Drafting a Partnership Deed: Key Elements

MEANING

The provisions relating to partnership are contained in Indian Partnership Act, 1932. The general principles of Indian Contract Act also applies to the partnerships to the extent not inconsistent with Indian Partnership Act.

Section 4 of the Indian Partnership Act, 1932 defines partnership as follows

"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.

Persons who have entered into partnership with one another are called individually "partners" and collectively "a firm" and the name under which their business is carried on is called the "firm name".

PARTNERSHIP DEED:

A partnership agreement in writing is called Partnership Deed. Partnership deed is a document which is signed by all the partners and which contains all the matters determining and governing the mutual rights, duties and liabilities of the partners in the conduct and management of the affairs of the partnership. It may also be referred to as "articles of partnership" containing the name, nature of business, capital, duration of the firm etc.

• The partnership agreement must comply with all the essentials of a valid contract such as free consent, competency to contract, lawful object etc.
• A minor cannot be a partner. However, with the consent of all the partners a minor may be admitted to the benefits of a partnership firm under Section 30 of the Act. After attaining majority, such minor has to elect to become partner or to keep away from the partnership within six months after his attaining majority.

REGISTRATION OF PARTNERSHIP DEED

Registration of a partnership has not been made compulsory under Section 17 of the Indian Registration Act, 1908. However, Section 58 read with Section 69 of the Indian Partnership Act, 1932, makes the registration of partnership firm obligatory. If a firm has not been registered with Registrar of Firms, partners cannot sue inter se to enforce any right arising out of any contract or conferred by the Act. Stamp duty is chargeable on a partnership deed and it varies from State to State.

ESSENTIAL COMPONENTS OF PARTNERSHIP DEED

A partnership deed usually contains the following clauses:

1. Name and location of the business
2. Nature of the business
3. The capital to be contributed by each partner
4. Duties, powers and obligations of all the partners
5. Length of business
6. The method of distribution of profits and sharing of losses
7. Method of admission of a new partner and withdrawal of existing partner and for expulsion of a partner
8. Method of preparing accounts
9. Procedure for dissolution of firm and settlement of accounts
10. Salary, if any, payable to partners for managing the firm.

FORMAT OF PARTNERSHIP DEED

This Deed of Partnership is made on _____________________between:

____________________ R/O _________________hereinafter referred to as the "First Partner".

____________________ R/O _________________hereinafter referred to as the "Second Partner".

____________________ R/O _________________hereinafter referred to as the "Third Partner".

WHEREAS:

The Partners hereto have agreed to combine their resources, skills, and experience to carry on business in partnership under the name _______________(hereinafter referred to as the "Firm").

NOW, THEREFORE, THIS DEED WITNESSETH AS FOLLOWS:

Whereas, the parties hereto have agreed to commence business in partnership and it is expedient to have written instrument of partnership. Now this partnership deed witnesses as follows:

1. BUSINESS ACTIVITY

 The parties here to have mutually agreed to carry on the business of _______________.

2. PLACE OF BUSINESS

The principal place of the partnership business will be situated at __________________.

3. DURATION OF PARTNERSHIP

The duration of the partnership will be at will.

4. CAPITAL OF THE FIRM

Initially the capital of the firm shall be Rs.  _________________.

5. PROFIT SHARING RATIO

The profit or loss of the firm shall be shared equally among all the partners and transferred to partner’s current account.

6. MANAGEMENT

The [First Partner] of the firm shall be Managing Partner and he will look after all the day to day transaction of the firm and any legal activities in the name of the firm and the remaining partners shall co-operate to do so.

7. OPERATION OF BANK ACCOUNTS

The firm shall open a current account in the name of _________ at any bank and such account shall be operated by First Partner and Second Partner jointly as declared from time to time to the Banks.

8. BORROWING

The written consent of all Partners will be required for the partnership to avail credit facilities from any financial institution.

9. WITHDRAWAL OF FUNDS:

No partner shall withdraw any part of the capital without the consent of all the partners.

10. BOOKS OF ACCOUNTS:

The partners shall keep accurate books of accounts and shall have access to them at all reasonable times.

11. RETIREMENT

If any partner shall at any time during the subsistence of the partnership, be desirous of retiring from the firm, it shall be competent from his to do so, provided he shall give at least one calendar month notice of his intention of doing so. The remaining partner shall pay to the retiring partner or his legal representatives of the deceased partner, the purchase money of his share in the assets of the firm.

12. DEATH OF PARTNER

In the event of the death of any partners, one of the legal representatives of the deceased partner shall become the partner of the firm and in the event the legal representative show their denial to point the firm, they shall be paid the part of the part of the purchase amount calculated as on the date of the death of the partner.

13. DISSOLUTION

The partnership may be dissolved by mutual agreement of the partners or by operation of law.

14. ARBITRATION

Whenever there by any difference of opinion or any dispute between the partners the partners shall refer the same to an arbitration of one person. The decision of the arbitration so nominated shall be final and binding on all partners, such arbitration proceedings shall be governed by Indian Arbitration Act, which is in force

IN WITNESS WHEREOF, this deed of partnership is signed sealed and delivered this _________at ______.

SIGNED, SEALED, AND DELIVERED by the Partners:

[Name & Signature of First Partner]                    [Name & Signature of Second Partner]

[Name & Signature of Third Partner]

WITNESS ONE                                                                                  WITNESS TWO

Address                                                                                               Address