Partnering up: equity splits and deed clauses for agencies

Two of you start a travel agency. One brings ₹3 lakh and a laptop. The other brings a client list from a previous job and does every sales call. You agree on WhatsApp: "50-50, we're partners." No deed, no lawyer, just a handshake.

That WhatsApp message is a legally binding travel agency partnership deed whether either of you meant it to be, and it doesn't say what you think it says. If nothing is written down, the law fills the silence, and the default has nothing to do with who works harder.

This post is for the two or three of you starting (or formalising) an agency: what the default rule does to you, how to split capital from working contribution, how to pay the person doing the work, and the full clause-by-clause deed you can adapt.

Why the 50-50 WhatsApp split is the actual risk

An informal or silent partnership agreement defaults to equal profit and loss sharing, regardless of who contributed capital or who does the work, and no partner is entitled to be paid for their effort unless the deed says so. Silence doesn't mean "we'll figure it out fairly later." It means a specific legal default, rarely the one either of you wanted.

Section 13 of the Indian Partnership Act, 1932 sets this out. Subject to a contract between the partners, nobody gets paid for the work they put in, and profits and losses are shared equally (Section 13). Read that twice if you're the partner running sales and answering the 11 pm flight enquiry while your co-founder checks in twice a week. If the deed says nothing, you're both entitled to exactly half, hustle or none.

One more default worth knowing before you lend the firm money from your own pocket: a partner who advances funds beyond their agreed capital gets 6% annual interest on it, only if the deed doesn't fix a different rate (Section 13). None of this is a reason to panic, it's a reason to write a deed before the season gets busy.

Split capital from work: two pools, not one number

Most informal splits collapse two different things into one number: "you 60, me 40" or "50-50, we're partners." Three seasons later, the partner who does more running around feels shortchanged, and the one who put in the capital feels their money isn't respected. Both are right, because the single number was never precise enough to hold both truths.

A cleaner structure keeps two ledgers:

Pool	Tracks	Typically earns
Capital account	Cash or assets put in at formation	A share of residual profit, plus interest on excess advances
Working contribution	Sales, ops, supplier relationships run through the firm	A defined monthly remuneration, before profit split

Example: Partner A puts in ₹4 lakh as starting capital and works part-time. Partner B puts in ₹1 lakh and runs the agency full-time: sales, quoting, supplier chasing. Separating the pools lets you pay B a monthly remuneration for running the business, and split the residual profit in a ratio reflecting capital and risk, not just effort.

Good costing sheets apply the same discipline to fixed versus variable cost: don't blend two different things into one cell because it's convenient today.

Pay the working partner before you argue about equity

A working partner's monthly remuneration should be a fixed rupee amount or formula in the deed, paid before any profit split, because the default law entitles them to nothing for their effort at all. This overrides Section 13(a)'s no-remuneration default (Section 13). The working partner draws a defined amount every month, and the remaining profit gets split in the agreed ratio.

There's a tax angle too, and it changed recently. As of August 2026, tax-deductible partner remuneration falls under the Income Tax Act, 2025, in force from 1 April 2026, replacing the 1961 Act (Income Tax Act, 2025). Under Section 35(1)(e), a firm can deduct remuneration up to 90% of book profit on the first ₹6,00,000 (or ₹3,00,000, whichever is higher, in a loss year), and 60% above that; interest on capital is deductible only up to 12% simple per annum (Section 35). Trade advice online still quotes lower thresholds from the repealed Act. Confirm current figures with your CA.

Careful: Don't set remuneration as "whatever's left after expenses." That's a residual, not remuneration, and it reintroduces the exact ambiguity the clause was meant to remove. Fix a number or a clear formula.

Vest the equity, don't grant it on day one

Equity granted in full on day one gives a partner who leaves after four months the same stake as one who builds the agency for four years. Vesting fixes this: ownership earns out over an agreed period, and unvested equity returns to the firm if someone exits early.

1. Cliff period. No equity vests in the first 6-12 months. Leave inside the cliff, and you keep only your capital contribution.
2. Vesting schedule. After the cliff, the rest vests monthly or quarterly, commonly over 2-4 years.
3. Trigger on exit. Unvested equity reverts to the firm and is reallocated among continuing partners, usually per their capital ratio.

This matters most in a two-partner agency: there's no board to arbitrate a dispute. The vesting clause is the arbitration, decided while everyone's still on good terms.

The clauses a generic deed template skips

A downloaded deed template is written for a generic services business. It says nothing about who owns the client database on exit, what happens to client money mid-season, or who's on the hook for a supplier guarantee after a partner leaves.

Client database and business WhatsApp number. State that client records, enquiry data and the firm's WhatsApp number belong to the partnership, not to whichever partner's phone they live on. On exit, the outgoing partner hands over access and stops using them to solicit business. It's the most common post-split dispute in a two-person agency, the same failure mode as an employee leaving with the client list: a partner keeping the phone and contacts is the same event, just with equity attached.

Client advance money held on the books. A travel agency routinely holds advances for trips that haven't run yet. That money isn't partnership profit and shouldn't be drawn against by either partner, however tight cash gets mid-season. Write it in trust-style language: advances against a confirmed but undelivered booking stay held until it's delivered or refunded.

Supplier personal guarantees. If a partner has personally guaranteed a hotel, DMC or vendor contract, that liability doesn't vanish when the partnership changes. Partners are jointly and severally liable for the firm's acts while a partner (Section 25), and a retiring partner stays liable to third parties, including a guarantee-holder, until public notice of retirement is given (Section 32(3)/72, via case reference). State who carries which guarantee, and by when. The underlying rule is settled; confirm the notice mechanics with a lawyer.

Non-compete and non-solicit that might actually survive a challenge

A restraint-of-trade clause in an employee's offer letter is void under Section 27 of the Contract Act, 1872. Between partners, it's different: the Partnership Act carves out room for it.

Section 11(2) lets partners agree, notwithstanding the Contract Act's ban, not to run any other business while they remain partners (Section 11(2)). Section 36 lets the firm restrict an outgoing partner too: they can compete after leaving, but can't use the firm's name, hold themselves out as running its business, or solicit its former customers; reasonable terms bound by time and locality are valid (Section 36).

The key word is reasonable. Whether a clause's duration and geography hold up if challenged is fact-specific, and no template promises an outcome. Bound it sensibly (12-24 months, the cities or states you operate in) rather than an open-ended "never compete with us anywhere" clause that invites the challenge you're trying to avoid.

A valuation formula you agree to before anyone's angry

The worst time to agree what the agency is worth is the week a partner decides to leave. Fix the method in the deed instead, while nobody has a reason to argue either way.

A workable formula: a multiple of the trailing average net margin across a defined number of past seasons, adjusted for outstanding client advances still to be delivered and supplier dues owed. That gives both sides a number they can compute from the books, and avoids paying out equity against revenue that hasn't converted to delivered profit yet. For how agencies get valued on a full sale, see what a travel agency is actually worth; the same trailing-margin logic underlies both.

Example: The buyout formula is "2x average net margin over the trailing 3 seasons, less outstanding client advances for undelivered trips, less any supplier dues in the exiting partner's name." Average net margin: ₹9,00,000. Outstanding advances: ₹1,50,000. Exiting partner's vested stake: 30%. Buyout value: (₹9,00,000 × 2 − ₹1,50,000) × 30% = ₹4,80,000. Nobody needed a fresh valuation exercise to get there.

The annotated partnership deed skeleton

Adapt this for a two-to-three-partner agency: a checklist of what the deed needs, not a substitute for a lawyer's language.

Clause 1: Parties, firm name and business

This Deed of Partnership is made on [date] between [Partner A, address],
[Partner B] [and Partner C], who agree to carry on the business of
[travel and tour operations, specify scope] as "[Firm Name]" at [address].

Names the firm and its scope, the baseline every clause refers to.

Clause 2: Capital contribution schedule

Partner A: ₹[amount] cash / [asset, value]
Partner B: ₹[amount] cash / [asset, value]
Capital accounts are maintained separately. Advances beyond a partner's
contribution carry interest at [rate]% per annum.

Fixes who put in what, and sets your own advance interest rate over the Act's 6%.

Clause 3: Profit and loss sharing ratio

Profits and losses, after remuneration (Clause 4) and capital interest
(Clause 2), shall be shared: Partner A [%], Partner B [%] [Partner C [%]].

Overrides the equal-share default under Section 13(b).

Clause 4: Working partner remuneration

Partner(s) [name(s)] are working partner(s) and shall be paid monthly
remuneration of ₹[amount] / [formula], before distribution under Clause 3,
subject to limits under Section 35(1)(e) of the Income Tax Act, 2025 or
successor; confirm current limits with the firm's CA.

Overrides Section 13(a)'s no-remuneration default.

Clause 5: Equity vesting schedule

Ownership under Clause 3 vests over [e.g. 36 months] after a cliff of
[e.g. 6 months], [monthly/quarterly] thereafter. Unvested equity on exit
reverts to the firm and is reallocated per partners' existing capital ratio.

Protects against an early exit walking away with a stake earned in a fraction of the term.

Clause 6: Bank account operation and signing authority

The firm's account(s) shall be operated jointly / severally by [name(s)].
Payments above ₹[threshold] require [number] partners' sign-off.

Caps unilateral spending, without sign-off on routine transactions.

Clause 7: Client database, records and business number ownership

All client records, enquiry data, supplier contacts and the firm's
business WhatsApp number(s) belong to the partnership. On exit, the
outgoing partner hands over access and stops using them to compete.

The clause a generic template omits; without it, an exiting partner keeps the phone and the client list.

Clause 8: Client advance money held on the books

Advances against confirmed but undelivered bookings are held in trust and
shall not be drawn against for personal use, working capital or
distribution, until delivered or refunded.

Stops mid-season cash pressure turning into a partner drawing on money that belongs to an undelivered trip.

Clause 9: Decision-making and deadlock resolution

Day-to-day decisions may be taken by [any partner/the operating partner].
[Hiring above X, contracts above Y, borrowing] require majority consent.
Deadlock between equal partners goes to [a named mediator] first.

A two-partner firm has no natural tie-breaker; name one now.

Clause 10: Non-compete and non-solicit

While a partner, no partner shall run a competing business (Section
11(2)). For [e.g. 18 months] after exit, an outgoing partner shall not
solicit the firm's clients or use its name, within [geography] (Section 36).

Uses the carve-out available to partners, bounded by time and place to stay reasonable.

Clause 11: Personal guarantees and indemnity

Where a partner has furnished a personal guarantee to a supplier or
lender, the firm and continuing partners shall use best efforts to have
it released within [period] of exit, and shall indemnify that partner
against liability arising after.

Liability from a personal guarantee doesn't end at exit (Section 25); allocates who carries it going forward.

Clause 12: Retirement and exit notice

A retiring partner gives [e.g. 60 days] written notice. Public notice of
retirement shall be given as required under the Act; liability to third
parties continues until then.

Flags the public-notice requirement; skip it and a retired partner stays liable for the firm's later acts.

Clause 13: Valuation formula for buyout

On exit, the outgoing partner's stake is valued at [formula, e.g. "2x
average net margin over the trailing 3 seasons, less outstanding client
advances and supplier dues"], applied to their vested percentage
under Clause 5.

Removes the need for a fresh, adversarial valuation exactly when the partnership is under strain.

Clause 14: Dispute resolution

Disputes shall first go to mediation. If unresolved within [period], to
arbitration under the Arbitration and Conciliation Act, 1996, seated at
[city], in English.

Keeps a partner dispute out of open court by default.

Clause 15: Dissolution

The firm may be dissolved by mutual written consent or as provided under
the Act. Assets are applied first to firm debts, then capital accounts,
then to partners in their profit-sharing ratio.

Sets a payout order so winding up isn't its own dispute.

Clause 16: Registration and stamp duty

This Deed shall be registered with the Registrar of Firms under Sections
58 and 59 of the Act, and stamped per the Stamp Act applicable in [state].

Registration under Sections 58-59 isn't mandatory, but an unregistered firm can't sue to enforce the deed or any right under the Act (Section 69). Stamp duty is fixed state by state: check your own schedule.

Three signs you should hire, not partner

• They bring effort, not capital, clients, or a missing skill. If what they add is hours you could get from an employee, equity is the wrong instrument.
• The arrangement only works with supervision. A partner is someone you'd trust to sign a supplier contract without checking first. If that's not true, they're not ready to be a partner.
• You're offering equity because you can't afford a salary. The most common, and worst, reason agencies over-grant equity in year one. If cash is the real constraint, negotiate a bonus, not permanent ownership you can't take back.

Common questions

What happens if a partnership deed is silent on the profit-sharing ratio?

Profits and losses are shared equally by default, under Section 13(b), regardless of capital or work done, unless the deed fixes a different ratio (Section 13). This applies whether the deed is silent on the point or there's no written deed at all.

How does a partner exit or retire from a partnership firm?

A retiring partner gives written notice per the deed, followed by public notice under the Act, since liability to third parties continues until that notice is given (Section 32(3)/72). Exit should also trigger the agreed valuation formula and settle unvested equity.

Does a partnership deed have a fixed registration or stamp duty fee?

No single national figure exists. Stamp duty on a partnership instrument is set by each state's own Stamp Act schedule and varies by state and capital slab. Check your state's schedule before budgeting for it.

The short version

• A silent deed defaults to equal profit-and-loss sharing under Section 13(b), no matter who brings capital or does the work.
• Keep capital contribution and working contribution as two separate ledgers, not one blended equity percentage.
• Pay the working partner a fixed monthly remuneration before profit split, and confirm current Income Tax Act, 2025 deduction limits with your CA.
• Vest equity over an agreed period with a cliff, so an early exit doesn't walk away with a full stake.
• Add the clauses a generic template skips: client database and WhatsApp number ownership, advance money held in trust, and who carries a supplier guarantee after exit.
• Fix a valuation formula for buyout before anyone's actually leaving.
• Register the deed and confirm stamp duty for your state; an unregistered firm can't sue to enforce its own deed.