When two or more people come together to form and run a company, they enter into a partnership agreement or deed. Business terms and conditions are spelled out in the deed. A few of them include a business’ rules and regulations, obligations, employee salaries, exit procedures, bringing in new partners, and profit sharing ratios. As a legal document, this document is very important if the partnership firm goes to court for some reason. Indian Registration Act 1908 governs the registration of partnership deeds. As a result of partnership deed registration, the organization can apply for a PAN, open a bank account, and obtain an FSSAI license or GST registration.
A Guide to Creating a Partnership Agreement
While there is no standard format for drafting a partnership deed, certain information should be included.
They have the following:
- The primary objective of the partnership: The deed should contain the names and addresses of the partners, as well as information that explains the nature of the business to be undertaken by the partners.
- The location of the partnership business: This should include the location/s of the firm’s operations as agreed upon by the partners from time to time.
- The duration of the partnership: You should include the date on which the partnership firm was formed as well as the deal.
- Contribution of capital: The agreement should also state if the firm is contributing any property, cash, capital, goods, or services in accordance with the agreed-upon value.
- Withdrawal of capital: It should also include information about the drawing policy for each partner and whether they must pay interest on such a drawing.
- Details of salary and commission: The partnership agreement should specify the percentages of compensation and commissions to be paid to the partners.
- The profit and loss ratio: The percentage of profits and losses shared by the partners should also be mentioned.
- Regulation for dissolving the partnership: The firm’s account/s and how they will be handled in case of dissolution should be specified in the partnership deed format.
- Rules for admitting a new partner: An admission policy, a death or retirement policy, and an exit policy should be laid down.
- The partnership deed should contain guidelines for what to do in case one of the partners goes bankrupt.
- Audit and accounting details: The partner should be able to inspect and examine the firm’s correct and complete books of account regarding the transactions made from time to time. Accounts should also be prepared for the partnership firm and audit arrangements should be described.
- The partnership deed should contain rules regarding a partner’s voluntary withdrawal.
- The roles and responsibilities of the partners should also be clearly defined.
- A bank account will be opened jointly by the partners for funds held in the firm’s name.
- To meet the firm’s financial needs, all partners must sign a written consent before taking out a bank loan or a loan from another financial institution or third party.
- Financial Year: The partnership’s financial year should also be mentioned.
A partnership deed offers many advantages
Despite the fact that a partnership deed may be oral, it is advisable to keep the deed in writing. A partnership deed that is oral carries no tax value, which is one of its disadvantages. It cannot be used as a legal document in the event of a dispute between the partners. Partnership deeds have the following advantages:
- If a dispute arises, the business owners can go to court.
- Since all the terms and conditions have already been agreed upon and mentioned in the partnership deed, it helps resolve any conflict or misunderstanding between the partners.
- In addition, a partnership deed outlines the duties and responsibilities of the partners.
- Furthermore, it lays out the percentages of profit and loss sharing and reduces the possibility of misunderstandings among business partners.
- In addition, each business partner’s investment is clearly stated.
- In the event that any partner decides to withdraw his or her capital, the agreement lays down the details of the salary and commission paid to the partners. He must pay interest.
The steps involved in registering a deed of partnership
The Indian Partnership Act, 1932 governs partnerships in India. In accordance with the Partnership Act, partners are free to register their partnership firms at their discretion. During the partnership’s existence or before the beginning of the business, registration is possible. Prior to filing a lawsuit to enforce the rights outlined in the contract, the partnership firm must register.
The process for registering a partnership firm in India is simple. Application and fees must be submitted to the Registrar of Firms in the state where the firm is located. A specimen of the affidavit duly filled out, a certified copy of the partnership deed, and proof of ownership of the main place of business should also be submitted with the application.
Conclusion
The application must be signed by all partners or their authorised agents. Suppose the partnership agreement is approved by the registrar. A Certificate of Registration will be issued if the statement is entered in a register. In any case, it is important to keep in mind that registration with the Registrar of Firms and registration with the Income Tax Department are two separate processes. An Indian Income Tax Department registration and a PAN card are required for all businesses. The business will need to open a bank account after getting the PAN card and use this account to conduct all its transactions.
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