Although a partnership is governed by the Indian Partnership Act 1932, it provides the basic legal framework for the relation between two or more individuals entered into a partnership. However, it is beneficial for the partners to create a partnership agreement inter-se, to clearly define the basic details of the business and their rights and liabilities towards the business,

The essential clauses to be incorporated while drafting a partnership agreement

The clauses of a partnership agreement can be defined into 4 parts for better understanding they are as follows:-

1. The first part of the agreement will provide the detailed information of the Business for which the partners have entered into a partnership agreement, the general clauses under this are:-
2. Name and place of the partnership firm
3. Nature and Scope of business
4. Duration
5. Registration of partnership deed under the Indian Partnership act 1932

.2. The second part of the agreement will deal with the information with respect to financial aspect so that the partners can go on with their work as it is without having to worry about their financial aspects, such as:-

• Contribution
• Profit/loss ratio: To define the ratio or percentage as to how the net profit/loss will be distributed among the partners.
• Drawings by partner
• Interest on capital
• Procedure for borrowing
• Accounts: The firm shall have a separate account for all the transactions in the name of the firm, it is incumbent upon the partners to ensure that all the accounts books ledgers are adequately maintained and documented.

3.  The Third Part entails the duties and liabilities of each partner towards his/her company

Duties of each partner: This clause is an important part of the partnership deed because the very essence of the partnership depends upon the acknowledgment of the Duties by their Partners, and it needs to be comprehensive.

Whereas the duties and liabilities clause provides a general outline of the responsibilities of the partners, an additional clause which succinctly states the acts forbidden can help in bringing certainty to the role of the partners, this clause will contain acts that are prohibited that may be subject to the consent of all the partners. 

• Non-compete: Upon the departure of any partner from the firm due to termination or retirement, the Partner shall not be allowed to engage in any business similar to that of the partnership firm.
• Confidentiality: A business can be based on unprecedented intellectual property, secret ideas, business models, also there can be various sensitive business deals that are confidential in nature. It is a surviving obligation of the Partners that they are required to maintain confidentiality even if they cease to be the partner of the firm.
• Admission of a new partner: The procedure of adding a new partner must be defined.
• Retirement of partner: Procedure as to how a partner can retire from the partnership and the corresponding obligations. For example, a partner is required to give 3 months’ notice before retiring.
• Expulsion of partner: Events that will be construed as a breach of agreement and entitles other partners to terminate the wrongdoer partner. Also, the insolvency of a Partner will by default lead to the expulsion of the partner.

4. Rights of the partnership firm

• Intellectual property: As mentioned above, a partnership firm deems to be a separate entity, therefore, all the property whether tangible or intangible will be solely owned by the Firm, this clause must state that all the IP created during the business shall be owned in the no Partner can claim his rights over it.
• Goodwill: Similarly, the goodwill of the partnership firm also resides with the firm.
• Dissolution: In the event, the partnership does not follow its ordinary course of cessation by the completion of the term period, a process shall be pre-determined in the agreement for the dissolution of the firm and the firm will wind up and assets will be distributed in accordance with the Indian Partnership Act 1932.

Conclusion

The clauses mentioned above are common clauses available in almost every partnership agreement, it is pertinent to mention that boilerplate clauses such as a waiver, severability, dispute resolution, assignment, heading, counterparts, entire agreement, etc are implied