Partnership Firm in India – An Overview

Governing Law:

The Partnership Act, 1932 ( may be called Indian Partnership Act, 1932).

It came into force w.e.f.  01.10.1932 extends to the whole of India except the State of Jammu and Kashmir (J&K).

What is Partnership:

As per Section 4 of The Partnership Act, 1932: “Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

Components of Partnership:

Persons who have agreed to enter into partnership are called individually, “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm-name”.

Registration of Partnership firm:

Reason to set-up:

1. They are relatively easy to set-up

2. The no. of statutory compliance required to be done is relatively less.


1. Choosing the Partnership Firm Name

2. Create Partnership Deed

A partnership deed agreement may be written or oral. However, practically oral agreement does not have any value for tax purposes and therefore the partnership agreement should be written.

The following are the essential characteristics of a partnership deed:-

  • Name and Address of the firm as well as all the partners
  • Nature of business to be carried on
  • Date of Commencement of business
  • Duration of Partnership (whether for a fixed period/project)
  • Capital contribution by each partner
  • Profit sharing ratio among the partners  

Some additional clauses mentioned below:- 

  • Interest on Partner’s Capital, Partners’ Loan, and Interest, if any, to be charged on drawings.
  • Salaries, Commissions etc, if any, payable to partners
  • Method of preparing accounts and arrangement for audit
  • Division of task and responsibility i.e. the duties, powers and obligations of all the partners.
  • Rules to be followed in case of retirement, death and admission of a partner

The Partnership Deed created by the partners should be on a stamp paper in accordance with the Indian Stamp Act and each partner should have a copy of the partnership deed.

A Copy of the Partnership Deed should also be filed with the Registrar of Firms in case the firm is being registered.

How to Register Partnership deed in India Partnerships in India are governed by the Indian Partnership Act, 1932. As per the Partnership Act, Registration of Partnership Firms is optional and is entirely at the discretion of the partners. The Partners may or may not register their Partnership Agreement.

However, in case the partnership deed is not registered, they may not be able to enjoy the benefits which a registered partnership firm enjoys.

Registration of Partnership Firm may be done before starting the business or anytime during the continuance of partnership. However, where the firm intends to file a case in the court to enforce rights arising from the contract, the registration should be done before filing the case.

The procedure for Registration of Partnership Firms :

 1. An application with the prescribed fees is required to be submitted to the Registrar of Firms (ROF) of the State in which the firm is situated.

2. The following documents are also required to be submitted along with the application:-

i. Application for Registration of Partnership.

ii.   Duly filled specimen of Affidavit

iii.  Certified True Copy of the Partnership Deed

iv.  Ownership proof of the principal place of business or rental/lease agreement thereof.

The application or statement must be signed by all the partners, or by their agents. When the registrar is satisfied with the points stated in the partnership deed, he shall record an entry of the statement in Register of Firms and issue a Certificate of Registration.

It is mandatory for all firms to apply for Registration with the Income Tax Department and have a PAN Card.

After obtaining a PAN Card, the Partnership Firm would be required to open a Current Account in the name of the Partnership Firm and operate all its operations through this Bank Account.

Retirement of a Partner: 

 (1) A partner may retire –

(a) with the consent of all the other partners,

(b) in accordance with an express agreement by the partners, or

(c) where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.

Some Key Points:

1. A Partnership firm is not required to file its annual accounts with the Registrar of firm each year unlike a LLP or Company.

2. The Profits of a Partnership firm are taxed at 30% + Cess.

3. Any Indian Citizen residing in India can be a Partner in a Partnership Firm including minors (to the Benefits of Partnership).

4. The share in a Partnership can be transferred to another person after obtaining the permission of all the Partners in a Partnership. The transferability of a Partnership is cumbersome. Partnership can be converted into a LLP or a Private Limited Company.

5. Partnership firm and the Partners are not considered separate legal entities, neither does the Partnership have perpetual existence.


This Deed of Partnership is executed on this the ………day of ………, 20……. by and amongst:-

1. ……………………..S/o ………………………..R/o …………………………………….. (hereinafter referred to as party of the first part);


2. …………………………S/o ………………………………R/o …………………… (hereinafter referred to as party of the second part).

WHEREAS the parties above named intend to carry on the business in partnership in the name and style of ………………………………(name of the firm) vide this Deed of Partnership.

AND WHEREAS all the parties referred to above hereby desire that the terms and conditions be reduced in writing to do away any avoidable disputes and misunderstanding that may arise in future.


1. That the partnership business shall be carried on under the name and style of ………………………………..(name of the firm).

2. That the business of the partnership firm ………………………………………………………… (Business object) or any other business as may be decided from time to time mutually by all the partners to this Deed.

3. That Head Office of the partnership firm will be at ……………………… (address of the firm).The principal place of business may be shifted to such other place or places as the partners may unanimously decide from time to time.

4. That any branch may be opened under any name and style at such place or places as the partners may decide from time to time.

5. That the terms and conditions of the partnership shall be deemed to have been commenced with effect from the ………day of …………, 20…...

6. That the capital required for the partnership shall be contributed by the partners as mutually agreed upon amongst the partners.

7. That the regular books of accounts of the partnership shall be maintained at the place of business which shall be closed on…………………… (eg. 31st day of March) each year and each partner shall have access to and power to have copies of the same. All the transactions entered into by them on behalf of the firm shall be faithfully recorded therein.

8. That at the end of each accounting year, the firm’s accounts shall be drawn up and the Profit & Loss Account and the Balance Sheet of the firm prepared and the Profit and/or losses falling to the share of each partner shall be credited or debited to the respective accounts.

9. That the Profit and Loss Account and the Balance Sheet shall be duly signed by any two partners and upon signing the same shall be binding and final.

10. That the Profits and Losses as per Profit and Loss Account of the partnership business shall be divided amongst the partners as under.

1. ……………… …………%

(Party of the First part)

2. …………………….

(Party of the Second part) ………….%

11. That the bank account(s) of the partnership shall be operated by any of the partner to this deed or as may be mutually decided time to time.

12. No partner, without the written consent of the all the other partners shall do or abet in doing any of the following acts:-

(i) Sell, mortgage, assign or otherwise transfer his share or interest in the partnership business or property.

(ii) Charge, mortgage, hypothecate, assign or otherwise transfer the business, property or rights of this partnership firm.

13. That the partnership is “AT WILL”and can be dissolved at any time with the mutual consent of all the parties to this deed.

14. That all the parties to this deed shall work diligently and faithfully to the common advantages of the firm and shall render true and correct information to each other.

15. That any consent or difference which may arise between the partners or their legal heirs, successors or representatives with regard to the construction, meaning and effect to this deed and/or any part thereof or in respect of the accounts, profits or losses of the business of the said firm or any other matter relating to the firm shall be referred to arbitration under the Indian Arbitration Act, 1940.

16. That the provisions of the Indian Partnership Act, 1932 shall apply as regards matters not expressly provided for hereinbefore in this partnership deed.

17. That any of the above terms, conditions and stipulations may be altered, varied or added to by mutually taking the consent of all the partners in writing.

18. That all business expenses shall be borne by the Partnership Firm.

19. The powers and duties of the Partners, which shall be exercised at their sole discretion with mutual consent (written/verbal) from partners, shall include but not be limited to the below:

– To convert this partnership Firm in LLP or Pvt. Ltd. or Ltd. Company as and when Partner opts to do so.

– To acquire, purchase, takeover and /or amalgamate business or undertakings of companies or firms which under existing circumstances, from time to time, may conveniently or advantageously be combined with the business of the firm, to amalgamate or merge with companies whose business are so acquired, purchased or taken over and/or to enter into any agreement with the object of acquisition of such undertaking and/or business.

To go into acquisition, purchase, takeover and/or amalgamate of other entities or vice versa as and when Partner opts to do so.

– To sell, mortgage, assign or lease and in any other manner feel with or dispose off the firm or properties of the firm or any part thereof, whether movable or immovable for such consideration as the Partners of the firm may think fit.

To sell, mortgage, assign, lease or dispose off the properties/assets of the firm (including movable and immovable) to any person, company or other entity at mutually agreed prices by the partners.

20. That the capital required for the business of Partnership shall be contributed time to time by the PARTIES in such manner in all respect as may be agreed to between them. A simple interest @ 12% p.a. shall be payable by the firm to the parties.

21. That any partner may draw salary, remuneration and or commission for working in the partnership firm as agreed upon between the partners.

22. That the books of accounts and other documents belonging to the firm shall be kept at the place of business only and shall at all reasonable times, be open for inspection by any of the parties or his authorized agent.

23. The written consent of all Partners will be required for the partnership to avail credit facilities from any financial institution.

24. That the matters for which no provisions have been made in this deed may be decided upon by mutual consent of the parties in writing.

25. That unless provided hereinbefore, the provisions of the Indian Partnership Act, 1932 shall apply.

IN WITNESS WHEREOF the parties hereto have set and subscribed their hands on the day, month and year first mentioned above.


1. ……………………

2. ……………….



(Party of the First part)


(Party of the Second Part)

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One response to “Partnership Firm Registration and Draft Partnership Deed”

  1. Gajanan V. Khare says:

    Namsakar to all,In state of Maharashtra Supreme Court has struck down Section 69 as it is unconstitutional in decision of M/s V. Subramaniam vs. Rajesh Raghuvandra Rao on 20 March,2009, Author M Katju, Bench Markandey Katju, G.S. Singhvi. Now Partnership Act is in LIST III- CONCURRENT LIST entry no.7 in constitution of India 1950. State has got powers to make own law.
    let me know what is the current situation, status quo.
    Thanking you,
    Adv. Gajanan V.
    (Past Associate Editor Sales Tax Review Magazine)
    (GREAT GRANDSON OF 108 JAGATGURU SHREE SHANKARACHARYA OF DWARKAPEETH AND GOVERDHANPEETH WHO WAS ALSO 1ST CA OF INDIA AND ALSO GREAT GRANDSON OF DR. N. B. KHARE Prime Minister of the former Alwar State, 19th April, 1947 to February, 1948, prime minister in the first elected government of the Central Provinces and Berar in August 1937- July 1938)
    FLAT NO.18, 4th FLOOR,
    MUMBAI- 400 004. gajanan_khare@hotmail. com
    TEL: 23850642 / 23853027
    B/29, 1ST FLOOR,

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