What is a Partnership Deed and Why Do You Need It?
A partnership deed, also known as a partnership agreement, is a legal document that describes the terms of a partnership. It is a written agreement between two or more people who intend to do business together. The deed covers important aspects of the partnership, such as profit-sharing, obligations, rules, capital contributions, roles and responsibilities, decision-making, dispute resolution, and business dissolution.
The purpose of the partnership deed includes establishing clarity in duties, resolving disputes, defining profit and loss-sharing mechanisms, and outlining rules for the addition or removal of partners. A partnership deed, therefore, helps minimise conflicts by protecting the interests of partners and fostering trust within the partnership.
Key Purposes of a Partnership Deed in Business Operations
The role of a Partnership Deed in defining the structure and operation of a business. The operational framework sets out a legally secure position for the partners by safeguarding rights and minimising risks. A Partnership Deed would outline the procedures for dealing with difficulties such as disputes, financial setbacks, or change in partnership to ensure stability and continuity. It is a legal document that contains the terms of a partnership and serves many purposes such as:
- Defining roles and responsibilities: The deed establishes the roles and responsibilities of each partner in a manner that minimises potential disputes and misunderstandings
- Protection of interests: The deed safeguards the interests of all partners and ensures smooth business functioning
- Legal protection: The deed provides legal protection for all parties involved in the partnership
- Capital contributions: The deed outlines the amount of capital each partner will contribute to the partnership, and how they will contribute it
- Profit-sharing arrangements: The deed outlines the profit-sharing ratio between the partners
- Decision-making processes: The deed outlines the decision-making processes for the partnership
- Including clauses on dispute resolution: The deed includes clauses about the settling of disputes that may rise between partners
- Including clauses on business dissolution: The deed includes clauses on dissolving the business.
Legal Importance of a Partnership Deed
Indian Partnership Act 1932 governs partnerships in India. A partnership is defined as an association of two or more persons carrying on any business with a common view to share profits and losses. The partnership deed is registered under the Indian Registration Act of 1908. Hence, it is a legally enforceable document that resolves all possible legal disputes.
- This gives a clear point of reference recognised by courts, mitigating disputes over the terms that have been agreed upon
- The deed is legal proof of the partnership and guarantees financial clarity to avoid wastage of resources
- It protects the rights and obligations of all partners, creates a structured,legally safe environment within which the business can thrive, and ensures smooth operations in case of any conflicts that may arise.
