Partnership Deed: What to Include

TL;DR

A partnership deed is the constitutional document of a partnership firm.

A partnership deed is the constitutional document of a partnership firm registered under the Indian Partnership Act, 1932. It governs the relationship between the partners, the operations of the firm, and the rights and obligations of each partner. The deed must be stamped as per the Indian Stamp Act, 1899 (state-specific stamp duty), and registered with the Registrar of Firms under Section 59 of the Partnership Act. An unregistered deed is admissible as evidence of the partnership but cannot be used to enforce the terms in court. This post is the operational guide — what to include, what to avoid, and the stamp-duty / registration mechanics.

The Mandatory Contents

Under Section 2(e) of the Partnership Act read with the state-specific rules, a partnership deed must contain:

1. Firm name

The name under which the partnership is carried on. The name must not be identical to an existing registered partnership or company. The name must include “(Registered Partnership Firm)” or similar indicator in some states (state-specific).

2. Nature of business

The principal business activity of the firm — trading, manufacturing, services, etc. The activity should match the GST registration, the PAN, and the bank account.

3. Place of business

The principal place of business and any additional places. The address is used for GST registration, bank account, and income tax.

4. Names and addresses of all partners

The full legal name, father’s name, permanent address, PAN, and Aadhaar of each partner.

5. Date of commencement

The date on which the partnership commenced (or will commence). The date is used for the firm’s registration with the Registrar of Firms.

6. Duration of partnership

The period for which the partnership is constituted. The default is “at will” (no fixed duration) unless specified. A partnership “at will” can be dissolved by any partner giving notice in writing.

7. Capital contribution

The capital contributed by each partner — cash, property, or other assets. The capital contribution is recorded in the books as the partner’s capital account.

8. Profit and loss sharing ratio

The ratio in which profits and losses are shared among the partners. The default under the Partnership Act is equal share unless specified.

9. Interest on capital and loans

The rate of interest payable to partners on their capital contribution and on loans advanced by them to the firm. The interest is deductible to the firm and taxable in the partner’s hands.

10. Partner remuneration

The salary, commission, or other remuneration payable to partners for their services to the firm. The remuneration is deductible to the firm under Section 40(b) of the Income-tax Act, subject to prescribed limits.

11. Rights and duties of partners

The rights (access to books, participation in management, etc.) and duties (faithful conduct, non-compete, etc.) of each partner.

12. Bank account operation

The authorised signatories and the mode of operation (jointly, severally, etc.) for the firm’s bank account.

13. Admission of new partners

The procedure for admitting a new partner — typically unanimous consent of existing partners.

14. Retirement / expulsion of partners

The procedure for a partner to retire, or for the other partners to expel a partner. The notice period, the settlement of accounts, and the goodwill valuation.

15. Dissolution

The procedure for dissolution of the firm — by mutual consent, by notice (for at-will partnerships), by completion of the venture, by death of a partner, by insolvency, etc. The mode of settlement of accounts on dissolution.

16. Arbitration

The procedure for resolving disputes among partners — typically through arbitration under the Arbitration and Conciliation Act, 1996, before approaching a court.

17. Accounts and audit

The accounting period, the books of account, the audit (if any), and the access of partners to the books.

18. Miscellaneous

Any other clauses specific to the firm — non-compete, non-solicitation, confidentiality, intellectual property ownership, etc.

The Stamp Duty

The partnership deed is stamped on non-judicial stamp paper of the value prescribed by the state Stamp Act. The stamp duty varies by state:

State	Stamp Duty on Partnership Deed
Maharashtra	₹500 (flat for any capital) — e-stamping via SHCIL
Karnataka	₹200 (flat) or based on capital — e-stamping
Tamil Nadu	₹50 or based on capital — e-stamping
Delhi	₹100 (flat) — e-stamping
Gujarat	₹100 to ₹500 based on capital — e-stamping
West Bengal	₹100 (flat) — e-stamping

For most states, the stamp duty is ₹100–₹500 flat. For higher capital, the stamp duty may be higher.

The stamp duty is paid via e-stamping through SHCIL (Stock Holding Corporation of India Limited). The e-stamp certificate is printed and attached to the deed.

Alternatively, physical stamp paper of the prescribed value can be purchased from a licensed stamp vendor. The paper is signed by the partners on each page.

The Registration

The partnership deed is registered with the Registrar of Firms under Section 59 of the Partnership Act. The application is filed in the office of the Registrar where the firm’s principal place of business is located.

Documents Required

• Original stamped partnership deed (signed by all partners).
• PAN of the firm (apply for a new PAN if the firm is being constituted for the first time).
• Aadhaar of all partners.
• Photograph of all partners.
• Address proof of the principal place of business.
• Affidavit from each partner declaring that the information is true and correct.
• Application form (Form 1 in some states).

The Filing

The application is filed at the Registrar of Firms office in the district where the firm is located. Some states allow online filing; most still require physical submission.

The fee for registration is nominal — typically ₹100–₹500 (state-specific).

The Certificate

On registration, the Registrar issues a Certificate of Registration. The certificate contains the firm’s name, the partners’ names, the date of registration, and the registration number. The certificate is the proof of the firm’s existence.

The certificate is required for:

• Opening a bank account in the firm’s name.
• GST registration.
• PAN application.
• Tender applications (many government tenders require a registered partnership deed).
• Income tax returns.

The Common Mistakes

Mistake 1 — Unregistered partnership deed

The partnership deed is signed and stamped but not registered. The firm is technically not a registered partnership. The bank account cannot be opened in the firm’s name, the GST registration cannot be obtained, and the partners cannot enforce the deed in court.

The fix: register the deed with the Registrar of Firms. The registration is a one-time process. Late registration is allowed but the firm cannot use the deed for the period before registration.

Mistake 2 — Inadequate stamp duty

The partnership deed is stamped on ₹100 paper in a state where the stamp duty is ₹500 for the capital. The deed is legally deficient — the stamp duty is short. The Registrar may refuse to register the deed or may impose a penalty.

The fix: pay the correct stamp duty and obtain a fresh stamp certificate. Re-execute the deed with the correct stamp.

Mistake 3 — Wrong profit-sharing ratio

The deed states that profits are shared “as mutually decided” instead of a specific ratio. The Partnership Act default is equal share. If the partners intended an unequal share, the ambiguity is unenforceable.

The fix: state the explicit ratio (e.g., “in the ratio of capital contribution” or “in the ratio 60:40 between A and B”).

Mistake 4 — No provision for partner remuneration

The deed does not provide for remuneration to partners for their services. The Section 40(b) deduction is limited to the remuneration specified in the deed. Without a provision, the remuneration is not deductible.

The fix: include a remuneration clause in the deed, specifying the amount or the formula (e.g., “up to ₹X lakh per month per working partner”).

Mistake 5 — No non-compete clause

The deed does not restrict a partner from competing with the firm after retirement. A retired partner can immediately start a competing business.

The fix: include a non-compete clause — “the retiring partner shall not, for a period of [X] years from the date of retirement, engage in any business similar to that of the firm within [Y] km of the firm’s place of business”.

Mistake 6 — No provision for goodwill valuation

The deed does not provide for the valuation of goodwill on a partner’s retirement or death. The goodwill is a partnership asset; without a formula, the valuation is disputed.

The fix: include a goodwill valuation clause — “the goodwill of the firm shall be valued at [X] times the average net profit of the preceding [Y] years, or as mutually agreed, or as determined by a chartered accountant appointed by the partners”.

The Tax Implications

Income tax

• The firm files ITR-5 (return for non-company assessees).
• The firm is taxed at 30% + 4% cess (no Section 115BAA / 115BAB concession — these are for companies only).
• Partner’s remuneration is deductible to the firm under Section 40(b) within the prescribed limits (₹1.5 lakh per month or 90% of book profit, whichever is lower).
• Partner’s share of profit is exempt in the partner’s hands (Section 10(2A)).
• Interest on capital and loans is deductible to the firm within prescribed limits (12% per annum on capital, the actual rate on loans).

GST

• The firm is treated as a “person” under GST. The firm must register if turnover crosses the threshold or if inter-state supply / e-commerce applies.
• The firm files GSTR-1, GSTR-3B (regular) or GSTR-4 (composition).

Stamp duty and registration

• The stamp duty on the deed is one-time. There is no annual stamp duty on the firm.
• The registration is one-time. Re-registration is required only on a change in the deed (e.g., admission of a new partner, change in profit-sharing ratio).

The Single Most Important Advice

The partnership deed is the foundation of the firm. Spend the time and the CA / lawyer fees to draft a comprehensive deed. The cost of a good deed (₹10,000–₹25,000 in professional fees) is much less than the cost of a dispute that arises from an ambiguous deed.

When to Get Help

If the partnership has multiple partners, complex profit-sharing (e.g., different ratios for different products), partner remuneration above the Section 40(b) limits, or non-compete / non-solicitation clauses, the deed should be drafted by a CA / lawyer.

We routinely draft partnership deeds and handle the registration for clients. Our partnership firm registration service covers the deed drafting, the stamping, and the registration. Share your partner profile and capital structure on WhatsApp for a no-charge assessment.

For the broader structure comparison (Pvt Ltd, LLP, OPC), see our Pvt Ltd vs LLP vs OPC guide. For the related LLP registration, see our LLP registration service.

Sources

• Indian Partnership Act, 1932 — Sections 2, 4, 5, 6, 7, 17, 30, 39, 58, 59
• Indian Stamp Act, 1899 — Article 5 (Partnership)
• Income-tax Act, 1961 — Section 40(b)
• State Stamp Acts — Maharashtra, Karnataka, Tamil Nadu, Delhi, Gujarat, etc.
• Registrar of Firms — state-specific offices (Maharashtra, Karnataka, etc.)