How to Draft a Partnership Deed in India (Free Template Included)

A partnership deed is the foundational document that governs every aspect of your partnership firm, from capital contributions and profit sharing to dispute resolution and dissolution. Getting it right from the start prevents misunderstandings, protects each partner's interests, and gives your firm legal credibility with banks, government agencies, and clients. This guide provides a clause-by-clause breakdown of everything your partnership deed should include, along with a free template you can customize for your business.

Whether you are starting a new partnership firm or restructuring an existing one, this guide ensures your deed is comprehensive, legally sound, and optimized for smooth business operations.

What Is a Partnership Deed?

A partnership deed (also called a partnership agreement) is a written contract between two or more partners who agree to carry on a business together with the intent of sharing profits and losses. It is governed by the Indian Partnership Act 1932 and sets out the terms and conditions under which the partnership will operate.

The deed defines each partner's rights, duties, liabilities, capital contribution, profit share, decision-making authority, and the procedures for handling changes like admitting new partners, retirement, or dissolution. While a partnership can legally exist based on an oral agreement, operating without a written deed is impractical and risky because:

• Banks require a written deed on stamp paper to open a business current account
• The GST department requires it for GST registration
• Without a deed, default rules of the Partnership Act apply (equal profit-sharing, no salary to partners)
• Disputes become extremely difficult to resolve without documented terms
• An unregistered firm without a deed has virtually no legal standing in courts

Essential Clauses in a Partnership Deed

A well-drafted partnership deed should include the following sections. Each clause serves a specific purpose and should be drafted carefully with the guidance of a legal professional or experienced Chartered Accountant.

Clause 1: Name and Nature of the Firm

State the name of the partnership firm (ensure it does not infringe on any existing trademark or registered company name), the nature and scope of business activities, and the principal place of business along with any branches. The scope should be broad enough to allow growth but specific enough to prevent partners from engaging in unrelated activities under the firm's name.

Clause 2: Partner Details and Roles

List each partner with their full legal name, father's name, date of birth, residential address, PAN number, and Aadhaar number. Categorize each partner as a working partner (involved in management) or sleeping partner (capital contributor only). Define the specific responsibilities of working partners and any restrictions on the authority of individual partners.

Clause 3: Duration and Commencement

Specify the date of commencement of the partnership and whether it is a partnership at will (continues indefinitely until dissolved by any partner) or a fixed-term partnership (for a specific period or project). If fixed-term, state the end date and the process for renewal or extension.

Clause 4: Capital Contribution

Define the exact capital contribution each partner will make. Specify:

• The amount contributed by each partner (in cash, property, or other assets)
• The timeline for making contributions
• Whether interest is payable on capital and at what rate (commonly 9 to 12 percent per annum)
• The process for additional capital calls if the business needs more funding
• Whether capital balances must be maintained at a fixed level or can fluctuate

Clause 5: Profit and Loss Sharing Ratio

This is one of the most critical clauses. Define the exact ratio in which profits and losses will be shared among partners. Options include:

Clause 6: Salary and Remuneration to Partners

If working partners are to receive a salary or remuneration, specify the amount, payment frequency, and conditions. Note the income tax limits under Section 40(b):

• On first 3 lakh rupees of book profit: up to 1,50,000 rupees or 90 percent of book profit (whichever is higher)
• On the balance of book profit: up to 60 percent
• If there is a loss: maximum 1,50,000 rupees as salary to working partners

Clause 7: Drawing Rights and Interest on Drawings

Define how much each partner can withdraw from the firm for personal use (drawings). Excessive drawings can strain the firm's cash flow, so set reasonable limits. If interest on drawings is to be charged, specify the rate (commonly 9 to 12 percent per annum). The interest on drawings is calculated from the date of each withdrawal to the end of the accounting year.

Clause 8: Banking and Financial Operations

Specify the bank and branch where the firm's accounts will be maintained, the authorized signatories for cheques and electronic payments, and whether single or joint authorization is required for transactions above certain thresholds. This clause protects all partners from unauthorized use of the firm's funds. Refer to our guide on opening a business bank account for the process and documents required.

Clause 9: Decision Making and Restrictions

Define which decisions can be made by individual working partners and which require unanimous or majority consent. Common decisions requiring all partners' consent include:

• Admitting a new partner or removing an existing one
• Taking loans or creating financial liabilities beyond a specified amount
• Pledging or mortgaging the firm's assets
• Entering into contracts above a defined value
• Changing the nature or scope of the business
• Purchasing or selling immovable property

Clause 10: Admission and Retirement of Partners

Define the process for admitting new partners (requiring written consent, capital contribution terms, profit-sharing arrangement) and for retiring partners (notice period of 3 to 6 months, valuation of the departing partner's share, payment terms and timeline). Include provisions for the outgoing partner's non-compete obligations and the treatment of the firm's goodwill upon exit.

Clause 11: Death, Disability, and Incapacity

Address what happens if a partner dies or becomes permanently incapacitated. Include a continuation clause (the firm continues with surviving partners), the method for valuing the deceased partner's share, and the timeline for settling with the legal heirs. Consider requiring partners to take life insurance or keyman insurance policies to fund the buyout of a deceased partner's share.

Clause 12: Dispute Resolution

Establish a clear dispute resolution mechanism: first attempt mutual resolution, then mediation, and finally binding arbitration under the Arbitration and Conciliation Act 1996. Specify the seat and venue of arbitration, the language, and that neither party will approach courts except for enforcement of the arbitration award or for interim relief.

Clause 13: Dissolution Procedure

Define the grounds for dissolution (mutual agreement, court order, bankruptcy of a partner, illegality of business), the process for winding up (settling debts, collecting receivables, distributing assets), the order of priority for payments (external creditors first, then partner loans, then partner capital), and the timeline for completing the dissolution process.

Clause 14: Non-Compete and Confidentiality

Include a clause restricting partners from engaging in competing businesses during the partnership and for a specified period (1 to 2 years) after exit. Add a confidentiality clause requiring all partners to keep the firm's financial information, client lists, trade secrets, and business strategies confidential during and after the partnership.

Clause 15: Governing Law and Jurisdiction

Specify that the deed is governed by the Indian Partnership Act 1932 and the laws of India. Mention the state whose courts will have jurisdiction in case any matter does go to litigation despite the arbitration clause. Typically, this is the state where the firm's principal office is located.

Free Partnership Deed Template

Below is a simplified template structure that you can customize. For a legally binding deed, have it reviewed by a lawyer or Chartered Accountant familiar with your business and state laws.

Structure of the deed:

1. Title and date: "Partnership Deed executed on [date] at [city]"
2. Parties: Full details of all partners
3. Recitals: Brief background on why the partnership is being formed
4. Operative clauses: All 15 clauses detailed above
5. Schedule A: Capital contribution details
6. Schedule B: Profit and loss sharing ratio
7. Schedule C: Salaries and remuneration details
8. Signatures: All partners sign on each page and at the end
9. Witness signatures: Two independent witnesses
10. Notary seal and signature

How to Execute and Register the Partnership Deed

Step 1: Purchase Stamp Paper

Buy non-judicial stamp paper of the appropriate denomination as per your state's stamp duty schedule. You can buy physical stamp paper from authorized vendors or e-stamp papers from the SHCIL portal or designated bank branches. The stamp duty varies from state to state, typically ranging from 500 to 5,000 rupees.

Step 2: Print and Sign the Deed

Print the complete deed on the stamp paper. If the deed exceeds the stamp paper pages, continue on plain paper (the stamp paper should contain the beginning of the deed). All partners must sign on every page of the deed and provide their full signatures at the end. Two witnesses who are not partners must also sign.

Step 3: Notarize the Deed

Take the signed deed to a Notary Public along with the original identity documents (PAN and Aadhaar) of all partners. The Notary will verify the identity of all signatories, confirm that they have signed voluntarily, and affix the notarial seal. Keep the original notarized deed safely and make certified copies for each partner and for bank and registration purposes.

Step 4: Register with the Registrar of Firms (Recommended)

File Form 1 with the Registrar of Firms in your state along with the original deed, KYC documents, and the registration fee. Registration provides legal standing and enables the firm and partners to file suits. The Registrar issues a Certificate of Registration within 7 to 14 working days.

Step 5: Apply for PAN and Other Registrations

After the deed is executed, apply for the firm's PAN card, open a bank account, register for GST if turnover exceeds the threshold, and apply for Udyam MSME registration if eligible. See our complete guide on registering a partnership firm for the detailed process.

Stamp Duty for Partnership Deeds by State

When to Consider Converting to an LLP or Company

While a partnership firm is a simple and flexible business structure, there are situations where it makes sense to consider converting to an LLP or a Private Limited Company:

• Liability concerns: Partners in a general partnership have unlimited personal liability. If your business involves significant risks, an LLP offers limited liability protection
• External investment: Investors and venture capitalists typically prefer investing in Private Limited Companies. If you plan to raise funding, consider conversion
• Scale and complexity: As the business grows beyond 10 to 15 members, the governance structure of a company or LLP becomes more practical
• Tax efficiency: For higher profits, the effective tax rate for companies (25.17 percent for turnover up to 400 crore) can be lower than the flat 30 percent for partnerships

See our guides on converting a partnership to LLP and registering a Private Limited Company for detailed steps.

Conclusion

A well-drafted partnership deed is not just a legal formality. It is the operating manual for your business that defines how partners work together, share profits, make decisions, resolve disputes, and handle exits. Taking the time to draft a comprehensive deed with all essential clauses protects every partner's interests and prevents costly misunderstandings down the road.

Focus on clarity in three critical areas: capital and profit-sharing arrangements, decision-making authority, and exit or dissolution procedures. These are the clauses that matter most when disagreements arise, and clear, unambiguous language in these sections can save your partnership.

Need help drafting or reviewing your partnership deed, or registering your partnership firm? Our team at IncorpX can assist you with the complete process.