Partnership Deed: Importance And Contents Of Partnership Deed
MEANING OF PARTNERSHIP DEED
Deed of partnership or partnership deed can be defined as a document that is drawn up by the partners of a business which contains the rules and regulations guiding the business. It is also known as a document which will clarify the different positions and duties of the partners in the business. Partnership deed is also called PARTNERSHIP AGREEMENT.
MEANING OF PARTNERSHIP
According to the Company and Allied Matter Acts (CAMA) of 1890, partnership can be defined as a relationship which subsist between two or more person carrying on a business with the main motive of profit maximization.
A partnership business can be established without any formal deed of partnership, but it is better and safe to have a written agreement in order to avoid any confusion in the future.
CONTENTS OF DEED OF PARTNERSHIP
The following are the contents of a partnership deed.
1. The name and details of the partners.
2. The name of the business.
3. The signatories to the bank account(s) of the business.
4. Duration of the Partnership.
5. The amount of money contributed by each partner (capital).
6. The rights and responsibilities of each partner.
7. Duties of each partner
8. The nature of business
9. Amount of salary to be paid to each partner.
10. Method to be adopted in admission of a new partner.
11. How to dissolve the partnership.
12. Address of the registered office.
13. Partnership account procedures
14. The terms and conditions of the partnership.
15. The profit and loss sharing ratio.
16. Rate of interest on drawings.
17. Rate of interest on capital.
18. Valuation of goodwill.
WHERE THERE IS NO AGREEMENT
In some cases, there might not be a specific agreement by the partners when starting a business. If this is the case, the following provisions of section 24 of the partnership act 1890 must be applied:
1. There is no interest on capital
2. There won't be any salary for partners acting in the business.
3. The profit and loss of the business will be shared equally.
4. No interest will be charged on drawings by partners.
5. 5% interest a year on loans made by partners in excess of the agreed capital.
6. No new partner(s) shall be introduced without the consent of all existing partners.
IMPORTANCE OF DEED OF PARTNERSHIP
1. Deed of partnership provides permanent records of terms and conditions of the partnership business.
2. In the event of death of a partner, the deed of partnership will serve as a basis for settling the accounts
3. Deed of partnership contains the rules and regulations governing the firm.
4. In case of any dispute, the deeds of partnership will serve as a reference point.