A partnership firm is a very common mode of doing business. In partnership two or more individuals (called partners) forms a common agreement called Partnership Deed, where the terms and objectives of the partnership defined. The partners manage and operate a business in accordance with the Partnership Deed. In partnership firm, the partners share the liabilities as well as profits of the firm in a predetermined ratio.
There is no statutory compulsion to register the partnership firm with Registrar of Firm. However, The Partnership Act, 1932 provides certain rights to the firm if the Partnership firm is registered under section 62 of the Act:-
1. Gives partners the ability to file a case against third parties, and other partners
2. Grants the power to claim set-off against any third-party claim
There are two type of the Partnerships:-
i. Partnership at Will
ii. General Partnership
General Partnerships can be started within 1-2 working days just by signing an Partnership deed. However, having registration of Partnership firm with Registrar of Firms under section 62 of Partnership act, 1932 has its own perks and advantages.
There is no need to appoint the auditor or file the accounts with the Registrar of Firms. Hence, the Partnership firm has minimum compliance as compare to Limited Liability Partnerships, Private Limited Company and any other form of Business.
Partnership Firm can be started with a minimum amount as compare to any other form of business. In the long run also, Partnership firm are inexpensive as the compliance requirements are very minimal.
In Partnership Firm all the partners shares the risk of the business.
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A Partnership is where two or more people are joint business owners, they come together to carry out a business for profit. The partnership business operations are governed by the partnership deed. However, in a partnership firm the partners are jointly and individually liable for debts of the firm.
A minimum of 2 members are required and a maximum of 20 partners are allowed for starting a partnership firm.
Partnership firms are governed by the Indian Partnership Act, 1932. Under the act, registration is not mandatory but it is advisable due to following reasons: o If the firm is not registered then the partners can’t file a case in any court against the other partners. o The unregistered firm or its partners can’t file a case against third party on breach of a contract. o In case of a dispute with a third party, the unregistered firm or any of its partners cannot claim a set off.
An Indian citizen and a resident of India can partner in a Partnership firm whereas a non-resident Indians and Individuals belonging to Indian Origin can invest in a Partnership only with the approval of the Government.
A partnership firm can be registered either at the time of its formation or even subsequently. The registration application can be made to the registrar of firms of the region in which the business is situated. In order to enjoy the rights that can be enjoyed only by a registered firm it is advisable to get the firm registered as soon as it starts its business.
Both the partners have to submit a PAN card along with the identity and address proof. It is advisable to draft a Partnership Deed signed by all the Partners.
The name of a partnership firm should not contain any words which indicate the approval/support of the government other than a case where the government has given its written consent for the use of such words as part of the firm’s name The following points should be kept in mind while choosing name of firm: o The names must not be too identical or similar to the name of another existing firm doing similar business. o The name must not contain words like Crown, Emperor, Empress, Empire or any other word indicating government approval.
The government fees applicable is different for different states based on partner contribution. In most states the fee falls in range of Rs.1000-1500 along with stamp duty.
No, Partnership firm doesn't have separate legal existence of its own. In the eye of law, the Partnership firm and the partners are the same.
A Partnership Firm must file the returns of Income irrespective of the number of profits or losses made by the Partners.
There are restrictions on the Transfer of ownership interest in a Partnership Firm. A Partner cannot transfer his or her interest in the firm to any person without the consent of all other partners.
A Partnership deed is an agreement between the Partner that defines the terms and the rules of the Partnership among the Partners.
In the case of Partnerships, it is not necessary to prepare audited financial statements each year.
Yes, there's a specified procedure for converting a Partnership firm into a Company or LLP. However, the procedure is very complex and time-consuming and thus it is advisable to considers starting an LLP or a Company instead of a Partnership firm.
