What we know about a partnership firm is, that a partnership is defined as a relation between two or more persons who have agreed to share the profits of a business carried on by all of them or any one of them acting for all. The owners of a partnership business are individually known as the "partners" and collectively as the "partnership firm". Partnerships are governed by the Indian Partnership Act, 1932. Apart from this, the general law of contracts, as contained in the Indian Contract Act 1872 also applies to Partnership Firms in India. In this blog we will pull the contracts part to the limelight, giving attention to the top 5 agreements for a partnership firm.
#1: Partnership Deed:
Irrespective of whether you register the partnership firm or keep it as an unregistered partnership firm, this document is mandatory. Partnership deed covers the partners by the drafted clauses and the firm will have to work as per the rules laid out in this document. Main features of this agreement:
- A Partnership agreement must clearly specify the name of the partnership firm, the names of the partners, the capital to be contributed by each partner, the profit or loss sharing ratio between partners, the business of the partnership, the duties, rights, powers and obligations of each partner and other relevant details.
- Must be signed by all partners and witnessed by independent persons
- Specifies the duties and authority of all the partners
- Details of salary and other payments to partners
- Registration of partnership deeds is not compulsory; however, the Income Tax Act, 1961 provides that a partnership shall be assessed as a firm only if it is duly evidenced by an instrument. Therefore, it is desirable to draft and execute a proper deed of partnership.
- Rights to the firm and its partners
#2: Agreement Modifying Partnership Deed:
In case the partners of the partnership firm decide to amend the existing partnership deed, there is special agreement called agreement modifying Partnership Deed, which has to be executed. Main features of this agreement:
- This Deed is supplemental to the Deed of Partnership and duly signed by the said parties
- Details of the old clauses that have to be will be modified and replaced by new ones
- Witnesses, not partners, have to sign the agreement too
#3: Agreement on Introducing New Partner:
In case the partners of the partnership firm decide to add new partner(s), this agreement has to be freshly drafted and executed. Main features of this agreement:
- Details of the new partner
- Date from when this agreement will come into effect
- Details of the capital contribution and interest on capital
- Remuneration for the new partner
- Details of drawing in addition to the remuneration that the new partner can make
- Details governing carry forward or indemnity of Debts of Old Partnership
- Details on how future Profits of old Partnership firm will be determined
- Profit Sharing Ratio of a new partnership
- The document should be signed by witnesses and all partners
#4: Deed of Dissolution:
Dissolution clauses, generally are covered in the Partnership Deed Agreement, but there will be cases where a separate agreement dedicated to dissolution is drafted. Main features of this agreement:
- Details of all the partners
- Date from when the partnership stands dissolved
- Details on how the accounts would be settled
- Details on how the partnership if not settle all penalties would be settling up
- Should be duly signed by witnesses, and partners.
#5: Deed of Retirement:
This agreement will lay down rules that retiring partners should follow to have themselves retired from the existing partnership firm. Main features of this agreement:
- Details of the retiring partner
- Date from which the partner is officially considered retired
- Details on how the partnership firm would be carrying on with purporting profits.
- Details on how the payables to and receivables from retiring partners from the firm.
- The retirement of the Retiring Partner shall be advertised in the Official Gazette and in the local newspapers as required by law and the registration entry of the Firm
- Retiring Partner will pay the income tax on his income and other amounts of money received from the Firm.
- Should be duly signed by witnesses and all partners.