What to Include in a Partnership Deed: The Clauses That Matter

Knowing what to include in a partnership deed matters most on the day something changes: a partner wants to leave, a new one wants in, profits fall, or a partner dies. On an ordinary day almost any deed will do. The Indian Partnership Act, 1932 lets partners set most of their rights and duties by agreement, and fills the gaps with default rules that rarely match what the partners intended. A good deed replaces those defaults with decisions the partners have actually made.

Why the default rules are not enough

Where the deed is silent, the Act decides. Under section 13, unless the partners agree otherwise, partners share profits and losses equally, a partner is not entitled to remuneration for working in the business, interest on capital is payable only out of profits where a partner is entitled to it, and a partner who advances money beyond the agreed capital earns interest at six per cent a year. Under section 42, subject to contract, a firm is dissolved by the death of a partner. For most working firms, with unequal effort, unequal capital and a business meant to outlast any one partner, these defaults are the wrong answer.

What to include in a partnership deed: the core clauses

• Name, business and place of business: the firm name, the nature of the business, the principal place of business and any branches.
• Partners and commencement: full details of each partner and the date the partnership begins.
• Duration: whether the firm is a partnership at will or for a fixed term or project.
• Capital: what each partner contributes in money, property or assets, when it is due, whether interest is paid on it and at what rate, and how further capital will be called.
• Profit and loss sharing: the ratio for each partner, and whether losses follow the same ratio.
• Remuneration and interest: salaries or commission for working partners and interest on capital, set out clearly. The tax deduction available to the firm for these payments depends on the deed authorising them and on limits in the income-tax law, so draft this clause with tax advice.
• Drawings: how much each partner may withdraw, how often, and whether interest is charged on drawings.
• Roles and authority: who manages which part of the business, who signs cheques and contracts, and which decisions need all partners to agree.
• Books and accounts: where they are kept, the financial year, access rights for every partner, and how accounts are approved.
• Bank accounts: who operates them and the signing limits.

Clauses for when things change

These are the clauses that decide whether a change is an administrative step or a dispute.

• Admission of a new partner: section 31 of the Act says that, subject to contract, no one can be introduced as a partner without the consent of all existing partners. Decide whether that should stand or whether a majority will do, and on what terms a new partner joins.
• Retirement: how much notice a partner must give, how their share is valued, and over what period they are paid out.
• Death or incapacity: whether the firm continues among the surviving partners, how the deceased partner's share is valued, and whether their legal heirs are paid out or may join. Without this clause the default under section 42 is dissolution.
• Expulsion: the grounds and the procedure, if partners want the power to remove one of them.
• Valuation of a share: the method and date, for example book value plus goodwill on an agreed basis, or a valuation by an independent professional.
• Non-compete and confidentiality: limits on a partner running a competing business while a partner, and on using firm information.
• Dispute resolution: discussion first, then mediation or arbitration, with the seat and the number of arbitrators named.
• Dissolution and exit: how the firm is wound up, the order in which assets are applied and who keeps the name and goodwill.

For example, imagine three partners in a Bengaluru interiors firm. Two put in most of the capital; the third runs the projects full-time. Their deed gives the working partner a monthly remuneration and pays interest on capital to all three, then splits the remaining profit equally. It says the firm continues if a partner dies, values that partner's share on a set formula using the last audited accounts, and pays the heirs in instalments over two years so the firm's cash is not drained at once. (This is an illustration, not a client case.)

Partners with family to provide for? Read how to make a will in India →

Registration, stamping and the deed in Karnataka

A partnership deed must be printed on stamp paper of the correct value, or stamped by an authorised method, under the state stamp law. Duty depends on the state and on the capital contributed, so check the current rate before you sign.

Registering the firm is not compulsory, but it has real consequences. Under section 69 of the Act, a partner of an unregistered firm generally cannot sue the firm or the other partners to enforce rights under the contract or the Act, and an unregistered firm generally cannot sue a third party to enforce a contract. Suits for dissolution and for accounts of a dissolved firm are not barred. In Karnataka, firms are registered with the Registrar of Firms under the Department of Stamps and Registration, which offers an online application. Check the current form, documents and fees with the department before you apply, as of 2026.

Partnership firm or LLP?

In a partnership firm, partners are personally liable for the firm's debts without limit, jointly with each other. A limited liability partnership is a separate legal entity, so partners' liability is generally limited to their agreed contribution, but it brings registration with the Ministry of Corporate Affairs and annual filings. If the business takes on contracts, loans or staff at a scale where personal liability worries you, compare the two before signing a deed.

Compare structures: LLP vs private limited company in India →

Choosing an LLP instead? See LLP registration and LLP agreements in Bangalore →

Common mistakes

• Using a downloaded template that does not reflect how the partners actually work or share money.
• Leaving the death and retirement clauses out, so the statutory default of dissolution applies.
• Failing to update the deed when partners, profit shares or the business change.
• Not registering the firm, then finding a contract cannot be enforced.
• Remuneration that the deed does not authorise, which affects the firm's tax position.
• No method for valuing a partner's share, so every exit becomes a negotiation from scratch.

Frequently asked questions

Is a partnership deed compulsory in India?

A partnership can arise from an oral agreement, but a written deed is strongly advisable. Banks, tax authorities and the Registrar of Firms will usually ask for one, and without it the default rules of the Act govern the partners' relationship.

Can a partnership deed be changed later?

Yes. The Act allows the partners to vary their agreement by consent. Record the change in a supplementary deed, stamp it correctly and inform the Registrar of Firms where the change must be notified.

What happens to a partnership when a partner dies?

Unless the deed says otherwise, the firm is dissolved by the death of a partner under section 42 of the Act. A continuation clause lets the surviving partners carry on and sets out how the deceased partner's share is valued and paid to the heirs.

Should a partnership firm be converted to an LLP?

Conversion can make sense when the business grows, takes on larger contracts or needs limited liability. It involves its own procedure and tax considerations, so it is worth reviewing the whole structure first.

Beyond Basics helps partners in Bengaluru agree the commercial terms first, in plain language, and then puts them into a deed prepared with our partner advocates. We cover capital, profit sharing, roles, admission, retirement and succession, and guide the firm through stamping and registration in Karnataka.

Business structuring, partnership deeds and joint ventures in Bangalore →