Essential Clauses to Include in a Partnership Deed
A Partnership Deed is a legally binding document that defines the roles, responsibilities, and rights of partners in a partnership firm. Whether you are starting a service-based or product-based business in Rajasthan or anywhere in India, having a well-drafted partnership deed ensures smooth business operations and prevents disputes.
In this blog post, we will discuss the essential clauses that every partnership deed must include.
What is a Partnership Deed?
A Partnership Deed is a written agreement that governs the relationship between partners. It is registered under the Indian Partnership Act, 1932 and acts as the foundation of the business.
💡 Why is a Partnership Deed Important?
✅ Defines the profit-sharing ratio
✅ Protects partners’ rights and interests
✅ Helps in dispute resolution
✅ Provides legal recognition to the firm
Essential Clauses in a Partnership Deed
1. Name and Address of the Firm & Partners
This clause specifies the name of the partnership firm and its business address. It should also include:
✔ Full names of all partners
✔ Residential addresses of partners
💡 Example Clause:
"The name of the partnership firm shall be Raj Traders, located at Jaipur, Rajasthan. The partners of the firm are Mr. A (Address) and Mr. B (Address)."
2. Nature of Business
This clause defines the type of business activities the firm will engage in.
💡 Example Clause:
"The firm shall engage in the business of textile manufacturing and trading across India."
3. Capital Contribution by Each Partner
This clause specifies how much capital investment each partner is bringing into the business.
💡 Example Clause:
"Partner A shall contribute ₹5,00,000 and Partner B shall contribute ₹3,00,000 towards the capital of the firm."
📌 Tip: Clearly mention whether future additional capital contributions are allowed.
4. Profit and Loss Sharing Ratio
The profit-sharing clause defines how profits and losses will be distributed among partners.
💡 Example Clause:
"The net profits and losses of the firm shall be shared in the ratio of 60:40 between Partner A and Partner B."
📌 Tip: If profit-sharing is not mentioned, it will be assumed as equal among all partners under Section 13(b) of the Indian Partnership Act, 1932.
5. Roles and Responsibilities of Partners
Clearly define each partner’s duties and responsibilities to avoid conflicts.
💡 Example Clause:
"Partner A shall handle marketing and sales, while Partner B shall manage operations and finance."
6. Banking and Financial Operations
This clause defines how the partnership firm’s bank account will be operated.
💡 Example Clause:
"The firm's bank account shall be maintained with XYZ Bank, Jaipur, and shall be operated jointly by Partner A and Partner B."
7. Admission of a New Partner
Defines the process for adding new partners in the future.
💡 Example Clause:
"A new partner may be admitted only with the unanimous consent of all existing partners."
📌 Tip: Mention the capital contribution and profit-sharing terms for new partners.
8. Retirement or Resignation of a Partner
This clause sets the rules for when and how a partner can exit the firm.
💡 Example Clause:
"A partner may retire by giving three months' written notice to all partners."
📌 Tip: Mention how the retiring partner’s capital will be settled.
9. Expulsion of a Partner
Defines the grounds on which a partner can be removed from the firm.
💡 Example Clause:
"A partner can be expelled for misconduct, fraud, or repeated violation of partnership terms, with the consent of all other partners."
📌 Tip: Expulsion should be done in good faith to be legally valid.
10. Dispute Resolution
This clause explains how disputes between partners will be resolved.
💡 Example Clause:
"In case of any dispute, the partners shall first attempt to resolve it mutually. If unresolved, the dispute shall be referred to arbitration under the Arbitration and Conciliation Act, 1996."
📌 Tip: Arbitration helps in quick resolution without going to court.
11. Accounting and Audit
Specifies how accounts will be maintained and whether audits are required.
💡 Example Clause:
"The accounts of the firm shall be maintained on an annual basis, and audited by a Chartered Accountant."
📌 Tip: Keeping proper records helps in tax compliance and financial transparency.
12. Dissolution of the Partnership Firm
Defines how the firm will be closed if partners decide to dissolve it.
💡 Example Clause:
"The partnership shall be dissolved upon mutual agreement of all partners, and the assets and liabilities shall be settled accordingly."
📌 Tip: Also mention how assets will be divided in case of dissolution.
Additional Clauses (Recommended but Optional)
✔ Non-Compete Clause – Prevents partners from starting a competing business after leaving the firm.
✔ Salary/Remuneration Clause – Specifies if partners will receive salaries apart from profit-sharing.
✔ Loan and Borrowing Clause – Defines if the firm can take loans and who has the authority.
Conclusion
A well-drafted Partnership Deed ensures clarity, legal protection, and smooth operations for any partnership firm. Entrepreneurs in Rajasthan and India must ensure that these essential clauses are included before registering their firm.
Need help drafting your Partnership Deed?
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