Deed of partnership
A deed of partnership is a legally binding agreement between the partners who are in business together. It describes how the partnership will be run and the rights and duties of the partners themselves.
It's not necessary to have a deed of partnership in order to set up a partnership, but it's a good idea, as it will help to avoid misunderstandings and disputes between partners in the future
In writing is called Partnership Deed. Partnership deed is a document which is signed by all the partners and which contains all the matters determining and governing the mutual rights, duties and liabilities of the partners in the conduct and management of the affairs of the partnership. It may also be referred to as articles of partnership” containing the name, nature of business, capital, duration of the firm, etc.
It has been observed that partners start bickering and quarrelling after the firm has worked for some time. It is, therefore, advisable that the articles of partnership should be drawn up through the lawyer. A partnership deed on stamp paper is considered to be valid in the court against any dispute. The importance of partnership deed can be judged from the following facts.
1. It forms the basis of formation of the partnership.
2. It defines the mutual rights, duties and liabilities of the partners.
3. It helps in minimizing the areas of disputes among the partners.
4. It serves as guidepost for the conduct of firm business.
Clauses or Contents of Partnership Deed:
The partnership deed usually contains the following clauses
1. Name and location of business.
2. The nature of the business.
3. The amount of capital to be contributed by each partner.
4. Provisions or reinvestment in business.
5. The duties, powers and obligations of all the partners.
6. Length or life of business.
7. The method of distribution of profit and sharing of the losses.
8. Method of admitting a new partner.
9. Procedure for withdrawal of a partner.
10. The method of valuation of goodwill on and or retirement or death of a partner.
11. Method of revaluation of assets or liabilities on admission, retirement or death of a partner.
12. Procedure to be followed for expulsion of a partner.
13. Arrangements to be followed in case a partner becomes insolvent.
14. Salary, if any, payable to the partners for managing the firm.
15. The method of preparing accounts and arrangement for audit.
16. Procedure for the dissolution of the firm and settlement of accounts.
17. Arbitration in case of disputes among partners.
18. Operation of bank account.
The above items are not the final list of clauses. Any clause mutually agreed to by the partners can be Included in the agreement. If the deed is silent on any point, then the provisions of Partnership Act of 1932, will apply.
KINDS OF PARTNERS
The partners of a firm are broadly divided into three main categories.
(1) General Partners (2) Special Partners (3) Other Partners
(1) GENERAL PARTNERS
Basically all the partners of a firm are general partners. General partners we those whose liability is unlimited in the f General partners are of two types (a) Active Partners (b) Sleeping Partners.
(a) Active Partner
A partner who takes active part in the day to day management of the business is cared an active partner. An active partner (also called working partner) may work in different capacities such as manager, organizer, adviser, controller of all the affairs of the firm. The active partner is rewarded as per agreement between the partners.
(b) Sleeping Partner
A sleeping partner is one who contributes capital, shares profits and losses of the firm but takes no part in the day to day management of the affairs of the firm. A person, who has money to invest but cannot spare time for the business, may become sleeping partner. A sleeping partner is liable for the liabilities of the business like other partners.
(2) SPECIAL PARTNERS
Special partners are partners whose liability is limited to the extent of their capital contributed in the firm. They are only found in limited partnership. The special partners cannot take part in the management of the business of the firm. In Pakistan limited partnership is not recognized.
(3) OTHER PARTNERS:
The other types of partners sometimes found in a firm are as follows.
(a) Secret Partner
A partner who takes active part in the affairs of a business but is not known to the public as a partner is called Secret partner”. He, like other partners, is liable to the creditors of the firm to an unlimited extent He shares profits according to the agreement signed.
(b) Nominal Partner
nominal partner lends his name for the goodwill and credit worthiness to the firm. He neither contributes capital nor takes active part in the management of business. Such partners are called nominal partners. Nominal partners are liable for the debts of the firm.
(c) Minor Partner
Partnership is a contract and a contract with minor is void. Under Section 30 of Partnership Act, a minor is not able to enter into a contract and so he cannot become a partner of a firm. He can, however be admitted to the benefits of a firm with the consent of other members and that too n a business which is already operating. His liability remains limited to the extent of his share in the capital. On attaining majority, he has to choose whether he has to continue as a partner or not.
(d) Partner at Will
type of partner will continue so long the partners have mutual faith, trust and confidence among them.
(e) Partners In Profit Only
If a partner is entitled to receive certain share of profit and is not held liable for the losses, he is known as partner in profit only. He is not allowed to take part in the management of the business.
(f) Partner by Estoppels
There is another minor type of partner which is called partner by estoppels. If person styles the character of a partner in a business before a third party (outsiders) by words or in writing or by his act, he is called a partner by estoppels. The third party mistaking him as a partner in the business advances loans on his creditability, that person would be personally responsible for the liability attaching to the position of a partner The partner by estoppels would, however, not be entitled to any right like other partners in the business.
This partnership deed must be made on stamp paper as per the laws of the place of signing. The whole process of drafting the partnership deed can be done through lawyer.
After preparation of the deed, it must be signed by all the partners. It must also have signatures of independent witnesses.
The deed is then submitted to the Concerned “ Registrar Of Firms” of Dist/State along with the Registration Form and other supporting documents. On approval of these documents by the “Registrar Of Firms” the “Partnership Firm” is established as a legal entity and can start business under the chosen name.
With Concerned to other part of your query, if both brothers are already in business, they can enter into Partnership Deed on mutual Terms & Condition and can execute the Deed as per above and change their business as Partnership Firm.