.

•  Profit/loss distribution.

•  Provisions for admitting new partners or existing ones exiting.

•  Guidelines for bankruptcy situations.

•  Rules for borrowing and handling of partnership funds.

Advantages of Partnership Deed:

•  While partnership can be initiated over a handshake or some verbal agreement, it remains in the concept of a written partnership deed.

•  An oral agreement may sound straightforward, but it has little legal concern, especially on taxation and to the courts. Here are the compelling reasons why you should define your partnership on paper: 

•  Legal Clarity: A written deed gives partners an opportunity to stand before a court of law in case of a dispute and defend one's rights.

•  Avoidance of Misunderstandings: All the terms and conditions played out before hand reduce the scope of ambiguity and misunderstandings between partners.

•  Definition of Roles: Each partner must know his responsibility, and a written deed does so by specifically noting the duties of each partner.

•  Financial Transparency: It will spell out the distribution of profit/loss, and thus, everyone is on the same page regarding their financial stakes.

•  Capital Insights: The deed clarifies each partner's investment, defining their stake in the venture.

•  Salary and Withdrawals: An all-inclusive partnership deed provides insight into the salary, commission, and interest implications if a partner wishes to withdraw his capital.

WebLex’s Stance:

That is the belief of WebLex when it comes to having a well-drafted partnership deed for the success of a partnership firm. Properly registered partnership firms minimize risks to the interest of every single partner and ensure the smooth run of business. If you need to tread your way through these online partnership firm registrations, be assured as we are here to be your legal compass. With the services of an expert, you can rest assured that the foundation of your partnership stands strong and solid in terms of law.

Remember that a partnership venture is as strong as its understanding among partners. And the very first step toward that crystal-clear understanding is a well-defined partnership deed. So, before you actually begin your entrepreneurial journey, ensure you are legally covered with WebLex.