Concept of Partnership:
A Partnership Firm formed under Partnership Act 1932 in Pakistan through which two or more person (maximum 20 partner) join together to commence a business to share profit and loss. Profit and loss are divided based on written Agreement signed between the Partners, which known as Partnership Deed. Despite SMC (Single Member Company) person prefer on Partnership due to profit and loss sharing.
Association of Partnership:
When a Partnership deed is formed and registered with relative department of government including submission of fee and mentioned principle activity in partnership deed and government approved the partnership under Partnership Act 1932 then this is called Association of Partnership (AOP).
Essentials of Partnership under Partnership Act 1932
- Partnership Deed
- Registration of Partnership Deed
- Application Process
- Fee Submission
- Verification and Approval
- Post Registration scenario
Importance of Partnership Deed
A partnership deed, also known as a partnership agreement or articles of partnership, is a legal document that outlines the rights, duties, and responsibilities of partners in a partnership. It serves as the foundational document that governs the operation of the partnership and helps to prevent disputes by clearly defining each partner’s roles and expectations. Here are the essential elements typically included in a partnership deed. In Private Limited Company we required Memorandum of Association and Article of Association while in Partnership we required Partnership deed.
Name and Address of the Partnership:
The deed should specify the name under which the partnership will operate. It should also include the principal place of business and addresses of all partners.
Nature of Business/ Principal Activity in Partnership
Describe the nature of the business or businesses that the partnership will engage in and deeply explain the principal activities of each partners.
Duration of Partnership
It is essential to explain in partnership deed whether the partnership is for a fixed term or is ongoing until dissolved by mutual agreement or other circumstances.
Capital Contributions:
Specify the initial contributions of each partner, whether in cash, property, or services. Outline how additional capital contributions may be made if needed.
Profit and Loss Sharing:
Detail the percentage or proportion in which profits and losses will be shared among partners. This can be equal or based on agreed-upon ratios or depend upon the capital contribution.
Management and Decision Making:
Partnership deed explain in detail to outline how decisions will be made within the partnership, including the authority and responsibilities of each partner in managing the business.
Drawing and Salaries:
Specify whether partners are entitled to draw funds from the partnership for personal use and how salaries or remunerations, if any, will be determined.
Admission and withdraw of Partners:
Partnership deed also explain the way out to add a new partner in the partnership and also describe the procedure by which a partner may withdraw the partnership.
Dispute Resolution between the partners:
Outline procedures for resolving disputes among partners, including mediation, arbitration, or litigation or any other method.
Dissolution and Winding Up the Partnership:
Specify the circumstances under which the partnership may be dissolved and the procedures for winding up its affairs, including distribution of assets and settlement of liabilities.
“Include any other specific agreements or provisions deemed necessary for the smooth operation of the partnership, such as non-compete clauses, confidentiality agreements, or insurance requirements etc”.
It’s important for the partnership deed to be drafted carefully and clearly understood by all partners to avoid misunderstandings and potential disputes in the future. Partners may seek legal advice when drafting or amending a partnership deed to ensure that it complies with relevant laws and meets the specific needs and goals of the partnership.
Requirement of Documents essentials for registration of Partnership as AOP:
- Form-I or Form-A
- Each partner’s– Full Name, Father or Husband’s Name, Residential Address, and copy of the National Identity Cards of each partner.
- Partnership deed on non-judicial stamp paper of Rs. 1000/-. in case of Punjab and Rs. 2000/- in case of Sindh, A Partnership Deed is the document details of Partner’s rights and obligations participating in this Business.
- Proof of the address of the business location, usually utility bills
- If the business location has taken on, then the rent deed/Ownership document is required for address verification.
- Original Deposit Slip of Partnership Deed Fee Deposited in National Bank of Pakistan.
- Signature of all the partners on Partnership Deed along with two witnesses
- Partnership Deed: The first step is to draft a partnership deed outlining the terms and conditions agreed upon by the partners. This document typically includes details such as the name of the partnership, business objectives, contributions of each partner, profit-sharing ratio, etc.
- Registration: While registration is not mandatory for partnerships in Pakistan, it is advisable to register the partnership to avail certain legal benefits and protections. Registration involves submitting the partnership deed along with an application form to the registrar of firms in the relevant district.
- Application Process: The application for registration must include the following information:
- Name of the partnership
- Place of business
- Names and addresses of partners
- Duration of the partnership (if fixed)
- Date of commencement of partnership business
- Filing Fees: There are prescribed fees for filing the application, which may vary depending on the jurisdiction.
- Verification and Approval: The registrar will verify the documents and, if satisfied, will enter the partnership into the Register of Firms and issue a Certificate of Registration.
- Post-Registration: Once registered, the partnership gains legal recognition, and partners can enforce their rights and obligations under the Partnership Act.