Partnership Deed: Meaning, Benefits and Contents

A Partnership Deed, also called a Partnership Agreement, is a legally binding document signed by two or more individuals who jointly agree to operate a business for profit. This document outlines the rights, responsibilities, profit-sharing ratio, and terms of the partnership. It is crucial in resolving disputes or conflicts among partners regarding business operations.

The partnership deed plays a crucial role in structuring and governing the partnership. From defining profit-sharing ratios to addressing admission and retirement procedures, it is essential to draft a comprehensive partnership deed with the assistance of legal professionals to protect all partners’ interests and ensure the partnership’s smooth functioning.

A partnership deed is an agreement outlining the terms and conditions of a partnership between partners. One of the common forms of business formation is a partnership firm. Before understanding the meaning of a Partnership Deed, let’s find out what partnership is. 

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Table of Content

• What is Partnership?
• What is a Partnership Deed?
• Types of Partnership Deed
• Importance of Partnership Deed
• Contents of Partnership Deed
• How to Draft a Partnership Deed?

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What is Partnership?

A  partnership firm is a company where two or more people work together to manage and run a business, following the conditions and goals outlined in the partnership deed. The deed is a significant document that describes each partner’s authority, responsibility, rights, and obligations. 

What is Partnership Deed?

A partnership deed, also called a partnership agreement, is a legal document that two or more partners must sign if they wish to operate a business to generate profits jointly. Clear communication between partners about the many rules regulating their partnership is essential to a partnership firm’s efficient and effective operation. The partnership deed accomplishes this.   

It comprises several clauses that define the partners, their profit-loss sharing, salary, interest on capital, drawings, admission of a new partner, etc. The partnership deed can resolve disputes or conflicts over the partnership’s rules. It clearly defines each partner’s responsibilities and ensures the efficient operation of the partnership firm. 

Example: A partnership deed is an agreement between two partners starting a textile business in India. The deed outlines the capital contribution of each partner, profit-sharing ratio, roles, and responsibilities. It also includes clauses for decision-making, resolving disputes, and business dissolution. Such a deed ensures clarity and prevents future conflicts.

Types of Partnership Deed

1. General Partnership Deed
This is the most common type, where all partners share equal rights, responsibilities, and liabilities. They contribute capital, share profits, and are equally responsible for debts.

Example: A retail store run by two partners, where both invest equally and manage daily operations together, sharing profits and losses.

2. Partnership at Will
This partnership has no fixed tenure and continues until partners mutually dissolve it. It offers flexibility and is ideal for businesses that don’t require long-term commitments.

Example: A consultancy firm where two professionals collaborate, and either can exit anytime without legal complexities, based on mutual agreement.

3. Fixed-Term Partnership
This type is formed for a specific period or project. It automatically dissolves once the agreed duration or objective is achieved.

Example: A construction company partners with an architect for a three-year project. Once the project is completed, the partnership dissolves as per the deed.

4. Limited Partnership
It includes both general and limited partners. General partners handle business operations and bear liabilities, while limited partners invest capital but have restricted liability.

Example: An investment firm where one partner manages operations, while investors contribute funds but are only liable up to their investment amount.

Importance of Partnership Deed

A proper deed establishes a legal obligation between the company's partners. However, it is not necessary to register it. As a result, you can also operate an unregistered partnership firm.

Here are some examples to demonstrate the importance of a partnership deed:

• It governs each partner’s powers, responsibilities, and liabilities.
• Deeds prevent misunderstandings between partners because they outline all the partnership’s terms and conditions beforehand.
• Partners can consult the partnership agreement in a dispute, making a resolution easier.
• It clears doubts regarding the profit and loss sharing ratio between partners.
• It describes the roles and responsibilities of each partner. 
• Partnership deeds may also include clauses defining the partners’ remuneration (pay). Usually, working partners receive the pay. However, interest is given to each partner who invests money in the business.

As a result, written documents are always preferable to oral agreements.

Contents of Partnership Deed

The significant contents of the partnership deed must be included. The main content are listed below:

Note: The partnership deed may include additional terms in addition to the general contents/clauses listed above.

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How to Draft a Partnership Deed?

The partnership agreement may be oral or written. However, having a written partnership deed is preferable as it helps resolve potential disputes and is also beneficial for tax purposes and the registration of the partnership firm. After reaching an understanding on the partnership deed’s provisions, all of the partners can create the document. Another option is to have a lawyer prepare it.

As you prepare the partnership document, keep the following things in mind:

• Its execution calls for a minimum of two partners.
• It must be put in writing with everyone’s approval.
• Clauses and sentences must not be ambiguous. All the details/descriptions of the clauses should be clear. 
• You must use e-stamp paper with at least Rs.200 value.
• All of the partners’ signatures must appear on every deed page.

Documents Required to Register a Partnership Deed

• The following paperwork is essential to register a partnership deed:
• PAN card of all the partners.
• Evidence proving each partner’s address, such as a voter ID, an Aadhar card, a driver’s license, etc.
• Proof of the company’s address

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