What is a Partnership Deed? – Meanings
The document which contains terms and conditions of partnership is known as Partnership Deed. In the absence of an agreement, the partnership Act is applied, However, the act leaves it to the discretion of partners. The written agreement between partners will be helpful in case of disputes between the partners.
Important points of a Partnership Deed
The following points are to be mentioned in the partnership deed.
- Name of the partners.
- Name and nature of the business.
- Capital contributed by each partner.
- The ratio of Gain or Loss.
- Rate of interest is allowed on a partner’s capital.
- Salary is to be paid to a partner for doing the extra job.
- The maximum amount of withdrawal of a partner during a particular period.
- Whether a partner’s capitals are to be maintained on fixed or fluctuating methods.
- Life of partnership business.
- Rate of interest on the drawing if any to be charged.
- Interest on partner’s loan.
- Financial period for determining Gain or Loss of the business.
- Method of valuation of goodwill at the time of admission, the retirement of a partner, mergers of business and dissolution of a business.
- Method of computing the amount due to the retiring partner or to the successors of the deceased partner.
- The way or procedure of payment of the amount due to the retiring partner or executors of the deceased.
- Clause regarding arbitration in case of a dispute.
- The procedure of dissolution of the firm.
- Treatment of assurance policy if any.
Rules in the absence of agreement
In the absence of a written agreement, the following rules will be applicable to partnership.
- Each partner will contribute equally towards the capital of the firm.
- Gain /Losses of the firm will be distributed equally among the partners.
- No salary will be paid to partners for performing duties in the firm.
- No interest on partner’s capitals will be allowed.
- 6% interest on partners loan other than their capital will be allowed.
- The firm will have to indemnify every partner for the expenses incurred or payment made by one on behalf of the firm.
- Without the consent of all the partners, no one can be admitted as a partner.
- Every partner has got the right of access to the books of accounts.
- Every partner has got the right to participate in the conduct and management of the business.
- A retiring partner or executor of the deceased partner has got the right to share in the profits, earned with the help of the assets belonging to him or interest at 6% per annum, at the option of such partner or his executors.