by A Partnership Deed is a fundamental legal document that outlines the rights, responsibilities, duties, and profit-sharing ratios of partners in a partnership firm. It serves as an agreement between two or more persons who come together to carry on a business with a shared goal of earning profits. As per the Indian Partnership Act, 1932, although a partnership deed is not mandatory to be registered, it is highly recommended for legal clarity and dispute resolution.
Importance of a Partnership Deed:
The partnership deed provides a clear framework for the functioning of the firm. It helps avoid misunderstandings among partners by laying down terms related to investment, profit/loss sharing, duties, and exit procedures. It becomes a valid legal proof of the partnership’s existence and terms. In case of legal disputes or assessment by tax authorities, the deed serves as primary documentary evidence.
Contents of a Partnership Deed:
A well-drafted partnership deed typically includes the following information:
-
Name of the Firm: The firm name under which the business will operate.
-
Nature of Business: Description of the business activities to be carried out.
-
Duration of the Partnership: Whether the partnership is for a fixed term or a particular project, or at will.
-
Details of Partners: Names, addresses, and other identity details of all partners.
-
Capital Contribution: Amount of capital each partner contributes to the firm.
-
Profit and Loss Sharing Ratio: How profits and losses will be distributed among the partners.
-
Duties and Responsibilities of Each Partner: Roles assigned to each partner.
-
Remuneration and Interest on Capital: Terms regarding salaries, commissions, or interest, if applicable.
-
Banking Arrangements: Operation of the firm’s bank account and authorised signatories.
-
Admission and Retirement of Partners: Conditions under which a new partner may join or an existing partner may retire.
-
Dissolution Clause: Procedure for dissolving the partnership firm.
-
Dispute Resolution: Mechanism for resolving conflicts or legal disputes.
-
Audit and Accounts: Rules for maintaining accounts, auditing, and financial records.
All these clauses help in smooth operations and long-term sustainability of the partnership.
Drafting and Execution of the Partnership Deed:
The partnership deed should be drafted carefully, preferably with the help of a legal expert or chartered accountant. The deed must be printed on stamp paper of appropriate value (varies by state) and should be signed by all partners.
-
The deed must include the place and date of execution.
-
It must be signed by each partner in the presence of two witnesses.
-
All pages of the deed should be signed or initialed to prevent forgery or modifications.
-
Once signed, it should be notarized for authenticity, although notarization is not mandatory for registration.
Registration of the Partnership Firm:
While registration of a partnership firm is not compulsory under the Indian Partnership Act, 1932, it is advisable. A registered partnership firm can file suits in courts, claim set-offs, and avail various legal benefits. The following documents are required for registering the firm:
Documents Required for Partnership Registration:
-
Partnership Deed: Duly signed and notarized.
-
PAN Card of the Firm: To be obtained after drafting the deed.
-
Identity Proof of Partners: Aadhaar, PAN, Voter ID, Passport, etc.
-
Address Proof of Partners: Utility bill, rent agreement, etc.
-
Address Proof of Firm: Rent agreement or property ownership proof.
-
Affidavit: Declaring the intent and validity of the partnership.
-
Application Form: Form 1 under the respective State’s Registrar of Firms.
-
Passport-size Photographs: Of all the partners.
-
Ownership/Rent Agreement: If the business premises are rented, a NOC (No Objection Certificate) from the landlord is also required.
Once the application is submitted with required fees, the Registrar verifies the documents and issues a Certificate of Registration.
PAN and TAN Registration:
After finalizing the partnership deed and registering the firm, the next step is to apply for a PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number) in the name of the firm through the NSDL or UTIITSL portal. PAN is mandatory for opening a bank account and filing income tax returns. TAN is required if the firm deducts tax at source (TDS) while making payments.
GST Registration (If Applicable):
If the firm’s turnover exceeds ₹40 lakhs (₹20 lakhs for service providers), or if the business involves inter-state trade, GST registration is mandatory. It can be obtained through the official GST portal using PAN, Aadhaar, partnership deed, photographs, and address proof.
Opening a Current Bank Account:
To operate business transactions, a current bank account must be opened in the name of the partnership firm. Most banks require a registered partnership deed, PAN, KYC documents of partners, and proof of business address to open the account.
