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Partnership Agreement is a contract between partners in a partnership which sets out the terms and conditions of the relationship between the partners, including:

* Percentage of ownership and distribution of profits and losses.

* Dissolution of management powers and duties of each partner.

* Term (length) of the partnership.

* How the partnership can be terminated.

* How a partner can buy his/her share of the partnership.

A Partnership Agreement should be prepared by an Attorney so as to include all important 'what if' questions and avoid problems when the partnership end. When such agreement is put down in writing form it is known as Partnership Deed.


This Partnership Agreement is the foundation for the partnership. Partnership can arise only from a contract and not status. The agreement that forms the basis of the relationship between the partners specifies the terms and conditions that bind the partners into the relationship. This agreement may be oral or written. However, it is always more prudent to get an agreement in writing rather than orally as the enforceability of the oral agreement is reliant on its credibility which is not always easy to prove.

* Names of the parties of the firm and their addresses.

* Duration of partnership

* Capital contribution of each partner and aspects relevant to it like introduction of additional capital, drawings that can be made etc.

* Interest to be paid on capital, loans given by partners to the firm charged on drawings and the relevant rates of interest.

* Aspects relating to salaries, commissions etc, to be paid to partners.

* The ratio in which the profits and losses are to be shared among partners.

* Rights and duties of partners inter se among themselves.

Even aspects relating to Arbitration (in case of disputes among themselves etc) will be part of the agreement.


A Partnership Firm is an organization and like any other organ it has to either grow or perish.

The Dissolution of Partnership between all the partners of a firm is called Dissolution of the Firm (Section 39).

Dissolution of the firm without the intervention of Court can be (a)by agreement(Section 40), (b)compulsory dissolution in case of insolvency(Section 41), (c)dissolution on happening of certain contingency(Section 42), (d)by notice if partnership is at will.(Section 43)

A Firm can also be dissolved by court under Section 44

Thus, if partner is changed/added/or goes out, the relations between them changes and hence partnership is dissolved but the firm continues. Hence, the change is called reconstitution of firm. However, complete breakage between relations of the partners is termed as Dissolution of firm and after such dissolution the firm, the firm no more exists.

Thus, Dissolution of Partnership is different from Dissolution of Firm. Dissolution of Partnership is only reconstitution of firm while dissolution of firm means the firm


After the firm is dissolved, business is wound up and proceeds are distributed among partners.