In a population-driven and developing country like India, an idea of running/starting a business is considered to be forever exciting and opportunistic. India has made rapid progress, both socially and economically in the last decade or so. Being the world’s largest democracy brings/adds leverage in attracting different kinds of business opportunities (both domestic & international). A few types of entities at the heart of running the show can be named as Sole Proprietorship, Private Limited Companies, LLPs, Joint Hindu Family, and Partnership Firm. Partnership Firm in India is governed under the Indian Partnership Act, 1932 which duly defines any partnership as “the relation between persons who have agreed to share profits of the business carried on by all or any of them acting for all”. Partnership firm registration requires a Partnership Deed Or Agreement well placed before any other step of business registration is taken.
What is a Partnership Deed Or Agreement?
Partnership Deed or Agreement is a contract between two parties (partners), which sets out the terms and conditions of the relationship between the partners and acts as the foundation for every partnership. A partnership can only arise from a due contract and not the status. A Partnership Deed or partnership agreement can be both either oral or written. However, it is sensible to get the Partnership Deed in writing as its enforceability will be more prudent thereby.
Essential Clauses in Partnership Deed
The following vital contents must be there in every partnership agreement in India:
- The name and address of the defined firm and all its partners,
- Nature of business to be carried on,
- Date of Commencement of business,
- Duration of Partnership (whether for a fixed period/project),
- Capital contribution by each partner,
- The profit-sharing ratio among the partners,
- The business objective of the partnership,
- Partnership property,
- Loans to the partnership,
- Banking arrangements,
- Records and accounts,
- Meetings and voting,
- Holidays & Absence,
- Good faith & Partnership policies,
- Restrictions on Partners,
- Intellectual property,
- No competition & Expulsion,
- Termination of the partnership. Comprehensive termination provisions to protect ongoing partners,
- Indemnity for the Partnership,
- Publicity / Announcements.
In India, one must draft the partnership deed on a Non-Judicial Stamp Paper with a value of Rs.100/- or more. The partnership agreements are signed in the presence of all the partners along with witnesses.
How to Register the Partnership Agreement in India?
As per the Partnership Act, 1932, partnership firm registration is optional and is at the sole discretion of the partners only. However, if the partnership deed is not duly registered, they will not be able to enjoy the kind of benefits which a duly registered partnership firm enjoys.
The partnership firm registration can be completed before starting the business or at any time during the continuance of the partnership. But when any firm wishes to file any case in the court to enforce their due rights, Partnership registration must have been done before filing the lawsuit.
Procedure for Partnership Firm Registration
- An application with the prescribed fees is submitted with the Registrar of Firms (ROF) of the state in which the firm is situated.
- The following documents are required to be submitted along with the application:-
- Application for Registration of Partnership,
- Duly filled specimen of Affidavit,
- Certified True Copy of the Partnership Deed,
- The due ownership proof of the given principal place of business (to be used).
This application must be duly signed by all the partners. When the ROF is completely satisfied with points stated in the described partnership deed/agreement, he/she may embark an entry of the application in its register and will duly issue a Certificate of Registration.
Advantages of Partnership Agreement
- The partnership agreement is relatively easy to establish,
- It is completely ideal for any partnerships with between 2 and ten partners. Also, one can use the agreement for larger partnerships as well;
- One can attract prospective employee to the business if given the incentive to become a future partner,
- It helps as the ownership of the partnership assets and the share of income and expenses doesn’t have to be in any equal proportions,
- A partnership agreement benefits from the combination of complementary skills of two or more people. There is a wider pool of knowledge, skills, and contacts to your organisation;
- One may use a partnership agreement if one or more of the partners is sleeping or silent partner, which means that they duly contribute in the finances, experience, and assets of the firm but may not take part in every day to day running of their firms business;
- One’s business as partners could be a single specific project, such as a technology development project, and does not necessarily have to be commercial.
Partnership deed or partnership agreement is an important legal document in India. The document serves the purposes of avoiding unnecessary misunderstanding, harassment, and unpleasant incidents among the partners of a business entity in case of any dispute.
Thus Partnerships Deed/Agreements are a must, the first thing to be done in a partnership firm. LetsComply’s legal experts can help you in drafting a Partnership Deed/Agreement for your business. To know more, call us at +91-9717070500 or send an email at firstname.lastname@example.org.