Partnership Deed Between Partners of Two Existing Firms

This updated format is intended for a business venture in which the individual partners associated with two existing partnership firms wish to constitute a separate partnership in India, contribute capital, manage the venture and share its profits and losses in agreed proportions.

Important legal position: under Indian partnership law, a partnership firm is not a separate legal person capable, as such, of becoming a partner in another partnership. Therefore, a deed should not simply name "Firm A" and "Firm B" as the two partners of a new firm. Where a new partnership is intended, the persons who are to be partners should be individually identified and should execute the instrument in that capacity. See Dulichand Lakshminarayan v. Commissioner of Income-tax, Nagpur, AIR 1956 SC 354.

Legal position under the Indian Partnership Act, 1932

Section 4 of the Indian Partnership Act, 1932 defines partnership as 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. The Supreme Court has held that a firm name is only a collective description of its partners and that a firm, as such, is not a "person" entitled to enter into partnership with another firm or individual.

Accordingly, if persons connected with two existing firms want to undertake a third venture as a partnership, the new deed should identify the actual individuals who will be partners, their capital contributions, profit-sharing ratios, authority, duties and liabilities. The existing firms may separately enter into lawful supply, service, licence, lease, funding or other commercial arrangements with the new firm where appropriate.

Income-tax, firm registration and other compliance points

For assessment as a firm under section 184 of the Income-tax Act, 1961, the partnership must be evidenced by an instrument and the individual shares of the partners must be specified in that instrument. A certified copy of the partnership instrument is required in the circumstances specified by section 184.

Registration of a firm under the Indian Partnership Act is administered through the Registrar of Firms under the applicable State or Union Territory procedure. Registration is strongly advisable because section 69 of the Partnership Act places restrictions on certain suits by or on behalf of an unregistered firm. Stamp duty on a partnership deed is governed by the applicable stamp law and varies by State or Union Territory.

GST registration, where applicable, is governed by the Central Goods and Services Tax Act, 2017 and related State/UT GST law, notifications and rules. A partnership firm ordinarily requires its own PAN, and a new constitution may require fresh tax registrations or amendments depending on the facts. Eligible micro, small and medium enterprises may also consider Udyam Registration through the official Ministry of MSME portal.

PARTNERSHIP DEED

This Deed of Partnership is made at ________________ on this ____ day of ____________, 20____.

BETWEEN

1. Mr./Ms. ____________________, son/daughter/spouse of ____________________, residing at ____________________, PAN ____________________;

2. Mr./Ms. ____________________, son/daughter/spouse of ____________________, residing at ____________________, PAN ____________________;

3. Mr./Ms. ____________________, son/daughter/spouse of ____________________, residing at ____________________, PAN ____________________;

being partners associated with the existing firm M/s ____________________ ("First Existing Firm");

AND

4. Mr./Ms. ____________________, son/daughter/spouse of ____________________, residing at ____________________, PAN ____________________;

5. Mr./Ms. ____________________, son/daughter/spouse of ____________________, residing at ____________________, PAN ____________________;

being partners associated with the existing firm M/s ____________________ ("Second Existing Firm").

The above persons are hereinafter collectively referred to as the "Partners" and individually as a "Partner".

WHEREAS:

A. The persons associated with the First Existing Firm are carrying on the business of ____________________ at ____________________.

B. The persons associated with the Second Existing Firm are carrying on the business of ____________________ at ____________________.

C. The Partners desire, in their individual capacities, to establish and carry on a separate business in partnership on the terms recorded below.

NOW THIS DEED WITNESSES AS FOLLOWS:

1. Name of the firm. The Partners agree to carry on the business in partnership under the name and style of M/s ____________________ or such other lawful name as may be unanimously agreed.

2. Commencement and duration. The partnership shall commence from ____/____/20____. It shall be a partnership [at will / for a fixed term ending on __________], unless earlier dissolved in accordance with this deed and applicable law.

3. Business. The business of the firm shall be ____________________. No material change or additional line of business shall be undertaken without the consent required under this deed.

4. Principal place of business. The principal office of the firm shall be at ____________________. Branches or additional places of business may be opened at such places as the Partners may unanimously decide.

5. Capital. Initial capital shall be contributed by the Partners as follows: ____________________. Further capital may be introduced in such proportions and at such times as may be agreed in writing. Any amount advanced by a Partner in excess of agreed capital may, if so recorded, be treated as a loan to the firm and may carry interest subject to the Income-tax Act, 1961 and the terms approved by the Partners.

6. Profit and loss sharing. Net profits and losses of the firm shall be shared by the Partners in the following ratios: ____________________. The shares stated in this deed are the shares of the individual Partners of this firm and shall not be treated as shares of the First Existing Firm or Second Existing Firm.

7. Accounting year. The accounting year of the firm shall ordinarily be from 1 April to 31 March, subject to applicable tax and accounting law.

8. Accounts and audit. Proper books of account shall be maintained. At the close of each financial year, financial statements shall be prepared and approved by the Partners. Audit shall be conducted where required by law or where the Partners otherwise decide.

9. Inspection of books. Books, statutory records and material business records shall ordinarily be maintained at the principal office or in an approved electronic system and shall be open to inspection by every Partner in accordance with law.

10. Working partners and remuneration. The Partners designated as working partners shall be: ____________________. Subject to applicable law and the Income-tax Act, 1961, remuneration may be paid to working partners in the amount or manner set out below or determined by a written resolution consistent with this deed: ____________________.

11. Management and reserved matters. Day-to-day business may be conducted by the working partners or authorised partners. The following matters shall require unanimous written consent of all Partners: material alteration of business, admission of a new partner, disposal of substantial assets, borrowing outside approved limits, creation of security, guarantees, and amendment of this deed.

12. Change in constitution of an existing firm. A change in the constitution of the First Existing Firm or Second Existing Firm shall not automatically alter the constitution of this partnership. Admission, retirement, death or other change affecting a Partner of this firm shall be governed by this deed and the Indian Partnership Act, 1932.

13. No automatic substitution. No incoming partner of either existing firm shall automatically become a partner of this firm, and no outgoing partner of an existing firm shall automatically cease to be a partner of this firm, unless the constitution of this firm is lawfully changed by the requisite instrument and consent.

14. Other businesses and conflict of interest. A Partner may carry on another business unless restricted by this deed or applicable law, but shall not, without the consent of the other Partners, carry on a competing business using the firm's property, confidential information, goodwill or business opportunity.

15. Employees and professional advisers. Employees, consultants and advisers may be appointed on terms approved in accordance with the management arrangements of the firm. Their remuneration and duties shall be recorded appropriately.

16. Duties of Partners. Each Partner shall:

act in good faith and for the greatest common advantage of the firm;
be just and faithful to the other Partners;
render true accounts and full information concerning the firm;
indemnify the firm for loss caused by fraud or wilful misconduct and otherwise be responsible as provided by law;
avoid unauthorised competing activity and conflicts of interest;
attend diligently to assigned business responsibilities;
not withdraw or apply firm money for unauthorised personal purposes; and
be entitled to indemnity for proper payments and liabilities incurred in the ordinary and proper conduct of the firm's business or for protecting the firm from loss in an emergency, subject to law.

17. Property of the firm. All property, rights, licences, permits, receivables, intellectual property, goodwill and other assets acquired for the firm or with firm money shall belong to the firm and shall be used for its business, subject to applicable law and any third-party licence conditions.

18. Personal profits. A Partner shall account to the firm for any profit derived without consent from a transaction concerning the firm, from the use of the firm's property, name or business connection, or from a competing business where the law or this deed requires such accounting.

19. Restrictions without consent. No Partner shall, except with the consent required under this deed:

compromise, abandon or materially settle a substantial claim of the firm;
withdraw material litigation or proceedings instituted by the firm;
admit a material liability outside the ordinary course of business;
acquire or dispose of immovable property or substantial capital assets of the firm;
enter into another partnership or joint venture in the name of the firm;
assign or transfer a partnership interest except in accordance with law and this deed;
admit any person as a partner;
borrow money or create security beyond approved authority;
enter into contracts outside the ordinary course or beyond delegated limits; or
stand as guarantor or surety in the name of the firm.

20. Bank accounts. One or more bank accounts shall be opened in the name of the firm with such bank or banks as the Partners decide. Accounts shall be operated by the authorised Partner or Partners in the manner recorded in the firm's banking mandate.

21. Retirement, death, incapacity and dissolution. Retirement, death, insolvency or incapacity of a Partner and continuation or dissolution of the firm shall be governed by this deed and the Indian Partnership Act, 1932. Where the partnership is for a fixed term, expiry shall have the effect provided by law and this deed unless the Partners lawfully continue or reconstitute the firm.

22. Events requiring review or dissolution. If an event materially prevents the lawful continuation of the partnership, the Partners shall promptly consider reconstitution, settlement or dissolution. Dissolution shall not be automatic merely because an existing firm with which one or more Partners are associated changes its constitution, unless this deed expressly and lawfully provides otherwise.

23. Accounts on dissolution. Upon dissolution, accounts shall be settled and assets applied in accordance with the Indian Partnership Act, 1932, this deed and other applicable law, including payment of liabilities and distribution of the surplus among the Partners in the legally applicable proportions.

24. Registration and tax compliance. The Partners shall take appropriate steps for registration of the firm with the Registrar of Firms where registration is sought, obtain PAN and other registrations required by law, and comply with the Income-tax Act, 1961, GST law and other applicable statutory requirements. Nothing in this deed shall be read as stating that a partnership is "registered under the Income-tax Act"; the tax law separately governs assessment and filing obligations.

25. Dispute resolution. Any dispute arising out of or relating to this deed or the business of the firm shall first be addressed through good-faith consultation. If not resolved within ____ days, the dispute shall be referred to arbitration by a sole arbitrator mutually appointed by the Partners. Failing agreement on appointment, the arbitrator shall be appointed in accordance with the Arbitration and Conciliation Act, 1996. The seat and venue of arbitration shall be ____________________, India. The language shall be English, unless otherwise agreed.

26. Counterparts and copies. This deed may be executed in such number of counterparts as required. Each Partner shall be entitled to a copy. The Partners shall ensure payment of applicable stamp duty and completion of any notarisation, registration or filing required by the law applicable in the relevant State or Union Territory.

IN WITNESS WHEREOF, the Partners have executed this deed on the date and at the place first written above.

Partner 1
Name: ____________________
Signature: ____________________

Partner 2
Name: ____________________
Signature: ____________________

Partner 3
Name: ____________________
Signature: ____________________

Partner 4
Name: ____________________
Signature: ____________________

Partner 5
Name: ____________________
Signature: ____________________

Witness 1
Name & address: ____________________
Signature: ____________________

Witness 2
Name & address: ____________________
Signature: ____________________

Official legal and compliance resources

Drafting note: This is a general legal format and should be adapted to the actual partners, State stamp law, business activity, capital structure, tax position, licences and dispute-resolution needs. Professional review is advisable before execution.