What is a Partnership Deed and Why is it Important?

Updated on : Jan. 31, 2023 - 2 p.m. 17 min read.

Patnership deed

Partnership Deed

A Partnership Deed is a legal agreement between two or more individuals who wish to run a business together and share profits. It outlines the terms and conditions of the partnership, including the roles and responsibilities of each partner, profit and loss distribution, and dispute resolution procedures. The Partnership Deed should be written and signed by all partners and kept as a record of the terms of the partnership.

Why is partnership deed necessary

A partnership deed is necessary to define the rights, responsibilities, and terms of collaboration between partners in a legally binding manner, ensuring clarity and preventing disputes.

Registration of Partnership Deed

The registration process of a Partnership Deed typically involves the following steps:

  • Preparation of the Partnership Deed: Draft the Partnership Deed with all the terms and conditions agreed upon by all partners.

  • Get all partners to sign: All partners must sign the Partnership Deed in the presence of witnesses.

  • Obtain PAN and TAN: Apply for PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number) for the partnership firm.

  • File form 2: File Form 2 with the Registrar of Firms in the relevant jurisdiction where the partnership firm is located. Form 2 is the Partnership Deed Registration Form.

  • Submit required documents: Submit a copy of the Partnership Deed, PAN and TAN certificates, and other required documents to the Registrar of Firms.

  • Pay fees: Pay the relevant fees for registering the Partnership Deed.

  • Obtain Certificate of Registration: Upon successful registration, the Registrar of Firms will issue a Certificate of Registration, which acts as proof of the existence of the partnership firm.

Note: The specific requirements and procedures for registering a Partnership Deed may vary depending on the jurisdiction.

Partnership Deed Format

The format for a Partnership Deed can vary depending on the jurisdiction, but typically, it should include the following elements:

  • Introduction: The introduction should state the names and addresses of the partners, the purpose of the partnership, and the effective date of the Partnership Deed.

  • Capital Contribution: This section should outline the capital contribution of each partner and the manner in which profits and losses will be shared.

  • Partners' Roles and Responsibilities: This section should outline the duties and responsibilities of each partner and any restrictions on their activities.

  • Management and Control: This section should describe how the partnership will be managed and controlled, including the decision-making process and the procedures for electing or removing partners.

  • Accounts and Record Keeping: This section should outline the procedures for maintaining the partnership's financial records and preparing financial statements.

  • Dissolution and Winding Up: This section should describe the conditions under which the partnership will be dissolved and the procedures for winding up the partnership's affairs.

  • Dispute Resolution: This section should describe the process for resolving disputes between partners.

  • Governing Law: This section should state the jurisdiction whose laws will govern the Partnership Deed.

  • Signature: The Partnership Deed should be signed by all partners and dated.

Documents required for Partnership Deed

The following documents are usually required for a partnership deed:

  1. Proof of identity and address of all partners
  2. PAN card copies of all partners
  3. Bank details of all partners
  4. Partnership agreement
  5. Certificate of Incorporation (if applicable)

Oral Deed in Partnership

An oral partnership deed is an agreement between partners that is not in written form. While it is possible to form a partnership orally, it is not recommended, as it can lead to misunderstandings and disputes in the future. In legal terms, it can be difficult to enforce an oral agreement and prove its existence in court. It is always better to have a written partnership deed, which clearly outlines the terms of the partnership and the rights and responsibilities of each partner.

Stamp duty for Partnership Deed

Stamp duty is a tax imposed by the government on certain legal documents, including Partnership Deeds. The amount of stamp duty payable on a Partnership Deed varies by jurisdiction.

In India, the stamp duty on a Partnership Deed is calculated based on the capital contribution of each partner and the total capital of the partnership. The stamp duty rate can range from 0.01% to 0.05% of the total capital, depending on the state in which the partnership is located.

In some other countries, the stamp duty on a Partnership Deed may be a flat fee or a percentage of the capital contribution of each partner.

It's advisable to check the specific requirements and stamp duty rates in your jurisdiction, as they may change from time to time. It's also recommended to consult with a local lawyer or tax professional for accurate guidance on stamp duty for Partnership Deeds.

Can Partnership deed be amended

Yes, a partnership deed can be amended. Amending a partnership deed involves making changes to the existing terms and provisions outlined in the original agreement. This can be done to accommodate various situations, such as adding or removing partners, modifying profit sharing ratios, changing capital contributions, or altering partnership responsibilities.

The process of amending a partnership deed typically involves the following steps:

  • Review the Existing Partnership Deed: Partners must thoroughly examine the current partnership deed to identify the specific areas that require amendment.

  • Consensus among Partners: All partners must unanimously agree on the proposed changes. It is crucial to foster open communication and ensure that all partners are on the same page.

  • Drafting the Amendment: Partners need to draft a written amendment that clearly states the changes being made to the partnership deed. It should include details such as the specific sections or clauses being modified, the new terms, and the effective date of the amendment.

  • Legal Formalities: Consultation with a legal professional is advisable to ensure compliance with relevant laws and regulations. The amendment should be prepared in accordance with the partnership laws applicable in the jurisdiction.

  • Signing the Amendment: Once the amendment is drafted, all partners must sign it to indicate their agreement to the proposed changes. This demonstrates their consent and commitment to abide by the amended terms.

  • Registration and Filing: Depending on the jurisdiction, it may be necessary to register the amended partnership deed with the appropriate government authorities or file it with the relevant department.

  • Communication and Implementation: Partners should communicate the amended terms to all stakeholders, including employees, clients, and suppliers.

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