The partnership comes into existence by an agreement or deed. A partnership deed is a document containing all provisions according to which mutual rights, duties and liabilities of the partners are determined. It is signed by all partners.
The partnership Deed or agreement may be written or oral. But it is advisable that the partnership deed is drawn up and signed by the partners.
In France and Italy, the law makes the partnership agreement in writing necessary. But in the USA, Great Britain and India there may be oral agreement also.
However, a written deed is desirable to avoid all possible misunderstanding.
Contents of Partnership Deed:
The partnership deed must contain the following particulars:
1. The name of the Firm.
2. The Name and Address of the partners.
3. The nature of the business.
4. The term or duration of the partnership.
5. The amount of capital to be contributed by each partner.
6. The drawings that can be made by each partner.
7. The interest to be allowed on capital and charged on drawing.
8. Rights of partners.
9. Duties of Partners.
10. Remuneration to partners.
11. The ratio in which the profits or losses are to be shared among the partners. If the profit sharing ratio is not written in the deed, the profit will be distributed equally as per the provisions of the partnership Act.
12. The basis for the calculation of goodwill at the time of admission, retirement and death of a partner.
13. The keeping of proper books of accounts and the preparation of balance sheet.
14. Settlement of amount on the dissolution of the firm.
15. The procedure to be adopted in case of disputes among the partners.
16. Removal of partners in case of fraud and breach of duty.
Rules to be followed in the Absence of a Partnership Deed:
1. The partners are entitled to share the profits or losses equally.
2. Partners are not entitled to interest on their capital.
3. No partner will be allowed salary or any remuneration for any extra work done for the firm.
4. No interest will be charged on partners drawing.
5. Interest at 6% per annum will be allowed to partners on any loan given to the firm by them.
6. Every partner has the right to take part in the working of the partnership business.
7. No person can be admitted into the firm without the consent of all the existing partners.
8. Every partner should use the partnership property for the benefits of the firm.
9. Every partner has a right to inspect the books of accounts of the firm.