Partnership Deed is the written agreement between the partners, which is duly signed and registered under the Act and contains all the terms and conditions which govern the operation of the activities of the partnership firm.
Since partnership results out of an agreement, it is essential that there must be some terms and conditions agreed upon by all the partners. Such terms and conditions may be either written or oral. Under the law, it is not mandatory to have a written agreement to form partnership. However, it is always better to have partnership through a written agreement duly signed and registered under the Act, as it helps avoid future disputes.
The partnership deed, generally, contains the following : –
- Name and address of the partnership firm
- Name and address of all the partners.
- Nature of business of the firm
- Capital contributed by each partner
- Interest on Capital
- Salary of Partners
- Profit Sharing Ratio among partners
- Interest on Drawings
- Method of valuation of Goodwill & its treatment
- Commencement Date of partnership
- Duration of Partnership
- Accounting period of the firm
- Method of recording of firm’s accounts
- Whether the firm’s books will be audited or not? If so, the mode of auditors appointment.
- Rule to be followed at the time of admission of partner
- Rule to be followed at the time of settlement of outgoing partners.
- Bank Account details
- Settlement of disputes
Rules applicable in the absence of Partnership Deed:
- Sharing of Profits : – In the absence of any partnership deed, the profits among the partners should be shared equally.
- Salary/commission to the partners :- The partners won’t get any portion of profit as salary/commission for their active participation in the business.
- Interest on capital – No interest on capital will be allowed to the partners.
- Interest on drawings – No interest on drawings is charged from the partners.
- Interest on Loans –Interest @ 6% p.a. is to be allowed on the loan given by the partners to the firm.
- Right to participate in the conduct of the business – Each partner has the right to participate in the conduct of the business.
- Admission of A new partner : -Admission of A new partner cannot be admitted into the firm without the consent of all partners.
- Right to inspect the books of the firm – Every partner has the right to inspect the books of the firm and also to take copies or extract of the same.
This Video discusses the key Rules which are applicable for various issues amongst the partners, in the absence of Partnership Deed.