A partnership deed or agreement is a legal document that outlines the relationship that the partners of a business have with each other. It lays down the obligations of all the parties who are partners in the business operation. It helps to clarify the roles of all parties involved in a business operation.
A question may arise as to the distinction between such an agreement and a founders’ agreement. A founder of a business is always a partner, but a partner may not be a founder.
Is Partnership Deed enforceable?
Prior to engaging in the business itself, a partnership deed is entered into by the parties.
In India, partnership deeds can be made enforceable by registering them under the Indian Registration Act, 1908. The deed should be printed on Non-Judicial stamp paper having Rs. 100 or more value. It must be signed by all partners for it to be enforceable.
What are the benefits of a partnership deed?
- Defines roles of all parties.
- Indicates the terms for the foundation of the business.
- Lays down what business is to be conducted.
- Acts as a guide for future negotiations.
- Gives financial details with regards to the partnership.
The reason such an agreement is important is clear. It acts as a template for the partners. It also helps act as proof in case these are disputes among partners in the future. Hence it should be drafted as a contingency.
Drafting of a partnership deed
The following information should be present in a partnership deed:
- Parties: Names of the parties and their respective roles in the business must be clearly written.
- Summary of business: What business is being set up? A short summary of the business that is being intended to be set up should be given.
- Financial details: Preliminary financial details such as the investment amount, the paid up and authorised capital etc. should be enumerated.
- Withdrawal of a partner: Procedure for withdrawal of a partner from the agreement should be laid down.
- Expulsion: The situations in which a partner may be expelled from the partnership should be laid down.
- Termination: The procedure for dissolution of the partnership should be laid down.
- Dispute resolution: Like in any other agreement, there must be a dispute resolution clause. In case a dispute arises among the partners, they should agree on what court/tribunal to approach.
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