Partnership deed format: how to draft and register your firm (with a free template)

Partnership, firm and deed: what you are actually creating

Oral understanding versus a written deed

Registered, or merely written?

There’s a second distinction that trips people up, and it’s the one that cost the caterers their ₹9 lakh. A deed can be written and signed but the firm still not “registered”. Writing the deed and registering the firm are two separate acts. The deed is the private contract between the partners. Registration is a public act: filing particulars of the firm with a government official called the Registrar of Firms, so the firm’s existence and membership become a matter of record. You can have a beautifully drafted deed and an unregistered firm, and as the next section shows, that combination has a specific and painful weakness.

Why a written and registered deed matters: Section 69 explained

What an unregistered firm cannot do

Section 69 sets up three disabilities. Under Section 69(1), a partner of an unregistered firm cannot sue the firm or the other partners to enforce a right arising from the deed or the Act, so if your co-partner cheats you and the firm isn’t registered, the courthouse door is shut to you against him. Under Section 69(2), the firm cannot sue a third party to enforce a right arising from a contract, which is the disability that trapped the caterers: their contract with the defaulting client was real, but an unregistered firm can’t go to court to enforce it. And Section 69(3) extends the bar to a claim of set-off of more than ₹100 and to other proceedings, so you can’t even raise the unpaid amount defensively.

Now, here’s where people misread the section and comfort themselves wrongly. The bar runs one way. A third party can still sue your unregistered firm; you just can’t sue them. So non-registration doesn’t shield you from liability, it only disarms you. You get the worst of both worlds: fully exposed to being sued, and powerless to sue. Let’s be honest, that’s not a saving. It’s a hidden tax on every contract you sign.

The exceptions, and what survives

The fix is cheap and reversible

What makes Section 69 almost cruel is how easily it’s avoided. Registration is inexpensive, and a firm can be registered at any time, not just at birth. So why do so many firms stay unregistered? Usually because nobody told the partners the deed and the registration were different things. Here’s the practical rule we’d give any new firm: draft the deed properly, then register, before you sign your first serious contract. One caution, though, registration cures the disability going forward, but you generally need to be registered before you file the suit, so registering the day after a dispute erupts may be too late for that dispute. Register early, not reactively.

Partnership deed format and template: a complete, copy-paste annotated specimen

This is the section the search actually wants. What follows is a complete partnership deed in full draft language, clause by clause, with a short annotation after each clause explaining what it does and the trade-off. The clause text sits inside the shaded boxes; the commentary is the prose after each one.

How to use this template: copy the whole thing, then fill every highlighted bracketed field (such as [Partner Name], [₹ amount], [ratio]) with your specifics. Read the annotation under each clause before you change anything, because that’s where the consequences live. This is a specimen for a common two-or-three-partner firm at will, not legal advice for your particular deal, so adapt it to your facts and your state’s stamp rules.

This is the parties block. It fixes who is bound and records each partner’s PAN, father’s name, age, and address, which are exactly the particulars the Registrar of Firms will later ask for, so capturing them here saves a step at registration. If a partner is a company or an LLP, the individual signing must be an authorised signatory, so add a line confirming that authority rather than letting a person sign for an entity without it.

The name-and-business clause fixes the firm name and the scope of what the firm does. Keep the business description accurate but not so narrow that a natural expansion (a caterer adding a cloud kitchen, say) falls outside it, which is why the “any other business the Partners may agree in writing” tail is there. Avoid names that are identical or deceptively similar to an existing firm or a registered trademark, and steer clear of words like “Crown”, “Emperor”, or “Empire” that need government sanction.

This clause records where the firm operates, which matters for registration (you file with the Registrar of the area of the principal place of business) and for jurisdiction if a dispute arises. Naming the principal place precisely, and allowing for branch locations, keeps the deed accurate as the firm grows without a fresh deed for every new outlet.

Duration decides how the firm can be ended. A partnership “at will” can be dissolved by any partner giving notice, which is flexible but leaves everyone exposed to a sudden exit. A fixed-term or particular-venture partnership can’t be dissolved at whim before its term, giving stability at the cost of flexibility. Choose deliberately, because the default, if you say nothing, is a partnership at will, and that may not be what a partner who’s invested heavily wants.

The capital clause records who put in how much, in cash or in kind (record the agreed value of any asset or intellectual property contributed). It matters at two moments: on dissolution, capital is returned before profits are split, and for tax, interest on capital is calculated on these figures. Spell out the further-capital rule too, because “we’ll top up if needed” without a stated ratio is a fight waiting for a bad month.

Interest on capital compensates a partner for the money locked in the firm, separately from profit. Fix the rate at or below 12% a year, because that’s the ceiling the Income-tax Act allows the firm to deduct; anything above 12% is simply disallowed to the firm. Making the interest “a charge on profits” (payable whether or not the year was profitable is a different, riskier choice) keeps it aligned with how the tax deduction is designed to work.

This is the clause that decides the money, and it’s the one most often left vague. The sharing ratio need not match the capital ratio; partners routinely agree a ratio that reflects effort, skill, or client relationships rather than cash alone. But whatever you agree, state it in numbers. Leave it silent and Section 13 imposes equal shares regardless of what anyone contributed, which is exactly the surprise a hard-working, low-capital partner does not want.

This is the clause that saves your tax deduction, and the caterers’ deed didn’t have it. To claim partner salary as an expense, the deed must authorise the payment to working partners and either quantify it or lay down the manner of quantifying it. Tying the cap to the Section 40(b) limit “as in force” is a smart future-proofing move, because the limit changed in 2024 and could change again; a hard rupee figure in the deed goes stale, a reference to the statutory ceiling doesn’t. Note that only working partners can be paid remuneration, a purely financing partner cannot.

Drawings and banking are practical housekeeping that prevent messy disputes. A monthly drawings cap stops one partner draining the current account, and specifying how the bank account is operated (singly or jointly) settles authority before a bank ever asks. For a two-partner firm where trust is high but stakes are real, joint operation above a threshold is a sensible middle path.

This clause fixes the accounting rhythm and, importantly, the order of the year-end waterfall: interest on capital and remuneration come out first, then the residual profit is split in the sharing ratio. A 31 March year-end aligns the firm with the tax year, which your accountant will thank you for. Every partner should have the right to inspect the books, so add that if any partner is not hands-on with the accounts.

This clause allocates power, and it’s where you decide how much any one partner can do alone. The device that prevents most management fights is the two-tier consent rule: ordinary matters by majority or mutual consent, but big-ticket acts (major borrowing, admitting a partner, disposing of assets) needing everyone’s sign-off. Because of mutual agency, a partner can bind the firm to outsiders even beyond these internal limits, so the internal restriction protects the partners between themselves, not necessarily against a third party who didn’t know of it.

These are the “changes in the cast” clauses, and they prevent a change of membership from dissolving the firm by accident. Note the guardrail on expulsion: the power to expel must be given by the deed and used in good faith for the benefit of the firm, never as a device to grab a partner’s share. An expulsion clause that’s missing means you simply can’t remove a destructive partner without dissolving the whole firm.

This is the single most overlooked clause in Indian partnership deeds, and its absence has ended countless family firms. By default, the death of a partner can dissolve the firm; this “continuation” clause overrides that, letting the surviving partners carry on while settling the deceased’s heirs fairly. Set a clear valuation date and a payout window, so a grieving family isn’t left negotiating with a going concern that holds all the cards.

Goodwill is the value of the firm’s reputation and customer base, and it’s real money that surfaces whenever a partner leaves. Fixing a valuation method now (a multiple of average profit is common and simple) removes the bitter, open-ended argument that otherwise erupts at exactly the wrong moment. Leaving goodwill unaddressed is how a retiring founder and the partners who stay end up in court over an intangible nobody defined.

Drafting the clauses that carry the most risk

The specimen gives you the language. This section explains the reasoning behind the four clause areas that decide most partnership disputes and tax problems, so you can adapt them instead of copying blind.

Capital and the profit-sharing ratio

The most common drafting error in Indian deeds is assuming the profit ratio must follow the capital ratio. It doesn’t. Partners are free to agree any sharing ratio they like, and a ratio that rewards the partner who runs the business over the partner who merely funded it is often the fairer deal. What you cannot afford is silence. Say nothing, and Section 13 splits profits equally, so the partner who put in 80% of the capital or does 80% of the work walks away with 50%. Write the ratio in numbers, and write the further-capital rule too, so a cash crunch doesn’t become a control grab.

Remuneration and interest: the two clauses the taxman reads

Here’s where drafting meets tax, and where the money leaks if you’re careless. The Income-tax Act lets a firm deduct interest on capital only up to 12% a year, and only if the deed authorises it. It lets a firm deduct remuneration only to working partners, only if the deed authorises and quantifies it (or gives a method to quantify it), and only up to the Section 40(b) ceiling. The practical rule: never leave these to a side understanding. A deed that’s silent on remuneration, or that says something vague like “as decided later”, risks the whole deduction being knocked out. Quantify, or reference the statutory limit, and revisit the numbers each year in a short written record.

Admission, retirement, death and goodwill

These clauses govern the firm’s continuity, and their absence is what turns a founder’s death or a partner’s exit into litigation. Three things earn their place. A continuation clause, so death or retirement doesn’t dissolve the firm by default. A valuation method for the outgoing partner’s share, including goodwill, so nobody argues about what the stake is worth after the fact. And a payout window, so the outgoing partner or the heirs actually get paid on a timeline. We’ve seen more family firms destroyed by the absence of these three lines than by any commercial failure.

Dissolution and dispute resolution

Even the best partnerships end, and the deed decides whether the ending is orderly. Track Section 48 for the payment waterfall so the wind-up is mechanical: outside creditors, then advances, then capital, then the residue in the sharing ratio. Pair it with an arbitration clause, because partner disputes are personal, slow to resolve in court, and better handled privately and quickly. And remember the one bright line from the Section 69 discussion: the right to sue for dissolution and accounts survives even without registration, so these clauses protect you whether or not you ever register.

The 2025-26 tax layer every partnership deed must get right

This is the section the free templates skip, and in 2026 it’s the section that costs firms real money. Two changes, one to how much partner pay a firm can deduct and one brand-new tax-at-source obligation, mean the deed’s remuneration and interest clauses now carry direct tax consequences. Get them right and the firm keeps its deduction; get them wrong and it pays tax twice over.

Remuneration under Section 40(b): the limit just went up

A partnership firm can deduct the remuneration it pays its working partners, but only up to a ceiling in Section 40(b) of the Income-tax Act, 1961, and that ceiling was raised by the Finance (No. 2) Act, 2024 with effect from the assessment year 2025-26. The new limit is more generous. On the first ₹6,00,000 of book profit (or in a year of loss), the firm can deduct ₹3,00,000 or 90% of book profit, whichever is higher; on the balance of book profit, it can deduct 60%. The old limit stopped at ₹1,50,000 or 90% on the first ₹3,00,000, so the deductible slab has effectively doubled. Two conditions still gate the deduction: the payment must go to a working partner, and it must be authorised by and quantified in the deed. This is why Clause 7 of the template ties remuneration to the Section 40(b) limit “as in force”, the number moves, the clause shouldn’t have to.

Interest on capital: the 12% ceiling

The rule for interest on capital is simpler and unchanged. A firm can deduct interest paid to a partner on capital up to 12% a year, provided, again, that the deed authorises it. Anything above 12% is disallowed to the firm. That’s why Clause 5 pins the rate at 12% or below: set it higher and you don’t earn the partner more after tax, you just hand the firm a disallowed expense.

Section 194T: the new TDS every firm must now deduct

Here’s the change that’s caught firms off guard. From 1 April 2025, a new Section 194T requires a firm (and an LLP) to deduct tax at source at 10% on salary, remuneration, commission, bonus, and interest paid or credited to a partner, once the total of such payments to that partner crosses ₹20,000 in a financial year. Profit share itself is not covered, because a partner’s share of profit is exempt in the partner’s hands under Section 10(2A). Before this, payments to partners sat outside TDS entirely; now the firm must deduct, deposit, and report them like any other TDS.

How to register a partnership firm, step by step

Registration is a short, ordered process, and doing it early is the cheapest legal insurance a firm can buy. Here’s the sequence, from a drafted deed to a Certificate of Registration.

Stamp duty on a partnership deed, state by state (2026)

A partnership deed must be executed on non-judicial stamp paper, and the duty is set by each state, not by the Centre, so the figure depends entirely on where your firm is based. In many states the duty is linked to the firm’s capital, which is why the same deed costs different amounts in different places.

To give a sense of the range, in Delhi the stamp duty on a partnership deed is a modest fixed amount (commonly around ₹200). In Maharashtra it’s ₹500 where the capital does not exceed ₹50,000, and 1% of the capital (subject to a cap, historically ₹15,000) where it’s higher. West Bengal and Karnataka commonly sit around ₹500 for a standard deed. These are indicative figures, and short deeds are often executed on low-value e-stamps, but rates move through state circulars, so treat any number you read online as a starting point and confirm the current slab on your state’s stamp or registration portal before you buy.

Registered vs unregistered partnership firm: the decision

By now the decision almost makes itself, but let’s put it plainly. Under the Indian Partnership Act, 1932, registration is not compulsory. You can run an unregistered firm indefinitely, and many small firms do. The question isn’t whether the law forces you to register; it’s whether you can afford the disability of not registering.

The answer, for any firm that will contract with outsiders, is no. The moment your firm signs a supply contract, extends credit, takes a loan, or holds property it might one day need to protect, Section 69 turns non-registration into a live risk: you cannot sue to enforce those contracts, and you cannot set off what you’re owed. An unregistered firm is fine only for the narrowest of cases, a firm that will never need to sue anyone, which in practice describes almost no real business. Add that a third party can still sue you while you can’t sue them, and the “saving” from skipping registration looks like what it is: a false economy.

So the decision in one line: unless your firm will genuinely never enforce a contract, register it, and register early. You can register at any time, but you generally need to be registered before you file a suit, so registering after a dispute has already erupted may be too late to save that particular claim. The cost of registering is small. The cost of discovering you can’t sue, on the day you need to, is the whole claim.

Partnership firm, LLP or company: is a deed the right instrument?

Before you draft the deed, it’s worth a moment on whether a partnership is even the right structure, because a deed governs a partnership, and a partnership isn’t the only option. The defining feature of a partnership firm is unlimited liability: the partners are personally liable for the firm’s debts, without limit, and the firm has no separate legal personality of its own. That’s the price of its simplicity.

Common mistakes and red flags in partnership deeds

Most partnership disputes trace back to a short list of avoidable drafting mistakes, and they repeat across firms of every size.

The first is not registering the firm, on the false belief that a signed deed is enough, which leaves the firm unable to enforce its own contracts under Section 69. The second is silence on the profit-sharing ratio, which hands the firm to Section 13’s equal-split default regardless of who contributed what. The third is a vague or missing remuneration clause, which costs the firm its tax deduction under Section 40(b), and, since 2025, muddles its Section 194T TDS obligation. The fourth is the missing continuation clause, so the death or retirement of a partner dissolves the firm just when the survivors most need it to continue.

The fifth is no goodwill valuation method, which turns every partner’s exit into an argument about an undefined number. The sixth is under-stamping the deed, because a deed on insufficient stamp paper can be impounded and is not readily admissible in evidence until the deficit and a penalty are paid. The seventh is no dispute-resolution or jurisdiction clause, which sends a solvable disagreement into years of ordinary litigation. And the eighth, newly expensive, is ignoring Section 194T, so a firm that pays its partners a salary quietly runs up a TDS default month after month.

Run any deed you’re about to sign against this list. If it’s missing registration, a stated profit ratio, a quantified remuneration clause, a continuation clause, a goodwill method, the right stamp, or an arbitration clause, fix those before you sign, because each is a dispute or a tax bill waiting to happen.

Frequently asked questions

Is a partnership deed mandatory?
No. A partnership is valid under Section 4 of the Indian Partnership Act, 1932 even if it’s oral, so a written deed isn’t legally compulsory to form the partnership. But without a written deed you lose the profit ratio you intended (Section 13 imposes equal shares), you can’t claim tax deductions for partner salary and interest, and you have no proof of terms in a dispute. In practice, a written deed is essential.

How many partners can a partnership firm have?
A minimum of two. The maximum is 50, prescribed under the Companies Act, 2013 and its rules. If you need more members than that, a partnership is the wrong structure, and you should look at an LLP or a company.

Is it mandatory to register a partnership firm in India?
No, registration is optional under the Indian Partnership Act, 1932. But an unregistered firm cannot sue to enforce a contract under Section 69, so registration is practically essential for any firm that deals with outsiders. You can register at any time, though ideally before any dispute arises.

What happens if a partnership firm is not registered?
Under Section 69, an unregistered firm cannot sue a third party to enforce a contractual right, and a partner cannot sue the firm or co-partners on a contractual or Act-based right. A claim of set-off above ₹100 is also barred. The firm can still be sued by others, and suits for dissolution or accounts of a dissolved firm, and claims based on statutory or tort rights, are not barred.

Is a partnership deed valid on plain paper or without registration?
The deed should be on stamp paper of the value your state requires; a deed on plain paper or under-stamped paper can be impounded and isn’t readily admissible until you pay the deficit and penalty. Registration of the firm is separate from stamping the deed. A properly stamped, unregistered deed is valid between the partners, but the firm carries the Section 69 disabilities until it’s registered.

How much stamp paper value is needed for a partnership deed?
It depends on the state and often on the firm’s capital. Delhi is a modest fixed amount (around ₹200); Maharashtra is ₹500 up to ₹50,000 of capital and 1% of capital above that (subject to a cap); West Bengal and Karnataka are commonly around ₹500. Confirm the current figure on your state’s stamp or registration portal before buying.

Is notarisation of a partnership deed compulsory?
Not everywhere. Notarisation authenticates the signatures but isn’t the same as registration and isn’t required by the Act in every state. Some states expect the deed to be notarised as part of the registration papers, so check local practice. Notarising a deed does not register the firm.

Which form is used to register a partnership firm?
You file the statement prescribed under Section 58, signed by all partners, with the Registrar of Firms. It’s commonly called “Form 1”, but the name varies by state, Maharashtra uses “Form A”, for example, so use your state’s form and portal.

What documents are required to register a partnership firm?
Typically the registration statement (Form 1 or Form A), the original or certified partnership deed, an affidavit by the partners, PAN of the firm and the partners, identity and address proof of each partner, photographs, and proof of the principal place of business (with a landlord’s no-objection if it’s rented), along with the prescribed fee.

How long does registration take and what does it cost?
Usually between one and three weeks, depending on the state and whether your papers are complete. The government fee is modest and state-set; the larger variable cost is the stamp duty on the deed, which depends on your state and capital.

Can a partnership deed be amended later?
Yes. Amend it by a written supplementary deed signed by all partners, which is why the template includes an amendment clause. Common triggers are a change in the profit ratio, the admission or retirement of a partner, or a change in capital. If the firm is registered, file the change of particulars with the Registrar too.

Is a handwritten partnership deed valid?
Yes, a handwritten deed on the correct stamp paper, signed by all partners and witnesses, is valid. The format matters more than the medium. That said, a typed deed is clearer, easier to register, and less likely to be disputed, so a handwritten deed is a false economy for anything but the simplest arrangement.

How is partner remuneration taxed, and what’s the Section 40(b) limit?
Remuneration to a working partner is deductible to the firm up to the Section 40(b) ceiling, from the assessment year 2025-26, ₹3,00,000 or 90% of the first ₹6,00,000 of book profit (whichever is higher) plus 60% of the balance, provided the deed authorises and quantifies it. In the partner’s hands, the remuneration is taxable as business income; the partner’s share of profit, separately, is exempt under Section 10(2A).

Is TDS deducted on partner salary or interest?
Yes, since 1 April 2025. Under Section 194T, a firm must deduct 10% TDS on remuneration, salary, commission, bonus, and interest paid to a partner once such payments cross ₹20,000 in a financial year. Profit share isn’t covered. Failing to deduct can also cost the firm 30% of the related deduction under Section 40(a)(ia), so build the TDS step into your accounting.

References

Case law

Statutes

Disclaimer

This article is for informational and educational purposes only and does not constitute legal or tax advice. Partnership law, stamp duty, registration requirements, and tax provisions vary by state and change over time, and their application depends on the specific facts of each firm. Readers should verify the current stamp duty and registration rules on their state’s official portal, confirm the applicable tax limits for the relevant year, and consult a qualified advocate or chartered accountant before drafting, signing, or registering a partnership deed.