Partnership Deed is a legal document that outlines the terms and conditions of a partnership between two or more individuals who agree to carry on a business together. It specifies key details such as the name of the firm, nature of business, capital contributions by partners, profit-sharing ratios, roles and responsibilities of each partner, and procedures for dispute resolution. It may also include clauses on admission, retirement, or expulsion of partners, and dissolution of the firm. While not mandatory, a partnership deed helps avoid misunderstandings and ensures smooth operations by providing a clear framework for the partnership.
Clauses in Partnership deed:
- Name and Address of the Firm
This clause specifies the official name of the partnership firm and its registered address. It establishes the identity of the business and its operational base.
- Nature of Business
The deed must clearly define the type of business activity the firm will undertake. This prevents partners from engaging in activities outside the scope of the agreement.
- Capital Contributions
Each partner’s contribution to the firm’s capital, whether in cash, assets, or kind, is detailed here. It also specifies any provisions for additional capital requirements.
- Profit and Loss Sharing Ratio
This clause outlines the agreed-upon ratio in which profits and losses will be shared among partners. It ensures transparency in financial dealings.
- Roles and Responsibilities
The duties and responsibilities of each partner in the daily operations and decision-making processes are clearly outlined. It avoids role overlap and ensures accountability.
- Interest on Capital and Drawings
If interest is payable on the capital contributed or on amounts withdrawn by partners, this clause specifies the applicable rate and conditions.
- Remuneration to Partners
In cases where partners receive salaries, commissions, or bonuses, this clause details the terms of such compensation.
- Admittance of New Partners
This clause outlines the procedure and terms for admitting new partners into the firm. It may include conditions such as unanimous consent or specific capital contributions.
- Retirement and Expulsion of Partners
The deed specifies conditions under which a partner may retire or be expelled, including notice period, payout of their share, or breach of agreement.
- Dissolution of the Firm
The deed provides the procedure for dissolving the partnership, including settlement of debts, division of remaining assets, and distribution of liabilities among partners.
- Dispute Resolution Mechanism
In case of disagreements, the deed may specify methods for resolving disputes, such as mediation, arbitration, or referral to a mutually agreed third party.
- Loans and Borrowings
If the firm intends to borrow money, this clause details the process, including consent requirements and the authority to secure loans.
- Audit and Accounts
This clause specifies the maintenance of accounts, auditing procedures, and the partner(s) responsible for ensuring financial compliance.
- Goodwill Valuation
The partnership deed may include provisions for calculating the firm’s goodwill during admission, retirement, or dissolution.
- Indemnity Clause
Partners may indemnify each other against losses caused by unauthorized actions or gross negligence.
- Duration of Partnership
The deed specifies whether the partnership is for a fixed term, a specific project, or on a continuing basis.
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