What is Partnership Deed?
Contents
Partnership Deed is a written document of rules and Regulations between individuals who wish to start a business and share profit and losses.Various terms such as asserts, admission of a new partner, salary, profit/loss percentage all are mentioned on it. The minimum age to become a partner and open a business is 18 years. The partnership deed play a very important role during investment, profit /loss sharing /during legal matters. It can be served as legal documents in the courtroom. A partnership deed describes the roles and responsibilities of each partner towards the business, prepares the partners for business scenarios, and also serves as a written record between partners. Partnership Deed can be looked upon as a legal foundation for starting a business, disciplines required for its smooth functioning, and assurance of clear guidelines in case of disputes. Also, registration of partnership deeds would make the firm eligible for PAN, the opening of bank accounts, applying for bank loans, obtaining GST registration or IE code or FSSAI license in name of the firm
It is not mandatory to have a partnership deed but highly recommended so to avoid disputes and have transparency in business. The agreement can be made between two or more individuals, but it’s mandatory to be signed by all the partners.
Features of a Partnership business
- At least 2 members are mandatory for the start of a partnership business
- If it’s a Banking business partnership member limit would be 10 or less than 10.
- There is no minimum capital limit to start a partnership business.
- The profit/loss ratio should be decided and mentioned on Partnership deeds.
- The member limit for a non-banking partnership is 20 or less than 20.
Benefit or importance of Partnership Deeds
It is extremely important to have a written partnership deed with the partner. Registration of partnership deeds is the call of all the partners. Partnership deeds can be in oral format also but the drawback with oral format is that has no value for tax purpose and in a case or any dispute there won’t exist any legal documents to resolve the query. Also if any partner changes from his/her words then the rest of the partners won’t have any legal documents as proof to be used against the guilty partner. So it’s advisable to have a written partnership deed with all the partner according to their capital investment
- It provides clear transparency about the role, responsibility, and liability to each partner.
- Helps in avoidance of misunderstanding between the partners, as all the terms and conditions have been laid down in the partnership deeds
- Any disputes between the partners can be easily resolved based on terms and conditions laid down in the partnership deed.
- Helps in the clearance of doubts regarding profit/loss share ratio.
- It clearly defined the role of each partner towards the business and what rights have been entitled to them as the partner of the business
- It gives a clear understanding of the salary, commission that will be paid, or interest that will be paid to partners for their capital. Or in case if they withdraw capital from business what interest they would have to pay if applicable.
Documents required to form a partnership
PAN of the partners – Submission of PAN card of all the partners is mandatory.
Address proof of the partners– Address proofs like Aadhar card, Driving license, Voter id, etc. can be submitted as address proof.
Documents of Firm-
PAN of Firm The partners must apply for PAN. Of the firm by filling form 49A by visiting the website https://www.onlineservices.nsdl.com/paam/endUserRegistrationcontact.html
The form can be filled online by the authorized partner by using a digital signature or can be sent the required documents to the nearest PAN center. Partnership deeds must be printed on a non -judiciary firm with a value of Rs.100 depending upon the value of properties the firm holds. Must be signed in presence of all the partners. All the partners must have a duplicate copy of the partnership deeds
Address Proof of the firm- Depending upon whether the property is rented /owned one has to submit its documents like electricity bill/water supply bill/gas bill have to be submitted as an address proof and along with it NOC from the owner is a must.
Additional documents needed Partnership deed registration
Partnership deed, address proof, I’d of the firm will be needed in case the partners want to register the firm. An affidavit will be required with all the deeds and documents correctly mentioned on it.
From needs to submit PAN number, address proof, Identity proof for GST registration. An authorized signatory will sign the application.
Details mentioned on partnership deed
The business of the firm-Name / addresses of all the partners. Undertaking the business
Duration of partnership– Date of establishment of business and the term of the partnership. Terms and conditions to dissolve the partnership.
Sharing of Profits/Loss– It’s mandatory to mention the profit /loss share ratio of each partner so that in case of any dispute it can be used as a referral.
Salary and commission– Mentioning the ratio or percentage of salary and remuneration paid to partners.
Contribution of capital- Capital invested by each partner and interest that the business would pay should be mentioned respectively
Partners Withdrawing– Rights of each partner to withdraw capital and the interest that would be charged if applicable should be mentioned on partnership deeds. Paying interest to the partner on the capital invested is a way to reward the partners for investing the capital. Although it reduces the profit and loss share.
Rules for admission in a new partner- It is mandatory to mention the rules which need to be followed while admitting new partners and eligibility criteria if any.
Rules for the dissolving of partnership– Rules for the dissolving of partnership in case of death of any partner, or any disputes or retirement should be mentioned on deeds to maintain transparency between the partners.
Conclusion
Working towards a common goal– Partnership in business’s fulfill all the requirements needed for the successful running of a business, when people with a common goal, some may have good plans, some can have a healthy risk management experience, some can take care of inventory making the functioning of business smoother and healthier.
Sharing inventory, network, and Resources- The main aim of any business is financial stability, when people from different firms and experiences come together they bring in resources and networks of all types Amy it is many power or consumers. A business partnership runs on sharing of networks. One may know but due to lack of resources or capital, the business can go into a downfall.
Maximizing profits- In partnership deeds all the partners must stay equally passionate about making a profit, looks for plans and ways to execute to make profits. Or it increases power for bargaining and decision making as people have a different perspective for some things, which will bring all the angles of a particular thing in the notice and help in taking fruitful decisions and generation of profits and also at times of recovering if loss partners may come with various plans
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