Partnership Deed Drafting Procedure, Types, & Clauses

A partnership firm is one of the most preferred ways to start a business in India. It allows two or more people to come together, invest resources, and share profits and losses. Each partner contributes in different ways—through money, skills, or effort—and takes joint responsibility for the business.

Businesses create a partnership deed to establish a clear and legally valid structure. This written agreement defines each partner’s roles, duties, and rights. It helps avoid confusion and builds trust. In this article, we will know how to draft a partnership Deed in India, its importance, documentation and more.

What is a Partnership Deed?

A Partnership Deed is a legal document that clearly states the terms and conditions that the business partners have agreed upon. According to the Indian Partnership Act, 1932, a written agreement is not mandatory but strongly advised for legal security. A signed deed becomes valid in court and supports smooth operations. It protects the interests of all partners.

With a written partnership deed, both parties become clear about their roles, responsibilities and profit sharing ratios. While oral agreements are better, a written deed offers better proof and clarity. Written deeds help to reduce confusion and prevent future disputes. It includes details like capital investment, decision-making rights, and exit rules. 

Types of Partnership Deed

A partnership deed is divided into three main categories. Listed below are the types of partnership deeds that a partnership business can create:

• General Partnership Deed: A General Partnership Deed is a legal agreement between two or more people to run a business and share profits. It defines each partner’s role, capital share, and responsibilities. All partners have unlimited liability and equal rights in business decisions unless stated otherwise.
• Limited Partnership Deed: A Limited Partnership Deed is a legal agreement where one or more partners have limited liability. These limited partners invest capital but do not take part in daily operations. The deed separates the roles, rights, and liabilities of general and limited partners, which ensures legal clarity and protection.
• Limited Liability Partnership: A Limited Liability Partnership (LLP) deed is a legal contract that defines each partner’s role, capital share, and liability, which is limited to their contribution. It covers profit sharing, dispute resolution, partner changes, and business closure terms. The deed must be registered with the Ministry of Corporate Affairs under the LLP Act, 2008.

Key Clauses of a Partnership Deed

A well-drafted partnership deed must include certain key clauses that define the structure, rules, and responsibilities within the firm to avoid confusion and future disputes.

1. Firm Identification: The deed must state the official name of the firm. It should also include the complete address of the firm's primary place of business. It ensures clarity for legal and postal communication. This clause allows clients, authorities, and stakeholders to find and contact the business easily.
2. Business Objective: This clause of the partnership deed defines the purpose of forming the partnership. It mentions the type of business the firm carries out and lists the main products or services it offers. This clause sets a clear direction for business activities and avoids confusion about the firm’s operations. It also helps partners stay aligned with the agreed business goals.
3. Capital Investment: The deed clearly states the amount of money or assets each partner brings into the business at the start. It also includes whether any additional capital may be needed later and the ways each partner will handle such requirements. This ensures transparency in financial matters and avoids disputes related to uneven contributions in the future.
4. Sharing of Profits and losses: The clause needs to state the ratio in which profits and losses will be shared among the partners. This can be equal or based on each partner’s capital contribution or as mutually agreed. The clause also helps avoid confusion during financial settlements and ensures fairness in the distribution of income and liabilities.
5. Management structure: This clause of the partnership deed defines the daily running of the business. It assigns roles to each partner based on their skills. One may manage finances, another may handle sales or operations. This clause also states the decision-making rules—majority, jointly, or individually. When the management structure is clearly stated in the clause, it makes it easier for partners to understand their duties and avoid disputes
6. Duration and exit time: The deed states the time for which the partnership runs. It also mentions the situations in which the firm ends. This includes when a partner leaves, the business shuts down, or a partner dies or becomes unfit. These terms help all partners stay clear about the future and avoid legal issues.
7. Closing and Asset distribution: This deed of clause explains what happens when the partnership ends. It mentions the steps to close the firm in a legal and organized way. Once the firm clears all its debts and liabilities, the remaining assets are shared among the partners. The division depends on their agreed share in the deed. This clause ensures a smooth wrap-up and a fair settlement for everyone involved.
8. Restriction after exit: This deed of the partnership clause prevents former partners from setting up a rival business or approaching the firm's clients for a defined time after they leave the partnership. It safeguards the firm’s interests, protects client relationships, and maintains business stability. The clause also helps preserve confidential business information and discourages unfair competition.
9. Partner Roles: The deed mentions each partner’s duties in daily business tasks. It assigns roles like managing accounts, looking after marketing, handling sales, or supervising operations. This ensures smooth work and avoids confusion. Each partner knows their responsibilities, which improves efficiency and accountability. It also helps settle disputes related to work roles.
10. Financial Records: This section outlines the type of accounting system the firm uses, such as cash or accrual basis. This clause mentions the partner who takes responsibility for preparing and maintaining the books of accounts. It also includes how often records are updated and where they are stored for easy access and transparency.
11. Authority Limit: The partnership agreement clearly defines the specific powers given to each partner in daily business operations. It also lists the types of decisions, like taking loans or changing the business structure, that need approval from all partners. This helps maintain balance and prevents any partner from acting beyond their role.
12. Conduct Regulations: The clause of this agreement sets clear rules that partners must follow to protect the firm’s interests. It prevents actions that may harm the business, such as using funds for personal gain or making statements that damage the firm’s reputation. These rules ensure professional behavior and maintain trust among all partners.
13. Conflict Handling: This clause outlines steps to deal with disputes among partners peacefully and fairly. It includes structured solutions like mediation or arbitration instead of going to court. This helps resolve issues quickly, saves legal costs, and keeps the business running smoothly without long interruptions.
14. Insurance Coverage: This clause under the partnership deed mentions the essential insurance policies the firm must maintain. These include liability insurance to protect against legal claims and employee insurance to ensure staff welfare. Insurance coverage includes property or fire insurance, as per the needs of the business. This protects the firm from unexpected losses and builds financial security.
15. Entry and Exit of Partners: The document sets clear terms to add new partners or let existing ones leave the firm. It explains the steps for approval, required documents, and legal formalities. It also defines how to calculate the firm’s asset value and share profits or losses at the time of entry or exit. This ensures smooth transitions and avoids conflicts.

How to Draft a Partnership Deed in India?

Listed below are the steps that an applicant needs to follow to draft a partnership deed:

Step 1: Select a unique name

The applicant needs to select a name that sets the firm apart from others. The name should not match or closely resemble any existing registered business. The applicant should also follow the government rules to name their firm. This, in turn, will help the applicants avoid the use of restricted or sensitive terms. Once the applicant has set the name, they need to check the trademark availability on the official IP India trademark search portal in order to prevent infringement. A distinct and legal name gives the firm a clear identity and avoids legal issues.

Step 2: Decide the nature and structure of the business

Once the firm partners have decided on the name, they need to select the type of business. The deed needs to include the roles assigned to each partner to ensure smooth management of the daily operations. It also outlines the division of profits and losses. The partnership deed also needs to state the capital each partner contributes. With clear terms, firms can ensure smooth operations and prevent disputes.

Step 3: Draft the partnership Deed

According to the state's rules, the firms should hire an expert or seek help from online platforms to draft their partnership deed on stamp paper. The deed needs to mention the firm’s official name and its business address. It includes complete details of all partners, such as name, age, and residential address. It clearly states each partner’s capital contribution and their share in profits and losses. The deed outlines the roles, powers, and duties of each partner. It also sets terms for resolving disputes, admitting or exiting partners, and closing the firm. All partners read and sign the deed to confirm their agreement and give it legal effect.

Step 4: Review and Digitally sign the Deed 

Step 5: Notarize the Deed

Once the partners have signed the deed, they must get it notarized from a government-authorized notary. Notarization gives the partnership deed legal value and makes it acceptable in legal matters. The notary checks the identity of the partners and verifies the content of the deed. It also confirms that the partners agree to the terms willingly. A notarized deed helps avoid future disputes and proves the authenticity of the agreement in court, banks, and official departments.

Step 6: Get the PAN and TAN of the firm

Once the partnership deed is notarized, the firm must apply for a PAN (Permanent Account Number) and TAN (Tax Deduction and Collection Account Number). The firm required PAN to open a bank account and pay income tax. While TAN is needed if the firm deducts TDS (Tax Deducated at Source). Both numbers confirm the firm’s legal and tax identity. Partners can apply online through official portals such as NSDL or UTIITSL. The application requires the notarized partnership deed, proof of residence, and ID proof of the partners.

Step 7: Register the Partnership deed

Once the firm gets hold of their TAN and PAN number, they need to register their partnership. The applicant needs to visit the official website of their particular state’s registrar of Firms. Navigate to the partnership registration section. The applicant needs to download or fill in Form 1 online as per the rules of the particular state.

In the form, the applicant needs to enter correct details such as firm name, business type and partner information. Once the form is uploaded, the applicant needs to upload their digital signature, notarize their partnership deed along with the identity, and address proofs of all partners. Now, the applicant needs to pay the required registration fees, which vary from state to state. While some state offers fully online registration, others may ask to submit the required documents physically. After approval, the registrar issues a Certificate of Registration, which makes the partnership legally valid.

Documents required to Draft a Partnership Deed

Listed below are the documents that a firm needs to submit to draft its partnership deed:

• PAN Cards of all partners: Each partner must provide a valid PAN card to ensure proper tax compliance and identification. It is mandatory for all financial and legal processes.
• Aadhaar Cards or valid ID proofs: Government-issued ID like Aadhaar, Voter ID, or Passport is needed to confirm the identity of every partner.
•  Passport-size photographs of the partners: In order to draft the partnership deed, the applicants need to attach clear and recent photographs of all the partners. It is needed for official records and registration formalities.
• Firm name and address proof: Drafting a partnership deed, the applicant needs to attach documents like utility bills, rent agreements, or ownership papers to confirm the official address of the business.
• Business nature details: The applicant should also provide a short description of the type of products or services the firm offers to help define the scope of operations.
• Capital contribution details: The partners must also attach a clear record of the amount of money or assets each partner brings in, which is necessary for transparency and profit-sharing.
• Profit-sharing ratio: To draft the partnership deed, the applicant needs to submit a written agreement showing how the profits and losses will be divided among the partners to help avoid future disputes.
• Draft of terms and conditions: The applicant must include all the terms and conditions. This includes rules about partner roles, responsibilities, rights, and procedures for exit or dispute resolution.

Why Choose Online Legal India?

When a partnership firm drafts its partnership deed online, it gives the business a fast and easy start. It saves time, reduces errors, and ensures legal safety from the beginning. In order to draft a well-formed partnership deed, businesses need to choose a trusted and reliable online platform.

Among other services providers, Online Legal India is one of the most trusted and reliable platforms to prepare a partnership deed. Their expert team will ensure the smooth drafting of the deed without any delay.