Attention - Partnership Firms!!
The Partnership is a form of legal entity that can be formed under the Partnership Act, 1932. As per the Partnership Act, 1932 “Partnership is the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all”. The formation of partnership can be either oral or written.
If the formation of partnership is in written form, a partnership deed is created. A Partnership deed, also called a partnership agreement, is a legal document which deals with the matters pertaining to the duties, liabilities and mutual rights of the partners.
Partnership deed is mandatory, if the firm wants to be legally recognized under various acts like Income Tax Act etc.. Preparation of a Partnership deed is advisable in order to establish the existence of partnership. Partnership deed will contain the name of the partnership firm, name and address of the partners, date of commencement of partnership etc..
With respect to the above, we encountered a recent case, details of which are summarized below:
One of our clients, who initially started the partnership form of business with an oral agreement and a year later made a written agreement (i.e. a partnership deed was created). A partnership deed is to be executed on a stamp paper of the appropriate value.. In the partnership deed the date of commencement of partnership firm was given as a prior date, as opposed to the date of creation of partnership deed.
Later on, the client applied for PF registration for his partnership firm for which he was asked to furnish the partnership deed as documentary evidence. The PF department rejected the application by stating the partnership deed is a void document. It was in this situation when the client approached us for help
We explained the client that the partnership deed was declared as a void document since the date mentioned as date of commencement in the partnership deed was a date prior to the date of creation of partnership deed (date of stamp paper). Since the deed evidences the existence of a partnership firm, it is legally void for the deed to be dated after the commencement of the partnership firm.. The very existence of the partnership firm was held under question
It is always advisable to prepare a partnership deed at the time of commencing the partnership firm and it is also better to register the firm with the Registrar of Firms in order to avoid such complications at future dates.. Any kind of a statutory registration would require a valid partnership agreement apart from the assessment of Income Tax and other tax liabilities..
For any assistance in preparation of partnership deed and registration of partnership firms, please do contact us at firstname.lastname@example.org
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