Accountancy · Ch 2 — Accounting for Partnership: Basic Concepts
Partnership Deed
Partnership Deed
A partnership begins with an agreement. That agreement can be oral or written — the Indian Partnership Act, 1932 does not insist on a written document. But when the agreement is put in writing, that written document is called the Partnership Deed.
The Deed is the rulebook of the firm. It contains every term that governs the relationship between the partners: the objective of the business, each partner’s capital contribution, the profit-sharing ratio, entitlements to interest on capital, interest on loans, salaries, commissions, and so on. Because the Deed is a contract, its clauses can be changed only with the consent of all partners. It should be drafted carefully, stamped as per the Stamp Act, and ideally registered with the Registrar of Firms.
If the Partnership Deed is silent on any matter, the provisions of the Indian Partnership Act, 1932 automatically apply. The Deed overrides the Act only where it has an express clause.
Contents of the Partnership Deed
A well-drafted Partnership Deed usually includes the following details:
- Names and addresses of the firm and its main business
- Names and addresses of all partners
- Amount of capital to be contributed by each partner
- The accounting period of the firm
- The date of commencement of partnership
- Rules regarding operation of bank accounts
- Profit and loss sharing ratio
- Rate of interest on capital, loan, and drawings
- Mode of auditor’s appointment, if any
- Salaries, commission, etc., if payable to any partner
- Rights, duties, and liabilities of each partner
- Treatment of loss arising out of insolvency of one or more partners
- Settlement of accounts on dissolution of the firm
- Method of settlement of disputes among the partners
- Rules to be followed in case of admission, retirement, or death of a partner
- Any other matter relating to the conduct of business …