Partnership Firm
Partnership firm refers to an entity formed by two or more people who mutually agree to share profits/losses in a predetermined ratio. In India, the primary law governing partnership registration is the Indian Partnership Registration Act of 1932. Partnership Deed is a legal document used to establish partnership firm registration.
According to law, partnership is an agreement between individuals who have agreed to divide the profits earned from business operations conducted within the partnership firm. A partnership firm can have a maximum of 50 members.
It is important to note that Hindu Undivided Family members or Burmese Buddhist members cannot be part of a partnership firm.
What is partnership Firm?
When more than one person does a business together in which they not only share the profits but also share any losses, risks and responsibilities, this type of business is called Partnership Firm.
Types Of Partnership
There are many types of partnerships, each with its own characteristics. The main types include:
- General Partnership (GP):
In a general partnership, all partners have unlimited liability, which means they are personally responsible for the debts and liabilities of the business. Each partner can actively participate in the management and decision making of the business.
- Limited Partnership (LP):
A limited partnership has both general partners and limited partners. The liability of general partners is unlimited, while the liability of limited partners is limited to their investment in the business. Limited partners usually do not participate in the day today operations.
- Limited Liability Partnership (LLP):
LLP combines elements of partnerships and corporations. It offers limited liability to its partners, meaning their personal assets are protected from business debts. However, the partners can actively manage the business, and the structure provides flexibility in terms of management and taxation.
- Joint Venture:
Joint venture is a partnership formed for a specific project or for a limited period. It involves cooperation between two or more parties to achieve a common goal. Joint ventures can take various legal forms, and the level of liability depends on the agreement between the parties.
- Business Partnership:
This type is specific to certain professions such as law, accounting, or medicine. Professionals in these fields may form partnerships, often LLPs, to provide their services collectively. Each partner is generally responsible for his or her own professional actions.
- Unlimited Liability Partnership:
In this type, all the partners have unlimited liability for the debts and obligations of the business. This is less common because of the higher level of individual risk.
- Equity Partnership:
In an equity partnership, the partners invest capital and share in the profits and losses of the business based on agreed equity distribution. This is common in investment firms and financial services.
- Family Limited Partnership (FLP):
Often used for family owned businesses, an FLP allows family members to participate in the management and ownership of the business. It provides a path for estate planning and asset protection.
It is important to carefully consider the goals, liabilities, and management structure when selecting the type of partnership that best suits the needs of the business and its partners. Legal and financial advice is often recommended when forming a partnership to ensure compliance with relevant laws and regulations.
What are the Features of Partnership Firm?
Number of Partners: You need a minimum of two members to form a partnership and the maximum number of people who can join is 50.
- Voluntary Registration: It is not mandatory to obtain partnership firm registration. However, you have to get it to be able to take advantage of the additional benefits it offers.
- Contractual Partners: Each partner is bound by a contractual obligation outlined in the original partnership deed registration format, which governs various aspects of the relationship. The deed requires each partner to sign it, making it a binding agreement between all parties involved.
- Qualification of Partners: Minors cannot become partners for the formation of a partnership. Each partner must be a capable adult.
- Sharing of profits and losses: Partners have to share profits or losses as per the percentage defined in the partnership deed.
- Unlimited Liability: Every partner in a partnership firm is jointly and severally liable for any loss caused to the firm.
- Transfer of Interest: A partner cannot transfer his interest without obtaining the approval of all other partners in partnership registration.
- Principal-Agent Relationship: Partnership involves a principal-agent relationship between the firm and its partners. As an agent, each partner is expected to act in the best interests of the company. Additionally, any partner may represent the other partners, or the entire partnership may act jointly to conduct business.
Relevance of Partnership Firm Registration
- Partnership firm registration provides unique rights and benefits over unregistered partnership firms.
- By registering your partnership firm, you can file a lawsuit against any partner or partnership to enforce your contractual rights.
- However, if your partnership is unregistered, you cannot file a lawsuit against your fellow partners to enforce your rights.
- Additionally, a registered partnership can file a lawsuit against a third party to enforce its contractual rights, but an unregistered partnership cannot do so.
- Furthermore, a registered partnership can use set-offs or other legal actions to enforce its contractual rights, whereas an unregistered partnership cannot use set-offs in any legal action brought against it.
How to register partnership firm?
Process
The entire process including approval of DIN, company name and company incorporation takes approximately 7 working days. However, forming a company is now a quick process, with all the paperwork loaded onto a single online platform. Our experts will assist you at every step of the online company registration process.
- Step 1
Choose a name for your partnership firm
You can choose any name for your partnership firm, provided it follows the rules prescribed by the Registrar of Firms. Make sure the name you choose is unique and not already taken by another firm. Also, avoid using government-related or any other prohibited names.
- Step 2
Decide the partner profit sharing ratio, address of the firm and other terms of the partners
The partners have to decide their profit and loss sharing ratio, address of the firm from where the business will be conducted, investments, duties and responsibilities of each partner, conditions for entry of new partner or exit of old partner and other relevant conditions. There is mutual consent between all the partners.
- Step 3
Draft Partnership Deed as per Partnership Act 1932
You need to hire a professional expert to draft the partnership deed as per the provision of the Partnership Act, 1932. A professional will assist you in purchasing stamp paper of appropriate value, printing the deed, obtaining signatures of all the partners in the deed. To carry out verification work. And apply for partnership firm registration.
- Step 4
You should submit an application to register your partnership firm
To register your partnership firm, you need to submit an application form along with the required fee to the Registrar of Firms in the state where your firm is located. The partnership registration application must be signed and verified by all the partners or their representatives.
- Step 5
Get your registration certificate
Once the Registrar of Firms approves your registration application and supporting documents, your firm will be registered in the Register of Firms, and you will be given a registration certificate. The Register of Firms maintains the latest information on all registered firms, which anyone can access for a fee.
What is partnership deed?
Before we read the process of registering a partnership firm, let us understand what a partnership deed is. A firm cannot start a partnership without a partnership deed. It is a document signed between the partners that contains all the essential terms and conditions of the partnership. Partnership Deed is the prerequisite document to start the registration process. Some of the important points mentioned in the partnership deed are –
- Name of firm
- Nature of Business
- Name and address of partners
- Capital contributed by partners
- Profit-sharing ratio
- Partners' salaries
- Interest rate on capital
- Procedure for admission of new partner
- Procedures on the retirement or death of a partner.
- The deed is accompanied by stamp paper of a specified value and is signed by the partners in front of witnesses.
Advantages of Partnership Firm Registration:
- Aggregation of knowledge and resources
The partnership form of organization helps in pooling the knowledge, expertise, resources and capabilities of two or more individuals or partners at one place. These shared resources are then strategically aligned to work toward a common goal. This way, the company can maximize its strengths and minimize the shortcomings resulting in benefits to the business.
- Easy formation and less burden of compliance
Compared to other forms of organization like a company, partnership firm is more suitable as it is easier to form and start a business as a partnership firm. To start a partnership firm two people only need a partnership deed between the partners and the partners can register the deed or the firm at a later stage after formation. Registration is voluntary and not mandatory. A partnership firm can function as an unregistered firm.
- Helps in building strong goodwill among the competitors in the
market
When two or more partners combine their strengths and expertise, it helps in creating and maintaining substantial goodwill. As the reputation of the organization increases, the consumer base also increases.
- Increase in borrowing capacity
A business in the form of a partnership firm can borrow more money than a business run by an individual. This is because the borrowing capacity of two or more partners is combined and hence the partnership firm can borrow more money than one partner can.
- Quick and easy decision making process
The partners of the firm are also the owners of the firm and hence have decision making powers. Therefore, partners can take quick decisions through mutual discussion and consensus and capture business opportunities.
Documents required for partnership Registration in India
- Photograph, Aadhaar and PAN of all partners
- Address of the proposed firm
- Form No. 1 (Application for Registration under the Partnership Act).
- Original copy of the Partnership Deed, signed by all the partners.
- Affidavit declaring intention to become a partner.
Tax Compliance after obtaining Partnership Firm Registration
- After partnership firm registration, partners must obtain PAN and TAN from the Income Tax Department.
- It is mandatory for registered partnership firms to file ITR, irrespective of the income of the firm.
- Registered firms have to pay 30% tax plus cess and surcharge on their total income.
- Partnership firms with annual income above Rs 100 lakh are required to undergo tax audit.
- Firms with annual income above Rs 40 lakh (Rs 20 lakh for North-Eastern states) will have to obtain GST registration, and those involved in e-commerce or export-import will also have to register.
- After registering for GST, firms have to do GST return filing and TDS return filing on a monthly or quarterly basis.
- Partnership firms must obtain ESIC registration and file ESIC returns.
Frequently Asked Questions
- Can you register a firm without a partnership deed?
- Is it mandatory to register a partnership firm?
- Are the provisions of the Indian Partnership Act 1932 applicable to a registered firm?
- How long does it take to complete the registration process?
- What is the minimum capital contribution for registration of partnership firm?
