Conditions Under which Change in Partnership Can Occur
A partnership deed is an agreement between a firm’s partners, which states the terms and conditions, such as the profit-sharing method, a new partner’s admission, salary, and other details. Moreover, it is drafted at the time of the formation of the firm. Sometimes a change in partnership deed becomes necessary due to particular circumstances.
Circumstances Need a Change in Partnership Deed
Business Name or Place Change
Partners may consent to change the name of the firm or business place, and these changes need to be reflected in the partnership deed, as well as PAN card and other documents of the firm.
Business Activity Change
Partners may decide to add, change, or remove a business activity of their firm.
Change in the Capital
Working capital may be increased if needed, and changes in fixed capital may also take place occasionally. There may be any of the following:
- Capital reduction
- Capital addition
- Change in the capital ratio brought by partner(s)
Changes in Management
The firm allocates particular departments’ responsibilities to each partner for the smooth functioning of the work. Therefore, any changes that are introduced are mentioned in the Deed.
Amendments in Partnership Duration
Partners may extend the previously fixed length of a partnership, or in some instances, the reverse could also happen.
Terms and Conditions Changes
Changes in terms and conditions of the partnership or any clause need to be stated in the Deed.
The Deed also contains changes in the way of:
- Partner appointment
- Removal of a partner
- Addition of a new partner
- Retirement by a partner
- Resignation by a partner
Amendments in Rights and Responsibilities
The partner’s rights and obligations are stated in the partnership deed. Any changes made will be reflected in the Deed.
Profit/loss Sharing Ratio Changes
Partners can change the profit-sharing ratio with mutual consent, and this can be brought about by a change in the partnership deed.
The Deed should mention any other change, such as an addition, deletion, or amendment of a clause in the agreement.
The Process of Change in Partnership Deed
The partnership deed needs to be modified for any change to be effective. Amendments are affected by an agreement known as a supplementary agreement to the original Deed.
Changing the partnership deed can be done in four steps, which are the following:
1. Mutual consent: Each partner first needs to be consulted about the changes proposed and the implications it may cause. The Deed can be prepared, or the counsel may be contacted only after obtaining mutual consent of the partners involved.
2. Supplementary Deed: Partners can prepare the supplementary Deed or hire a professional who can help them with the preparation. However, the expert will guide you in doing the Deed considering its implications and provisions. The agreement is executed after preparing the draft and receiving the mutual consent of the partners.
3. Supplementary deed execution
Formalities Required to Be Completed
1. Payment of stamp duty: If the Deed includes changes in the firm’s capital, then stamp duty will be calculated on the change of capital or the additional capital introduced. The State Stamp Act prescribes the rates for stamp duty. If no change in the capital is introduced, then a stamp duty of INR 100 is paid, and the Deed is executed.
2. Signature along with notary: The supplementary Deed requires the partners’ signatures at the appropriate places. Their initials on all the pages are also needed. Minimum two witnesses are also required to attest the Deed. Then, an authorized notary needs to notarize the signed Deed
3. Filing the supplementary Deed with the RoF: The supplementary Deed and applicable form need to be filed with the RoF if the firm is already registered with the Registrar of Firms (RoF) of the concerned state.
4. An application of modification is filed with the form to the RoF. The following documents also need to be submitted:
- The original Partnership deed and the earlier executed supplementary agreement, if present
- The supplementary Deed, which is executed by the partners
- If there is a change in the business place, address proof of the new premises, along with rent agreement and the owner’s NOC is required
- If there is a change of partners, then the identity and address proof of the partners is needed
A partnership is the preferred choice of business structure for small-sized businesses as there are minimum essential compliances, and dissolution rules are also uncomplicated. Further, changes in partnership deed can be executed after the partner’s consent to the changes by signing on the Deed. 3E Accounting India, with its team of highly qualified professionals, has been providing business solutions to various types of firms over many years. Our team will provide you with all the necessary support and assistance for the partnership deed to run your business smoothly. Contact us for more information.