Explanation of the Importance of Partnership Deed in Business

Partnership is a popular form of business organization where two or more individuals come together to share profits and losses. Though it is not compulsory to have a written partnership deed, it is always advisable to have one. In this article, we will be discussing the importance of partnership deed in business.

Clarity in Business Relationship

A partnership deed is a legal document that outlines the terms and conditions of the partnership. It lays down the roles and responsibilities of each partner, the amount of capital contributed by each partner, the profit-sharing ratio, and the rules for admission and retirement of partners. By having a partnership deed, there is clarity in the business relationship, and partners are aware of their rights and obligations.

Protection of Business Interests

A partnership deed protects the business interests of all partners. It lays down the rules for decision-making, profit distribution, and dispute resolution. In the absence of a partnership deed, any partner can take decisions on behalf of the firm, which may not be in the best interest of other partners. Moreover, in case of any dispute, it becomes difficult to resolve the matter without a partnership deed.

Avoidance of Legal Issues

A partnership deed is a legal document that is enforceable in a court of law. In case of any legal dispute, the partnership deed can be used as evidence to resolve the matter. It also helps in avoiding legal issues in the first place as partners are aware of their rights and obligations.

Easy Access to Bank Loans

Banks and financial institutions prefer to lend money to partnerships that have a partnership deed. A partnership deed provides credibility to the partnership and assures the lender that the partnership is a legitimate business entity. It also helps in getting loans at lower interest rates.

Conclusion

In conclusion, having a partnership deed is important for the smooth functioning of a partnership. It provides clarity in the business relationship, protects the business interests of all partners, avoids legal issues, and helps in getting bank loans. Therefore, it is always advisable to have a partnership deed.

Seven Reasons Your Business Should have a Written Partnership Agreement. 1)To Avoid a State’s Default Rules.2)To Have Control Over Who Owns the Company.3)To Agree on Important Issues in Advance.4)To Remove a Disruptive or Non-Performing Partner.5)To Protect the Business and the Partners’ Investment.6)To Protect Minority Owners.7)To Protect Majority Owners also.