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Partnership Deed

Importance of Partnership Deed

Having a partnership deed is very Important and also recognized by law. Partnership deed is desirable because of the following reasons:

  • It regulates the rights, duties, and liabilities of each partner.
  • It helps to avoid any misunderstanding amongst the partners because all the terms and conditions of the partnership have been laid down beforehand in the deed.
  • Any dispute amongst the partners may be settled easily as the partnership deed may be readily referred to.
  • Availability of some benefits under different law.

Hence, it is always the best course to have a written document (partnership deed) instead of oral agreements.

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Creation of Partnership Deed considering all the aspects under different regulations is very important to avoid any future losses.

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    Contents of Partnership Deed

    1.  Name and address of the firm.
    2.  Names and addresses of the partners.
    3.  The type and nature with brief description of the business the firm proposes to do.
    4.  Amount of capital to be contributed by each partner and whether the capital accounts will be fixed or fluctuating.
    5. Interest on Capital – Whether interest is to be allowed on capitals. If so, the rate of the interest.
    6. Drawings – How much amount the partners are entitled to withdraw for personal use.
    7. Interest on Drawings – Whether interest will be charged on partner’s drawing, if so then the rate of the interest will be.
    8. Profit sharing ratio.
    9. Salary of partner – Whether any partner will be paid salary for the work done by him.
    10. Date of commencement of partnership.
    11. Rules to be followed in case of admission of a new partner.

    Some other Contents:

    1. The accounting period of the firm – The period after which final accounts of the firm are to be prepared.
    2. Methods of recording of firm’s account and safe custody of books of account of the firm.
    3. Auditing – Whether firm’s account will be audited or not.
    4. Duration of partnership and the modes of its dissolution.
    5. Insolvency of a partner related decision (Garner vs Murray or not).
    6. Bank Accounts – Whether bank account is opened in the name of the firm or in the name of any partner. Who is responsible for signing the cheque and other banking related matters.
    7. Goodwill – Method of calculation of goodwill.
    8. Rules to be followed while settling the accounts on Retirement or Death of a partner.
    9. Dispute settlement – In case of dispute among the partners, how the dispute will be solved. Whether arbitrator will be appointed?