PARTNERSHIP DEED AND ITS DRAFT, Study Guides, Projects, Research of Law

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DRAFT OF PARTNERSHIP DEED

Introduction:

Partnership is an association of two or more like minded persons formed with a common objective to establish a lawful business house of their choice with the idea of earning profits. However, in any business enterprise the possibility of its incurring loss cannot be ruled out. Therefore, all partners of a firm mutually agree to share all profits and losses of the business amongst them according to their predetermined shares/proportions fixed by them in the partnership agreement. A partnership is distinguishable from associations e.g., clubs, societies, co-operative bodies and incorporated companies. Halsbury defines a partnership as the relation which subsists between persons carrying on a business in common with a view of profit. Sec. 4 of the Indian Partnership Act, 1932 defines partnership as the relation between persons who have agreed to share the profits of business carried on by all, or any of them acting for all. The real intention and conduct of the parties appearing from the (a) written agreement, or (b) verbal agreement together with surrounding circumstances are the tests of partnership^1. A partnership agreement usually makes provisions for the duration of the partnership or for its determination. Where no such provision is made the partnership is “partnership at will”.

Essential Requirement of a partnership:

1. There must an association of two or more persons. There is no limit imposed on the minimum and the maximum numbers of partners under the Partnership Act, 1932.
2. There must exist an agreement between the partners.
3. The motive must be to earn the profit and share between the partners.
4. Management of the business by all or any one or more of them acting for all, i.e., mutual agency. Out of these, the element of mutual agency is most essential, if this element is absent, the partnership fails. One partner is not only an agent of the firm but also of the other partners and, if so, can bind another which fall within the scope of partnership subject to limitation under Section 20 of the Act.

Importance of Partnership Deed:

A partnership deed is a document that outlines in detail the rights and responsibilities of all parties to a business. It has the force of law and is designed to guide the partners in conduction the business. It may be noted that nowhere in this Act it says that the Agreement between the partners should be in writing. However, it would always be advisable to have such agreements in writing, for several reasons, especially in the State of Maharashtra. If disputes arise between the partners, the Partnership Deed could be referred to, for finding out what the Partners had agreed to in black and white i.e., in writing. Moreover, if the Partnership Deed is not in writing, the same cannot be registered with the Registrar of Firms, as well as with the Income-tax authorities, and the consequential advantages flowing from such registration will also not be available to the firm. Once again, if a Partnership Deed is in writing, a variation of the agreement can (^1) Cox v. Hickman (1860) 8 HLC 268

Retirement and Expulsion of Partner:

These matters can be regulated by the terms incorporated in a deed of partnership. Sec. 32 and Sec. 33 of the Act talks about the retirement of Partners. A partner may retire from a firm with the consent of all other partners. If the terms of the agreement so provide, a partner may retire by notice to the other partners. In a partnership at will also, a partner can retire by giving notice in writing to all the other partners of his intention to retire. A partner can be expelled from a firm by a majority of the partners where such a power is conferred by the agreement between the partners and the power is exercised in good faith.

Dissolution of Partnership:

When jural relation between the partners inter se is snapped, this constitutes dissolution of the firm which may take place: (A) Without the intervention of the Court:

• By agreement between the parties
• By the adjudication as insolvent of all the partners or of all the partners but one
• By the business of the firm becoming unlawful,
• Subject to agreement between the partners: (i) By the expiry of the term fixed, (ii) By the death of a partner, (iii) By the insolvency of a partner
• By notice in writing in case of partnership at will (B) Dissolution with the intervention of the Court may be made on any of the grounds contained in Section 44 of the Partnership Act such as (i) a partner becoming of unsound mind; (ii) Permanent incapacity of a partner; (iii) Misconduct of a partner affecting the business of the firm; (iv) Wilful or persistent breaches of agreement by a partner; (v) Transfer or sale of charge of the whole interest of a partner; (vi) Improbability of the business being carried on save at a loss; (vii) The court being satisfied on any other equitable ground.

Execution and Attestation: Registration

A deed of partnership, or of dissolution of partnership, must be executed and attested as a bond on a non- judicial stamp paper of proper value, and its registration is not compulsory, it has been made optional under the provisions of Section 58 of the Indian Partnership Act, 1932, but where a deed of dissolution of a firm involves transfer of immovable property worth Rs. 100 or upwards, the deed is compulsorily registrable. Consequences of non-registration of a partnership firm are set out in Section 69 of the Partnership Act. An unregistered firm cannot enforce a right or claim arising out of a contract against any third party. However,

if the firm obtains registration on the date of institution of the claim against third person, the said claim or right would be perfectly maintainable. Since the blow of the consequences of non-registration is very severe, it is advisable to get the partnership deed registered under the Partnership Act, 1932 upon incorporation. No law requires that a deed of partnership should be attested, but it is desirable that it should be attested by at least two partners. Stamp duty of an instrument of partnership and on a deed of dissolution is payable under Article 46. Schedule I to the Indian Stamp Act, 1899.

Clauses in a Partnership Deed:

While drafting partnership deed, one must incorporate all terms and conditions that govern a particular partnership business. Partners of any partnership business are normally interested in settling certain terms amongst them before they join hands to carry on business in partnership. As a draftsman of the partnership deed, one should be extra careful to understand and properly incorporate the terms relation the following: (1) Name and place of business (2) Duration of the partnership (3) Shares of each partnership in the profits and losses of the business (4) The management of the business. (5) Nature of principal work agreed to be carried on in partnership (6) Number of partners and initial capital employed by each one of them (7) Provision and the manner for raising future capital, if required. (8) Work Distribution, if any, of each of the partners. (9) Obligation of partners who are members of a partnership firm (10) Operation of Bank Accounts (11) Withdrawal by partners. (12) Accounting system of the business (13) Whether place of business belongs to partnership or any individual partner (14) Division/Devolution of goodwill of the business in case of dissolution of partnership (15) Distribution of assets and liabilities amongst partners at the time of dissolution (16) Provisions for bringing in or admitting new partners (17) The effect of the death of a partner, whether his heirs will take his place, or the partnership will be continued by the remaining partners or it will stand dissolved. (18) Provision for resolving disputes relating to partnership if arises amongst the partners. If all partners agree to settle their partnership disputes through the intervention of some named person who may act as an arbitrator for them or even otherwise by arbitration, it is always advisable to include an arbitration clause in the partnership stating that all disputes that may arise between the partners will be resolved by reference to arbitrator under the provisions of Arbitration and Conciliation Ac, 1996.

7. That net profits or losses, as the case may be, of the partnership business shall be shared by all the partners as under: - (i) Gaurav Sharma, party of the first part: 50% (ii) Yash Raje, party of the second party: 50%
8. That the accounts of partnership business shall be closed on 31st^ March of each year or as soon as possible thereafter the accounts books of the partnership shall be made and completed for the preceding year and the net profits or losses, as the case may be, of the partnership business, will be divided or born amongst partners in the manner indicated above.
9. That no partner shall have right to sell, mortgage or transfer his/her share or interest in the partnership to a stranger without the written consent of the rest of the partners jointly.
10. None of the parties hereto shall without the consent of the others: - a) Assign charge or in any way encumber his/her share in the assets and profits of the partnership; b) Borrow any money in the name of the firm; c) Draw, accept or endorse any Hindi, Promissory Note, Bill of Exchange, or any other negotiable instrument on account of the firm except in the ordinary course of the partnership business. d) Pledge the credit of the firm or become surety or guarantee for any person or persons or knowingly suffer anything to be done whereby the partnership property may be endangered; e) Except in the ordinary course of partnership business, dispose of by sale, pledge or otherwise any part of the partnership goods or effects. f) Lend any of the monies or deliver upon credit any of the partnership goods to any person or persons whom the other partner or partners shall have previously forbidden him/her to trust; and g) Buy, order or contract for any immovable property in the name of the firm.
11. All necessary and property books of the account shall be kept and maintained in English language or in computerized electronic form and shall not be removed from the place of business without the consent of other partners.
12. Bank account or accounts shall be opened in the name of the firm and the same may be operated upon by the parties hereto jointly on behalf of the firm.
13. Each partner shall be faithful to the others in all transactions relating to the partnership business and at all times give to the others just and faithful account of the same and upon every reasonable request furnish full and correct explanation thereof to the others.
14. Death, retirement or insolvency of any partner shall not dissolve he firm. However, the remaining partners may continue to carry on the business by themselves or by admitting any heir or legal representative of deceased partner or with any other partner.
15. It is hereby agreed and declared that each of the parties hereto is the agent/representative of the other and is authorized to represent the other partners submit to arbitration, before the Government and

semi Government departments, Public and Electrical undertakings, local bodies, concerning any contract, tenders, receipt of monies from them and is authorized to sign any papers and documents and receive monies on behalf of the Partnership firm and for self and other partners wherever necessary to facilitate smooth functioning of the contracts undertaken by the partnership firm. The decision of the arbitrator so appointed will be binding on all the partners. Each of the parties hereto agree and declare that each of them will be bound by the act, deed, matter or thing by the other partner and agree to indemnify and keep indemnified such contracting parties.

16. Any partner intending to retire from the partnership he/she shall, in the first instance, offer his/her share in the assets and profits of the partnership to existing partners for a price to be mutually decided and shall not insist on dissolution of the firm.
17. In the event of any partner desiring to retire from the partnership he/she shall be at liberty to do so by giving other partners two months’ notice in writing of his/her intention to do so and on the expiry of the said period of two months the partnership shall be deemed to have been dissolved so far as that partner is concerned and the remaining partners will be entitled to continue the partnership business by mutual consent. The notice of retirement shall be sent by registered post and the said period of two months shall be computed from the date when such notice is posted.
18. Subject to the provisions herein contained, in the event of dissolution of the partnership, a full and general account shall be taken of the assets, credits, debts and liabilities of the partnership and of the transactions and dealings thereof and with all convenient speed such assets and credits shall be sold, realized and got in and proceeds applied in paying and discharging such debts and liabilities and the expenses of and incidental to the partnership business and the winding up of the partnership affairs and subject thereto in paying to each partner his/her share of capital and the balance, if any, of such proceeds shall be divided between the partners hereto in the same proportion in which they are entitled to share the profits and losses of the partnership.
19. All disputes and differences and questions in connection with the partnership or this deed including construction of any of the articles herein arising between the partners hereto and the heirs and legal representatives of the other or others or between their respective heirs and legal representatives of the other or others or between their respective heirs and legal representatives shall be referred to the sole arbitration of an independent person to be nominated by mutual consent of the parties hereto and the decision of the said arbitrator shall be final and binding on the parties hereto. IN WITNESS WHEREOF, the parties hereto have affixed their signatures hereto this day and year first hereinabove written. SIGNED AND DELIVERED by the ) Withinnamed GAURAV SHARMA ) In the presence of )
20. Mrs. Niharikha Sharma )