What is a Partnership Deed?

A partnership deed is a legal document that acts as the foundation of a partnership firm. It outlines the terms of a partnership agreement between the members and states the various aspects of the partnership, including the roles, rights, responsibilities, and liabilities of each partner involved. It contains important details like the name and address of the partnership firm, as well as the partners, the nature of the business, capital contributions made by each partners, and the profit-sharing ratios. 

The deed can be of various types, including general partnership deed, limited partnership deed, and partnership deed with sleeping partners. Additionally, it provides various benefits, like the profits are distributed fairly as per the proportion of the partner's share, it helps avoid disputes, and prevents unwanted dissolution.

Although registering a partnership deed is not legally mandatory in India, it is often advised for the security and efficient running of the business. It provides a legal status to the business and also offers several benefits. The deed must be signed by each partner, and they must keep a copy of it. In this blog, we will learn more about what a partnership deed is and its implications on NRIs. 

What is the Format of a Partnership Deed?

Here is a format for a partnership deed in both Word and PDF formats: 

What are the Types of a Partnership Deed?

The following are the three key types of a partnership deed

• General Partnership Deed: It is ideal for partnerships where all partners have equal rights and responsibilities. 
• Limited Partnership Deed: This type of deed includes both general partners with unlimited liability and limited partners with liability restricted to the proportion of their capital contribution. 
• Partnership Deed With Sleeping Partners: It includes provisions for partners who contribute capital but don't take part in the daily management of the business. 

What is the Importance of of Partnership Deeds?

For any partnership firm, a partnership deed plays an important role by outlining the roles, responsibilities, and obligations of each partner. Here are the importance of a partnership deed:

• It specifies the nature of the business, terms of the partnership, and outlines the rights, duties, and liabilities of each partner. 
• The deed reduces the chances of payment-related conflicts as it covers details about partner remuneration. 
• It helps avoid any potential misunderstanding or conflicts by clearly stating every term and condition. 
• Any confusion related to the profit and loss sharing ratio among partners can be avoided. 
• It acts as a legal reference to solve issues during any disagreements regarding pre-agreed terms. 
• By having all the key information and arrangements in writing, it enhances the overall functioning of the firm and protects the partners' interests. 

What are the Benefits of a Partnership Deed?

A partnership deed provides a written document that outlines the roles, obligations, profit-sharing ratios, and responsibilities of each partner. Hence, it reduces the chances of disputes and protects the partners' interests. Here are some other benefits of establishing a partnership deed:

• Fair Profit-Sharing: Profits are shared equally in the absence of a deed, regardless of the proportion of their contribution. A partnership deed ensures fair profit distribution by allowing the profits to be distributed based on the efforts, role, and how much the partner has invested. 
• Avoiding Unwanted Dissolution: Without a deed, certain events can cause automatic dissolution. A deed enables a partner to include clauses that help have control over whether the firm should continue or dissolve after certain events. 
• Prevent Legal Conflicts: It specifies alternative dispute resolution (ADR) methods like mediation or arbitration to avoid legal conflicts. 
• Removing a Partner: As per the Indian Partnership Act, a partner can be expelled by a majority. However, if the partnership deed contains certain clauses regarding removal, partners can lawfully expel a member by following the specified process and notice period. 
• Limited Liability: The deed clearly defines the obligations and liability share of each partner, offering flexibility in financial responsibility. 

How to Register a Partnership Deed?

In India, registering a partnership deed is not legally required. However, it is strongly advised for the protection and smooth running of the business. It helps the partnership to gain a legal status and offers several benefits, particularly in case of disputes. Here are the steps to register a partnership deed to ensure your firm is recognized legally:

• Step 1: Draft the partnership deed on a non-judicial stamp paper and get it signed by all the partners involved. 
• Step 2: Book an appointment with the Sub-Registrar or Registrar's Office.
• Step 3: Register and notaries the deed in front of witnesses who also need to sign the document. 
• Step 4: Submit the registered deed along with the required documents to the Registrar of Firms for verification purposes. 
• Step 5: Collect the official partnership firm registration certificate from the registrar of firms. It will confirm the legal status of your firm. 

What are the Documents Required for Partnership Deed Registration?

There are different document requirements for both the firm and each partner involved. Here are the documents required for the firm and each partner for the partnership deed registration:

For the Firm

• The PAN card of the partnership firm. 
• The official registration form (Form 1) for the firm. 
• The original partnership deed on stamp paper, signed by each partner and notarised.
• If the property is rented, a rent or lease agreement and a letter from the landlord are also required. 
• If the property is owned, an ownership proof, like a recent utility bill (not older than 2 months). 
• A declaration confirming that all the provided information is true and accurate. 

For Each Partner

• A copy of each partner's PAN card. 
• Recent passport-sized color photographs for all partners. 
• A valid government ID for identity proof, like an Aadhaar card, a voter ID, or a passport. 
• Recent proof of address, such as an Aadhaar card, bank statement, or utility bill (not older than two months). 

NRI-Specific Consideration for Partnership Deeds

Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs) can be partners in Indian firms, whether general or LLP. However, the partnership deed must address FEMA, RBI, and tax compliance to ensure easy operations, remittances, and liability protection. Here are some key points for NRIs:

Essential Clauses to Include

• Profit-sharing ratio with TDS provisions.
• NRI partner's full details must be included, including passport, overseas address, and NRI/OCI status. 
• Local authorized representative for communication and filing with the ROC. 
• The capital contribution method used, like inward remittance through the banking channel. Also, include the repatriable terms (100% repatriable after paying taxes). 
• Resolution for disputes via arbitration in India (enforceable under NYC for international enforcement). 
• Ensure to include an exit clause also for admission/retirement with consent. Any insolvency is handled aligned with the FEMA. 

Registration and Compliance

• Draft the deed on an e-stamp paper and attest it via the Indian embassy/consulate (if abroad). 
• Register with the Registrar of Firms using Form 1 or MCA for LLPs. Ensure to include the FEMA declaration as well. 
• Open NRO/EFC current account and report investments through Form FC-GPR (if applicable). 
• Annual filings using ITR-5 for a firm are mandatory. NRIs need to report their share in their personal ITR, and any income sourced in India will be taxable. 

Tax and Repatriation

• Obtaining a PAN/TAN is mandatory for a firm to claim benefits under the DTAA. 
• Profits can be remitted via Form 15CA/CB with a CA certificate. 
• For US NRIs, reporting FATCA/CRS is mandatory. 
• Prefer LLP deeds for limited liability and to protect personal assets abroad. 

Risks and Tips

• In a general partnership, there is unlimited liability, which may even risk NRIs personal assets. Hence, you should opt for an LLP to protect personal assets. 
• Virtual signing through e-sign is allowed. Ensure to get an apostille for foreign enforcement. 

The Bottom Line

A partnership deed is a crucial document that serves as the foundation of a legally recognized partnership. It clearly states the roles, responsibilities, profit-sharing ratio, obligations, and other essential terms related to each partner involved. It helps avoid any misunderstanding or conflicts among the partners. Although partnership deed registration is not legally mandatory, it is advised to improve legal protection, credibility, and access to financial and tax benefits. 

Moreover, to craft a well-structured and accurate draft, seek assistance from an expert at Savetaxs. We have a team of experts who can provide end-to-end consultation for establishing your partnership deed and registering it. They will help you gather all the documents required for the registration and ensure everything is accurate to avoid potential issues. Contact us today as we serve our clients 24/7 across all time zones.