What are the Advantages of Partnership Deed?
Created on 20 Aug 2018
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Updated on 19 Oct 2019
A partnership deed is an agreement among the partners that lays down the rights and responsibilities of the partners in a business operation to avoid future inconveniences. It has the force of law and is designed to guide the partners in the conduct of their business. A partnership agreement may be written or oral.
Advantages of Partnership Deed
Removal of Partners
If you wish to remove a partner, the default rule in the Act states that no majority of the partners can expel any party, making it impossible to remove a partner. On the other hand, a partnership deed can provide for the removal of a partner if mentioned in the clauses – the necessary notice period and the ground and motives for the expulsion.
The default position under the Act is that all partners are deemed to share the profits equally. But this wouldn’t be fair to that individual partner who has put in more time and money into the business. The deed will divide the profits more fairly.
Avoid legal proceedings
As we know legal proceeding is time-consuming. If for some reason a legal dispute arises, partners can avoid it by providing in the deed Alternative Dispute Resolution methods which include both mediation as well as arbitration.
Limiting the Liability
Under the Act, all partners share equally the liabilities of the business. Having a partnership deed would allow the partners ‘to outline each partners’ level of liability.
Dissolution basically means an act of formally ending something. A partnership deed gives the partners an opportunity to control the impacts of the events mentioned under the Indian Partnership Act, 1932 and make their own decisions with respect to whether or not the partnership should continue.
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