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In order to understand the partnership deed, the buyer and the owner should acknowledge the existence of this particular deed. While commencing a business deal accompanied by more than two partners, they should map their shares of profit and losses into a written contract also known as partnership deed or agreement.


The collaboration of these business partners agreed by the partnership deed is often termed as partnership firm.

When partners have a partnership deed it helps them with legal responsibilities towards the firm. Partnership deeds do not require registrations and can be used anyway.

Benefits of a well contracted partnership deed:

  • It adjusts and balances the privileges, duties, and responsibilities of all partners
  • It helps in preventing any confusion and misinterpretation between the partners as all the clause of the alliance have been pre-contracted
  • It helps in settling disputes between the associates by referring to the points mentioned in the deed.
  • It clears uncertainties in terms of profits and losses ratio between partners.
  • It decides the exact job roles and each partner have their clear set of tasks.
  • Partnership deed contain articles that simplifies the salary (remuneration) to partners and the interests for partners who invested capital in the business.

It is advisable to have a well-drafted partnership deed instead of oral contracts.

Various partnership deeds and their features

General Partnership (GP)

  • General partnership can be easily created.
  • State filing not required in general partnership and can be created once the business activities start.
  • Operational cost is low and Formation filing fee, state fees or franchise tax is not required.
  • General Partnerships are include business license and permissions necessary for business operations.
  • Less ongoing requirements as it does not require annual meetings.
  • General Partnership Agreements defines the management of partnership, partner roles, termination clause and other important aspects.
  • General partnerships helps in keeping individual assets and business assets separate.

Limited Partnership (LP)

  • General partners have unlimited liability.
  • Limited partnership requires one business partner to have unlimited obligation who is also the general partner(s).
  • Limited partners have restricted liabilities towards their personal assets, and they cannot use it for debts.
  • The liability amount is limited for investment in limited partnership.
  • Management does not include limited partners and general partners monitors the daily operations.
  • The projects are short term. Limited partnerships involves special businesses like films, real estate planning and family estates.

Limited liability partnership (LLP)

  • Business services are professional. Limited liability partnerships are created by specific specialized service businesses. These expert services include attorneys, accountants, doctors, architects, and other professionals.
  • Protection of personal assets. Personal assets under LLP cannot be used to fulfil business obligations and responsibilities. LLP does not protect the business partners from personal liabilities. If partners are found of personal malpractices, LLP can not help them in reducing the liabilities.

Advantages and Benefits of Partnership firms

  • Can be created easily
  • Large number of resources are available
  • Better and collective decisions are made in a Partnership Firm
  • Business operations are highly flexible
  • Risk is low as it is shared
  • Each partner’s rate of interest is protected

Important Sections of the Partnership Deed

Any regulated partnership deed structure must have the following clauses as they are important for the partnership firm:

    • The Names and Addresses of the Partnership firm along with its foremost business
    • Names and Addresses of all business partners
    • The invested capital amount contributed by each partner
    • The firm’s accounting period
    • The date of inauguration of partnership
    • Regulations concerning an operation of Bank Accounts
    • Profit and loss sharing percentage
    • The rate of interest on principal amount, loan, etc
    • Type of auditor’s appointment (if any)
    • Wages, commission, and payments if outstanding to any partner
    • The rights, responsibilities, and obligations of each partner
    • Settling of loss occurring from bankruptcy of one or more partners
    • Settlement of accounts on the closure of the firm
    • Process of a resolution of disputes among the partners
    • Guidelines to be supported in case of admittance, retirement, the demise of a partner and matters relating to the conduct of business.
    • Typically, all the matters concerning the relationship of partners among themselves are included in partnership deeds.

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FAQ

Following are the few contents-

  • The name of the firm
  • Name and details of all the partners
  • Date from which the business has started and the duration of its existence
  • Capital contributed by each partner and interest of capital payable to the partners
  • Profit sharing ratio and extend of borrowings each partner can draw

Following are the basic points in a partnership deed:

  • Name and address of the firm and the partners
  • Nature of business to be performed
  • The date n which the business commenced
  • Duration of the partnership whether fixed period or a fixed project)
  • Capital contribution of each of the partner and profit sharing ratio

A partnership agreement is not registered in the court of law as it is an agreement between the partners. However, a partnership deed is registered is registered in the court of law and it is a written agreement between the partners.

A partnership deed is the bible of the partnership firm. Just like a memorandum and articles of association in companies, a partnership has a partnership deed. It is a legal document as it states everything that concerns the partnership firm. It says the nature, purpose, the date of commencement of the business and many more information relating to a partnership firm.

The Indian Partnership Act, 1932, governs the partnership firms. It states that a relation between persons who have agreed to share profits of the business carried on by all or any of them acting for all.