Understanding partnership deed and its key features

Introduction

Entering into the business world, a word that is most commonly used is “partnership”. As it is the most common form of organisation, specially among small and medium enterprises. When a business has been started together by two or more people, there has to be a written document which will clearly define the relationship, responsibilities and rights and this document is called partnership deed. This will act as the foundation of the partnership and will give clarity to make sure there are no disputes in the future. Partnerships have a deed that govern their functions. Exactly the way companies have legal documents like memorandum of association and articles of association.

 

What is a partnership deed?

 

A legal document, which sets the terms and conditions which are agreed upon by the partners of a business is called a partnership deed. There are a lot of important details under a partnership deed like -the nature of the business, capital contribution of each partner, profit sharing ratios, duties and procedures for resolving disputes. Well, there is no harm in having a partnership without a written deed, but having one will have transparency and legal security for each partner. Under the partnership having a deed will make it easier to prove rights and obligations in case of conflict or legal challenge.

 

 

Key features of a partnership deed:

 

Well, the key feature of a partnership includes a lot of things like :

●        details of the partners

●        nature of the business

●       ⁠ capital contribution

●        profit and loss sharing

●        roles, and responsibilities

●       ⁠ admission or retirement of partners

●        dispute resolution

●        ⁠ duration of partnership

●        banking agreements

●        dissolution of partnership

 

These key features are very important to understand when entering into a partnership deed.

 

Importance of a partnership deed

As mentioned earlier, a partnership can definitely be done without attendance, but having one is a perfect choice as it will prevent misunderstandings by clearly laying down the rights and duties of partners and if there is no deed, the Indian partnership act, which applies by default may not suit the specific needs of partners.

 

Let’s see for an example, there is a partnership, but without a deed, so whatever the profits are  will be shared equally irrespective of capital contribution or effort, but if there is a deed, the partners can decide their own terms. Hence it means a deed provides flexibility, security and legal recognition.

 

Comparison with company documents

Like partnerships rely on partnership deeds, memorandum of association and articles of association are the documents that company uses, memorandum defines the companies, objectives, and scope and articles govern its internal management. In a similar way, a partnership deed will serve both purposes for partnership

●        set subjects and

●       regulates internal matters.

 

By providing clarity and roles responsibilities, profit share ratios, dispute, resolutions, and decision making procedures ensure transparency and reduces conflict acting as the foundational charter that balances external objectives with internal governance

Conclusion  

 

The role of a partnership deed is to make sure that all partners are on the same page regarding profit, responsibilities and management, and hence it is called the backbone of any partnership firm. As it clearly mentions all the rules, this will reduce the chances of disputes or any legal issue and will make sure the framework is functioning smoothly. Partnership requires drafted deeds for success and stability, in the same way companies won’t be able to operate efficiently without memorandum of association and articles of association.

 

Enhancing of the transparency and building the trust among the partners by clearly defining exit strategies, capital contributions and decision making authority can be done only with a well drafted partnership deed as it also serves legal proof in case of disagreements and provides with a long-term security, making sure that both business goals and individual interests are safeguarded within the partnership framework.