Partnership Deed: Meaning, Format, Key Clauses, and Registration Guide

A partnership is one of the oldest business structures in India, often chosen for its simplicity and ease of starting operations. What begins as an informal understanding between partners quickly turns into daily decisions about money, responsibility and risk. Without clarity, misunderstandings surface and the partnership becomes difficult to manage.

A partnership deed solves this problem. It acts as the written basis of the partnership, constituting how the business is to be carried out, how the profit and loss are to be shared, and how each partner will contribute to the firm. Banks, taxation authorities, and government agencies commonly refer to the deed for an understanding of how the firm is organized, making it a very important document from both the legal as well as the functional point of view.  A properly drafted deed is also essential for completing partnership firm registration in India.

This blog explains what is a partnership deed, its contents, format, examples, how to get it registered, the difference between a registered and an unregistered deed, and when a deed must be updated.

What Is a Partnership Deed? Meaning Explained

A partnership deed is a written agreement between partners that governs the terms of their partnership firm. It defines each partner’s rights, responsibilities, capital contribution, share of profits and participation in day-to-day operations.

In simple terms, the deed acts as the rulebook of the partnership.

A partnership can exist without a written deed legally, but then the provisions of the Indian Partnership Act, 1932 apply automatically. Those default rules may not represent what the partners had earlier intended, and that is another reason why a deed is so highly recommended.

This should be clear before drafting the deed. Our overview of the different types of partnership firms and partners in India explains how various formats of partnership work and how the role of a partner may differ.

Why Is a Partnership Deed Important for a Partnership Firm?

1. Avoids Misunderstandings

Partnerships often fail because expectations were never clearly documented. A deed ensures that all partners agree on profit sharing, duties, capital and decision-making.

2. Essential for Opening Bank Accounts

Most banks require a written partnership deed to open a current account for a partnership firm. Without one, most banks will not allow financial transactions.

3. Required for GST Registration and Licensing

Government portals commonly request a deed as proof of the firm’s constitution.

4. Helps Settle Disputes

If a disagreement arises, the partnership deed becomes the first point of reference.

5. Defines Partner Remuneration and Interest

Partners may receive salary, commission, bonus or interest on capital. These terms must be documented to avoid tax disallowances.

For partners who want clarity on how compensation structures work, our guide on remuneration to partners in a partnership firm explains the tax and operational considerations in detail.

6. Supports Long-Term Stability

A deed creates predictability, making it easier to admit new partners, manage exits or handle changes in the business.

Before drafting a deed, it is useful to ensure that all foundational requirements for forming a partnership are understood. You may refer to the pre-requisites to establish a partnership firm for a complete overview.

Partnership Deed Format: What Should It Include?

A good partnership deed is not just a formality. It should cover operational, financial and legal aspects of running the partnership.

Below are the essential components:

1. Name and Address of the Firm

Identifies the business for all legal and administrative purposes.

2. Names and Details of Partners

Includes the name, address and occupation of each partner.

3. Nature of Business

Defines what the partnership will engage in and helps avoid conflicts about business expansion.

4. Capital Contribution

Specifies how much each partner invests initially and whether partners must bring additional capital when required.

5. Profit and Loss Sharing Ratio

Clarifies how earnings and losses will be distributed. In the absence of a written deed, partners must share profits equally by law.

6. Duties, Roles and Powers of Partners

Defines who will manage accounts, approve expenses, sign documents and oversee daily operations.

7. Remuneration and Interest Provisions

Covers salary, commission, interest on capital and interest on drawings. These terms are essential for income tax compliance.

8. Bank Account Operation Rules

Identifies authorised signatories and the manner in which financial transactions will be approved.

9. Admission, Retirement and Removal of Partners

Explains how new partners may join and how partners may exit or be removed.

10. Accounting, Audit and Record Maintenance

Defines how books will be maintained, who will prepare accounts and whether the firm will undergo audit.

11. Dispute Resolution and Arbitration

Provides a means to handle disputes without affecting business operations.

12. Duration and Dissolution Terms

Says whether the partnership is for a fixed tenure or at will, and how dissolution is to take place.

These clauses make sure that the deed is complete and serves the needs of the firm throughout its life cycle.

Partners developing their first agreement may also want to refer to how a balanced agreement is formatted. Our article on how to create a well-balanced partnership agreement points out many important elements that partners commonly forget to include.

Partnership Deed Examples (Sample Clauses)

Here are sample extracts that serve to illustrate how clauses are typically phrased:

Example: Profit Sharing
“The profits and losses of the firm shall be divided among the partners in the ratio specified in Schedule A of this deed, unless mutually modified in writing.”

Example: Remuneration
“Any working partner may receive remuneration subject to the maximum limits prescribed under the Income Tax Act and mutually agreed upon by all partners.”

Example: Duties of Partners
“Each partner shall participate in the conduct of the business with due diligence and honesty. Any loss caused by willful neglect shall be borne by the partner responsible.”

These examples can be expanded into a full template when needed.

For a deeper understanding of how each clause fits into the structure of the deed, you may refer to our detailed guide on the partnership deed format.

Registered Partnership Deed vs Unregistered Partnership Deed

A partnership deed may be registered with the Registrar of Firms, although registration is optional. The distinction, however, has practical consequences.

Registered Partnership Deed

• Provides stronger legal enforceability
• Partners can sue each other through court
• Partners can claim set-off in disputes
• Required by many banks and institutions
• Adds credibility to the business

Unregistered Partnership Deed

• Still valid for running a business
• Partners cannot sue each other or enforce contractual rights in court
• Limits some legal remedies
• Suitable for small or informal businesses

Although registration is not mandatory, it is advisable for long-term operations, especially where external parties such as suppliers, banks or investors are involved.

How to Draft and Execute a Partnership Deed

A medium-sized partnership firm should follow a structured approach when creating a deed.

Step 1: Finalise Business Terms

Discuss capital, roles, remuneration, interest, powers and dispute mechanisms.

Step 2: Draft the Deed

Use a professional format. Avoid vague language that may lead to misinterpretation.

Step 3: Print the Deed on Stamp Paper

Stamp duty varies by state and must be paid as per the State Stamp Act.

Step 4: Signatures and Witnessing

All partners must sign the deed in the presence of at least two witnesses.

Step 5: Registration (Optional but Beneficial)

Submit the deed along with Form I, identity documents and proof of business address to the Registrar of Firms. A registered deed provides more legal rights and is often requested by banks and licensing authorities.

Note: Partnership registration takes place with the State’s Registrar of Firms, and procedures differ slightly across states based on local rules.

Before finalising supplementary deeds, partners may want to revisit how partnership structures differ. Our resource on different partnership structures in India offers clarity on the legal implications of each format.

When Should You Update a Partnership Deed?

A supplementary partnership deed is needed when:

• A new partner joins
• A partner retires or passes away
• Profit sharing ratios change
• Capital contribution is updated
• Remuneration structures are revised
• Business activities are expanded
• Management responsibilities change

Updating the deed keeps the partnership aligned with its current operations and ensures compliance.

To understand how changes to a partnership deed are recorded later, you can review our detailed explainer on the reasons and procedure for changing a partnership deed.

Conclusion

A partnership deed is not just a formality. It describes how the business is to be conducted, how the partners will work together, and how differences will be resolved. A well-structured deed allows the partners to work together with clarity and certainty. It provides a sound basis for decisions on finance, licensing, and long-term strategy. LegalWiz works with founders and business owners to create partnership deeds that reflect their business requirements while ensuring legal soundness. Once the deed is finalised, partnerships that intend to begin operations formally can thus do so by getting partnership firm registration, thereby completing the legal setup required to start the business.