How To Write A Partnership Deed For Your Partnership Business
Partnership is the relationship which subsist between two or more people carrying on a business with the sole aim of making profit. Nobody goes into a partnership business to make loss.
People go into partnership business for some reasons which include to raise more capital, to share the responsibilities of managing the company with someone, to use a right, etc.
Humans are not predictable, so it is advisable that before you go into any business partnership with anybody, you and your partners should draft an agreement on the terms and conditions of running the company. That agreement is called partnership deed.
Contents Of A Partnership Deed
Partnership deed is compulsory for any partnership business, although there is no specific format for writing it. However, a typical partnership deed include the following clauses:
- The name of the firm
- Address of firm
- Name and details of all partners
- Date of commencement of business
- Duration of the firm’s existence
- Capital contributed by each partner
- Profit/loss sharing ratio
- Interest on capital payable to partners
- The extent of borrowings each partner can draw
- The amount of interest on drawings
- Salary payable to partners, if any
- The procedure of admission or retirement of a partner
- The method used for calculating goodwill
- Preparation of accounts of the firm
- Mode of settlement of dues when a partner dies
- The procedure followed in case disputes arise between partners
The content of the partnership deed listed above are clearly explained below.
1. The name of the firm: This is the agree name that the company will be called when established e.g Michael John and Co., In this case, any name came be used.
2. Address of firm: The address of the firm serves as the office address, which is the venue for business operations. E.g 25, Douglas road Owerri, Imo State. Although this can change in the future depending on the agreement reached by each partner.
3. Name and details of all partners: This section shows the names and contact address of each parties forming the partnership business. This is very important.
4. Date of commencement of business: This means the date (day, month and year) that the company will commence operations.
5. Duration of the firm’s existence: This is the lifespan of the business. It explains the period that the partnership would come to an end. The duration can be extended if the need arises.
6. Capital contributed by each partner: This section states the amount of capital which was contributed by each partner. In most cases, the partners don't contribute the same amount of capital. Therefore, there is a need to state the amount contributed by each of them.
7. Profit/loss sharing ratio: The aim of starting a business is to make profit. But in some cases, a business can run at a loss at the end of the period and can also make profit. Hence, it is essential to state the profit/loss sharing ratio. Most companies share the profit based on the amount of capital contributed.
8. Interest on capital payable to partners: Each partner is to receive an interest on the amount of capital they contributed. This will be stated in the partnership deed.
9. The extent of borrowings each partner can draw: Sometimes partners can withdraw funds from the business in form of loan. The limit that each partner can borrow will be written here.
10. The amount of interest on drawings: To discourage drawing, the company can set a particular amount of interest percentage that a partner would pay in addition to the original amount borrowed, if they borrow for the business.
Also Read: What Are The Types Of Partnership Business?
11. Salary payable to partners (if any): In most partnership business, the active partner is entitled to salary for running the daily affairs of the company. The other kinds of partners are not entitled to salary. The amount of salary paid to partners will be stated here.
12. The procedure of admission or retirement of a partner: Sometimes, the business can decide to admit new partner(s) or an existing partner might decide to retire. The procedures of admitting new or retiring an existing partner will be stated here.
13. The method used for calculating goodwill: Goodwill is the reputation that a business organization has built over the years. The method of valuating Goodwill will be stated in this part of partnership deed.
14. Preparation of accounts of the firm: This explains the methods and types of accounts that the business will prepare periodically. The accounts include balance sheet, partnership account, etc.
15. Mode of settlement of dues when a partner dies: Death is inevitable, only that we don't know when it will come. When a partner dies, the mode of settlement of dues to the family will be stated.
16. The procedure followed in case disputes arise between partners: Dispute is normal in any working environment, but it is essential to settle all disputes before they escalates. The procedures to resolve dispute will be stated here.
How Do You Write A Partnership Deed?
In this article, I will explain to us how to write a partnership deed and the steps to follow when writing a partnership deed. Below is a format or sample of a deed of partnership between two or more partners.
This deed of partnership made on the 20th day of January, 2020 BETWEEN JOHN & MARY JACKSON (1st partner) of No 2 Agbojojoye Street Ibasa, Ijegun, Amuwo-Odofin, of the first part PETER AND PAUL JAMES (2nd partner) of 21 John Akinwole Street Ilufe Ojo, Lagos, of the second part.
It is agreed that the parties shall become partners in the business of providing accounting services upon the terms stated below, namely:
1. Name Of The Company
The firm’s name shall be Trending Accounting and Co which shall be registered in accordance with the Companies and Allied Matters Act, 2004.
2. Address Of The Business
The partnership business shall be carried at No 15, Alhaji Okin Street Mosafejo Ojo, Lagos State or at such other places as the partners may agree upon from time to time.
3. Duration Of The Partnership Business
The partnership shall be for a duration of twenty years and is to commence operations from the 10th day of June, 2020 but subject to prior determination as stated in clause 10 of this agreement.
4. Capital Contribution By Each Partner
The capital of the partnership shall be the sum of Ten Million Naira (N10, 000, 000.00) to be contributed by the partners on 60-40 percent basis by John & Mary Jackson and Peter & Paul James on the day that this agreement will be signed.
Also Read: Why Is Capital Treated As A Liability?
5. Profit And Loss Sharing Ratio
Profits from the partnership shall be shared based on the percentage of each partner’s capital and such net profits shall be divided among the partners immediately after the settlement of the annual accounts.
The property used as the head office of the partnership at 21 John Akinwole Street Ilufe Ojo, Lagos State has been contributed by PETER AND PAUL JAMES and that property shall upon dissolution of the partnership continue to be the property of PETER AND PAUL JAMES.
6. Bankers of The Firm
The partnership's bank shall be First Bank PLC or such other bankers as may be agreed upon by the partners. All monies of the partnership (excluding monies from petty expenses) shall be kept with the said bankers. Each partner shall be authorized to draw checks in the name of the firm.
7. Remuneration/salary To Partners
As compensation for services rendered to the Partnership business, each Partner shall be entitled to a monthly salary of N100,000, which shall be deducted by the Partnership as a necessary business expense before calculating the net profits. However, the salary of any Partner may be increased or reduced at any time by mutual agreement of all the Partners.
8. Preparation Of Accounts Of Company
Proper books of account shall be maintained at the place of business of the Partnership and shall be open to inspection by either partner or their agent.
On the 30th of December of every year, an record of all assets and liabilities of the Partnership shall be taken and a balance sheet and income statement shall be prepared and signed by each partner who shall be bound thereby unless some manifest error shall be found there within three months in which case the error shall be rectified.
9. Auditors Of Company's Account
KPMG shall be the external auditors of the partnership. The accounts shall be audited annually.
10. Withdrawal/determination Of Partnership
Any of the partners shall upon giving three months’ notice to the other partner withdraw from the partnership and such withdrawal shall determine the partnership.
11. Dissolution Of Partnership
On dissolution of the Partnership, the affairs of the Partnership shall be wound up, the assets of the Partnership liquidated, the debts paid, and the surplus divided equally among the Partners.
12. Dispute Resolution Among Partners
All disputes between the partners in relation to any matter whatsoever touching the partnership affairs or the construction of this agreement and whether before or after the determining of the partnership shall be referred to as single arbitrator in accordance with the provisions of the Arbitration and Conciliation Act .Cap. A18 LFN 2004
In witness of which the parties have executed this deed in the manner below the day and year first above written
SIGNED SEALED AND DELIVERED BY
_______________________________________
John and Mary Jackson
Peter And Paul James
Trending Accounting and Co
In The Presence Of
Name:
Address:
Occupation:
