Business Legal Documents
A binding document, the birth certificate of a partnership firm, is legally enforceable among partners of a partnership firm. The partnership deed, whether registered or not, forms the guide book of the objectives and purpose, roles and responsibilities, and legal terms and conditions that are binding on the firm and its partners.
A partnership deed is a legal document that is incorporated under the Partnership Act of 1932 and has to be registered under the Indian Registration Act,1908. It lays out the terms and conditions between two or more people who wish to become partners in a business. A partnership deed helps in the smooth running of the business. The constitution of business through a partnership is chosen by many entrepreneurs.
A partnership deed is an essential element that helps the people involved to get a better understanding of various aspects of the business like:
- Profit or loss sharing.
- The salary drawn by each of the partners.
- Interest on capital, other drawings etc.
Also, curating various points that indicate the operational functioning of the firm. Listing out these points, that is expected to happen in the business over the long run, ensures that there will not be any discrepancies or misunderstandings between the partners.
Another major factor that has to be kept in mind while registering the partnership deed, is the :
- Question of the stamp duty payable.
- The stamp duty payable on the partnership deed is mandatory under Section 46 of the Indian Stamp Act, 1899.
- The duty payable differs from state to state. When you want to set up a partnership business in Karnataka, the duty is calculated upon the capital. If the capital is below Rs.50,000, the stamp duty comes to around Rs.1000 and if the capital is more than Rs.50,000, the stamp duty is Rs.2000.
Profito Global understands the dynamics of your business and helps you draft the partnership deed that seems apt for your entity. We also take immense care while drafting your partnership deed so that it abides by all the rules laid out in the Income Tax Act, 1961, Partnership Act, 1932 and the other rules respectively laid out by the Government of India. As and when the needed data and documents are provided to us, we start the work on drafting the partnership agreement for your business enterprise.
The major criterion of services based on the partnership deed that will be provided by Profito Global is the drafting of a new partnership deed and the modification of the existing deed i.e., alteration of clauses, the addition of clauses etc.
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Why partnership deed is required ?
For all practical and legal requirements , partnership deed is necessary.
Is it mandatory to include profit and loss ratio in the deed ?
Yes. It is mandatory to include profit and loss ratio in the deed.
Is it necessary to have the partnership deed registered?
No, it is not mandatory to have the partnership deed registered under the provisions of the Partnership Act, 1932. But in case of any future litigations, the firm will not be able to avail of any legal benefits prescribed under the Partnership Act, 1932. Also, by registering the partnership, the business gets better credibility than the unregistered firms.
What are some of the contents of the partnership deed?
The partnership deed is inclusive of the following factors:
- The aim of the partnership constitution.
- The principal place of the organization.
- The number of members or partners involved in the business.
- The length of the duration of the partnership.
- Capital Contribution of each partner.
- Salary drawings of each member or partner.
- Profit and loss ratio.
- Other effective bye-laws etc.
What are the main objectives behind drafting a partnership deed?
The main objectives of a partnership deed:
- It ensures a systematic understanding of the rights and duties of the partners.
- Unnecessary disagreements are curbed and bring in peaceful administration.
- The relevance and duty of each party are stated in clarity.
- Profit-sharing is mentioned which helps in the eradication of any kind of disputes.
What are the necessary documents required for the drafting of a partnership deed?
Some of the documents are:
- PAN card of the firm.
- PAN card of each of the members or partners.
- Address proof of partners.
- Photographs of the partners.
- Address proof of organization.
- Affidavit stating that the submitted document and contents are true.
What is the limit on the remuneration of partners?
The maximum amount of salary including bonus, commission, and such other remuneration should not exceed the limit given under section 40(b) of the Income Tax Act, 1961. The limit is as follows:
On the first 3,00,000 of book profits or in the case of loss: Rs 1,50,000 or 90% of the book profits (the higher amount has to be considered).
On the balance of book profit, 60% has to be computed.