Partnership is a relationship between individuals and it is very important to have rules, conditions, and guidelines to maintain the relationship, it is from this concept that the Partnership Deed has been created. Partnership deed is an agreement between the partners that states about the relationship between the partners and the firm. All the essential elements for the business and the partners are given in the partnership deed, that is why partnership deed is important for the business.
Table of Contents
Importance of Partnership Deed
Following are the importance of Partnership Deed:
1. Smooth Function:
Partnership deed helps in running the business smoothly as all the important elements are given in the partnership deed. The partners and the firm act as per the partnership deed.
2. Clarity:
Partnership deed helps in maintaining clarity between the partners as all the important elements are given in the partnership deed. Like rights and duties, profit and loss sharing ratio etc.
3. Arbitration:
Mediation/Arbitration means that if any dispute arises between the partners then how will they solve their problem and who will play the role of mediator in the mediation? To avoid this problem, it is necessary to have a partnership deed because the arbitration clause is mentioned in the partnership deed.
4. Profit and Loss Sharing Ratio:
Profit and loss sharing ratio is applicable only when partnership deed is available. If partnership deed is absent then all the partners share profits and losses equally even if some partners have invested more capital in the firm.
5. Helps in Licensing:
In partnership firm, the partnership deed is constitution and legal documents of the firm, hence it is valid in every field. Partnership deed helps in legal tasks like registration, licensing and other important things.
6. Remuneration:
The partnership deed defines the remuneration of the partners. Partners of a partnership firm are entitled to receive remuneration only if the clause is mentioned in the partnership deed.
7. Helps in Loan:
Partnership deed is a legal document in the eyes of law because partnership deed is a constitution of the partnership firm. It helps in obtaining loans and credit from the markets.
8. Define Interest:
The partnership deed defines interest on loans, capital and drawing. In the absence of a partnership deed, the partner gets 6% per annum interest on the loan. Partners are not entitled to pay interest on drawings and receive interest on capital.
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QNA/FAQ
Q1. What is the importance of partnership deed?
Ans: Following are the importance of Partnership Deed:
1. Smooth Function
2. Clarity
3. Arbitration
4. Profit and Loss Sharing Ratio
5. Helps in Licensing
6. Remuneration
7. Helps in Loan
8. Define Interest
