A partnership deed should settle, in writing, the things partners most often fall out over: how profit is split, what each person puts in and takes out, who can sign for the firm, how decisions are made, and what happens when someone wants to leave, joins, dies or is pushed out. Where the deed says nothing, the Indian Partnership Act, 1932 fills the gap with default rules, and those defaults rarely match what the partners assumed. Equal profit shares, no salary for the partner doing all the work, no interest on capital: those are the law’s answers if your deed is silent.
Below are the clauses worth covering, with the default each one replaces, followed by stamping and registration. If you are weighing a firm against a structure with limited liability, our page on registering an LLP shows the alternative; a partnership deed does nothing to limit the partners’ personal liability.
Clauses, and the default that applies without them
The defaults below come from the Act as published by the Government of Maharashtra; the central text is on India Code.
| Clause | If the deed is silent |
|---|---|
| Profit and loss sharing ratio | Partners share profits equally and contribute equally to losses (s.13(b)) |
| Remuneration for working partners | No partner is entitled to remuneration for taking part in the business (s.13(a)) |
| Interest on capital | No interest on capital (s.13(c)) |
| Interest on loans by a partner | 6 per cent a year on advances beyond agreed capital (s.13(d)) |
| Decision-making | Ordinary matters by majority; any change in the nature of the business needs every partner’s consent (s.12(c)) |
| Admitting a new partner | Needs the consent of all existing partners (s.31(1)) |
| Expelling a partner | Not possible by majority unless the deed gives that power and it is used in good faith (s.33(1)) |
| Duration | A partnership with no fixed term is “at will” (s.7) and can be dissolved by any partner’s written notice |
| Death of a partner | Dissolves the firm, unless the deed provides otherwise (s.42) |
| Competing business | The deed may bar partners from any other business while they are partners (s.11(2)); without it, only the general duties apply |
The clauses in detail
Basic particulars
The firm’s name, its principal place of business and any other places, the nature of the business, the date the partnership starts, and each partner’s full name and address. These details also go into the registration statement, so keep them consistent.
Capital and contributions
Record what each partner brings in: cash, assets, or skill. Say whether further capital can be called for, how, and whether capital earns interest. If you want interest on capital, the deed has to say so, and it is normally payable only out of profits.
Profit sharing and drawings
State the ratio for profits and losses. It does not have to match the capital ratio. Then cover drawings: how much each partner may withdraw during the year, and whether excess drawings carry interest.
Salary and interest for tax purposes
A firm can deduct salary and interest paid to partners only if the deed authorises them and only within limits set by income tax law, now the Income-tax Act, 2025. If working partners are to be paid, write the method into the deed and have a chartered accountant check it against the current limits.
Roles and authority
Every partner is by default an agent of the firm and can bind it in the ordinary course of business. If you want limits, for example that cheques above a set amount need two signatures or that borrowing needs unanimous consent, put them in the deed. Remember that such internal limits bind the partners; outsiders who do not know about them may still hold the firm to a partner’s act.
Decisions and deadlock
Say which decisions need a majority and which need everyone. With two equal partners, a majority does not exist, so add a tie-break or a route to mediation.
Books and accounts
Where the books are kept, the accounting year, who prepares the accounts, and whether they are audited. Every partner has the right to access and copy the books (s.12(d)); the deed can add how often accounts are settled.
Admission, retirement and expulsion
How a new partner joins and on what terms; how much notice a retiring partner must give; how a retiring partner’s share is valued and paid out, and over what period; and, if you want the option at all, the grounds and procedure for expulsion. Without an expulsion clause, a partner cannot be expelled.
Death or incapacity
Whether the firm continues with the remaining partners, whether the legal heirs come in, and how the deceased partner’s share is settled. Without this, death dissolves the firm.
Non-compete and confidentiality
A restriction on competing business while a partner, and reasonable restrictions after leaving, within what the Act allows on the sale of goodwill or on retirement.
Disputes
An arbitration or mediation clause, with the seat and the number of arbitrators. Litigation between partners is slow and costly; agreeing the route in advance is cheaper.
Bank operations
Who operates the bank account and the signing rules. Banks will read this clause when you open the account.
Stamp duty
A partnership deed is an instrument chargeable with stamp duty under the stamp law of the state where it is executed. The amount and method differ by state, and duty is usually linked to the capital brought in. In Maharashtra, for example, the duty under Article 47 of the stamp schedule is a percentage of the share contribution, and the state’s 2024 amendment bill provides for raising the maximum for deeds where cash contribution exceeds ₹50,000 from ₹15,000 to ₹50,000. Check the current schedule on your state’s registration department portal, such as IGR Maharashtra, before you buy the stamp paper or e-stamp.
An unstamped or under-stamped deed is not invalid as an agreement between you, but it cannot be relied on as evidence until the duty and any penalty are paid, and the Registrar of Firms will want a properly stamped copy.
Registration with the Registrar of Firms
Registration is done with the Registrar of Firms of the state where the firm has a place of business. Under section 58, the partners file a statement in the prescribed form, signed by all of them, with the fee and details including the firm’s name, places of business, the date each partner joined, names and addresses, and the duration of the firm. Under section 59, once the Registrar is satisfied, the statement is entered in the Register of Firms and the firm is registered.
The central Act lets a firm register at any time. Some states have changed this. In Maharashtra, the statement must be filed within one year of the firm being constituted, with a true copy of the deed. Check your own state’s rules on its Registrar of Firms portal.
What happens if you don’t register
Section 69 is the reason most firms register. An unregistered firm:
- cannot file a suit against a third party to enforce a right arising from a contract, for example to recover an unpaid invoice;
- cannot be sued by a partner, and its partners cannot sue each other, to enforce rights under the deed or the Act, unless the firm is registered and the person suing is shown as a partner in the register;
- also cannot claim a set-off in those proceedings.
Third parties can still sue an unregistered firm. Registering after the dispute starts does not cure a suit already filed, so register at the start.
Complianto (complianto.in), operated by Mentorcorp Private Limited, is a private consultancy and is not affiliated with any government body. We do not issue official documents. We charge a professional fee for application assistance and advisory services. Applicants can apply directly to the government without our fees via the official portals: MCA (mca.gov.in), Income Tax (incometax.gov.in), GST (gst.gov.in), MSME (udyamregistration.gov.in), FSSAI (foscos.fssai.gov.in), Startup India (startupindia.gov.in), and IP India (ipindia.gov.in).
This article is general information, not legal or tax advice.
