The Partnership Deed

A partnership is founded on agreement, and the terms of that agreement are best not left to memory, or to whatever the Indian Partnership Act, 1932 provides by default. The document that records these terms is called the Partnership Deed.

A Partnership Deed is not compulsory in law — an oral agreement is equally valid — but a written deed is strongly recommended, since it removes ambiguity and prevents future disputes among partners over matters such as profit-sharing or interest on capital.

Contents of a Partnership Deed

A well-drafted Partnership Deed generally covers:

1. Name and address of the firm and of every partner.
2. Nature and place of the business.
3. Duration of the partnership (if any is fixed) and the date of commencement.
4. Amount of capital contributed by each partner, and whether Capital Accounts are to be maintained under the Fixed or the Fluctuating Capital Method.
5. Profit-sharing ratio among the partners.
6. Rate of interest (if any) to be allowed on partners' capital, and to be charged on partners' drawings.
7. Salary, commission or remuneration (if any) payable to a working partner.
8. Rate of interest (if any) payable on a loan given by a partner to the firm, over and above capital.
9. Method of valuation of goodwill, and the treatment of goodwill on admission, retirement or death of a partner.
10. Rights, duties and powers of each partner, including whether any partner is barred from carrying on a competing business.
11. The manner of preparing accounts and getting them audited.
12. The procedure for admission, retirement, expulsion or death of a partner, and for dissolution of the firm.
13. The mode of settling disputes among partners — often by arbitration. …