The agreement that brings a partnership into existence is called a Partnership Deed.
A partnership deed is a written document that contains all the terms and conditions agreed upon by the partners. It serves as the foundation of the partnership and includes details such as:
- Profit sharing ratio among partners
- Capital contribution by each partner
- Interest on capital and drawings (if any)
- Partner's salary or commission (if any)
- Duration of partnership
- Rights, duties and obligations of partners
When partners enter into a partnership, they formalize their relationship through this legal document. While a partnership can be formed orally (except for banking business), it is always advisable to have a written partnership deed to avoid future disputes and provide clarity on all agreed terms.
The term "Partnership" refers to the business organization itself, while "Partnership Deed" specifically refers to the agreement that creates it.