Overview
A partnership deed is a written agreement between partners that sets out how the firm will be run. Without it, the default rules of the Indian Partnership Act apply, and they may not match what the partners intended on profits, remuneration, authority or exit.
A good deed covers the name and business, the capital each partner brings, the profit and loss sharing ratio, interest on capital and remuneration to working partners, who can sign and bind the firm, how decisions are taken, admission and retirement of partners, what happens on death, and how the firm is closed and disputes resolved.
Tax rules affect the wording. Interest on capital and partners' remuneration are deductible for the firm only within limits, and only if the deed authorises them, so the clauses should be drafted with those limits in mind.
Who needs a deed?
Every partnership benefits from one, whether the firm is new or already running on an understanding.
Usually a good fit if
- You are forming a partnership and want terms in writing from day one.
- You are running a partnership on a verbal understanding and need to formalise it.
- A partner is joining or leaving and the terms must be updated.
- You want to register the firm, open a bank account or apply for a loan.
Think twice if
- You want limited liability for each partner; consider an LLP.
- You expect to issue shares or ESOPs or raise venture capital; a company is the usual structure.
Key benefits
Clear roles and money terms
Capital, profit share and remuneration are fixed in writing.
Fewer disputes
Disagreements are settled by the agreed method, not by argument.
Tax-aware drafting
Clauses on interest and remuneration are written with the tax limits in mind.
Smooth change
Admission, retirement and death are provided for.
Bank and registration ready
Banks and the registrar ask for the deed.
Protects the business
The firm can continue even if a partner leaves, if the deed says so.
What we need from you
Each partner provides identity papers, and the partners agree the commercial terms.
For every partner
- PAN and Aadhaar
- Address proof and passport-size photograph
- Email and mobile number
- Details of the capital to be brought in
For the firm
- Proposed name and business activities
- Principal place of business with address proof
- Date from which the partnership starts
Terms to decide
- Profit and loss sharing ratio
- Interest on capital, if any, and remuneration to working partners
- Banking authority and who can sign contracts
- Rules for admission, retirement, death and expulsion
- Dispute resolution method such as arbitration
How the process works
Discuss terms with partners 1 to 2 days
We go through the terms with all partners so that nothing is assumed.
Draft the deed 2 to 3 days
A plain-language draft with tax-aware clauses is prepared.
Review and finalise 1 to 3 days
Partners read, comment and agree the final text.
Stamp the deed 1 day
Stamp paper or e-stamp of the right value is bought as per the state's rules.
Sign with witnesses 1 day
All partners sign with witnesses and the deed is dated.
Register the firm and open bank account 1 to 2 weeks
The deed is used for registration, PAN, bank account and other licences.
How long it takes
| Drafting | 2 to 5 days |
| Stamping and signing | 1 to 2 days |
| Registration and PAN | About 1 to 2 weeks |
Stamp duty and the registrar's process differ by state.
Keeping the deed current
A deed is a living document.
- Record changes in writingAdmission, retirement, change of profit ratio or capital should be written and signed.
- Notify the registrarRegistered firms must notify changes in partners and address.
- Keep accounts matching the deedCapital accounts, interest and remuneration should follow the deed's terms.
- Tax filingsRemuneration and interest should be claimed within the limits and as the deed allows.
- Review when the business changesA new line of business or a big investment is a reason to revisit the deed.
Points every partnership deed should settle
| Topic | What to decide | If silent |
|---|---|---|
| Profit sharing | Ratio of profits and losses | Equal sharing by default |
| Remuneration | Who is paid and how much | Not payable |
| Interest on capital | Whether paid and at what rate | Not payable |
| Authority | Who can sign and bind the firm | Every partner is an agent of the firm |
| Exit and death | How the firm continues | Firm may be dissolved |
| Disputes | Arbitration or other method | Court proceedings |
Frequently asked questions
Is a partnership deed mandatory?
A partnership can exist on an oral agreement, but a written deed is strongly advisable. It is needed for registration, banking and tax purposes.
Can interest on capital be paid to partners?
Yes, if the deed allows it. For tax purposes the deduction is limited to a prescribed rate of simple interest.
Can all partners be paid a salary?
Remuneration is allowed only to working partners and only if the deed authorises it and specifies the amount or method. Tax deduction is limited to prescribed amounts.
What happens if a partner dies?
Unless the deed says otherwise, the firm is dissolved. A well-written deed provides for continuity and payment to the heirs.
How is stamp duty decided?
It depends on the state and sometimes on the capital contribution. We check the rules where you operate.
Can the deed be amended?
Yes, by a supplementary deed or a fresh deed signed by all partners.
This page is general information to help you prepare, not legal, tax or professional advice for your situation. Rules, forms, thresholds and due dates change, so we confirm the current position before we file anything for you. Taxswami Consultants is an independent professional services firm and is not a government body.