The smooth and successful running of a partnership firm requires a clear understanding among its partners regarding the various policies governing their partnership. The partnership deed serves this purpose. The partnership deed contains various terms such as profit/loss sharing, salary, interest on capital, drawings, admission of a new partner, etc. in order to bring clarity to the partners.

A deed of partnership also known as a partnership agreement is a legal document signed by two or more partners who come together and decide to run a business for profit. The partnership deed helps to resolve any disagreement or conflict which arises between the partners regarding the partnership norms. The purpose of a partnership deed is to give a clear understanding of the roles of all partners, ensuring the smooth running of the operations of the partnership firm.

A partnership deed defines the position of the partners of the firm. Below is the importance of a partnership deed:

• It helps partners to define the terms of their relationship.
• It regulates the nature of business and liabilities, rights and duties of all partners.
• It helps to avoid misunderstandings between the partners since all of the terms and conditions of the partnership are specified in the deed. 
• In the case of a dispute amongst the partners, it will be settled as per the terms of the partnership deed.
• There will be no confusion between the partners regarding the profit and loss sharing ratio amongst them.  
• It mentions the role of each individual partner.
• It contains the remuneration that is to be paid to partners, thereby avoiding any dispute or confusion. 
• It ensure smooth functioning of the firm as the terms and liabilities between partners are in a written form.