A partnership firm is a form of business organization in which 2 (two) or more persons come together to undertake some form of business activity and agree to share the profits and losses of the business through a written agreement. It is suitable for small businesses having fewer compliance requirements.
A partnership is an alliance of two or more persons who agree to combine their financial resources and managerial abilities to run a business and share profits/losses in an agreed ratio. The persons who have agreed to join in a partnership are individually called “Partners” and collectively a ‘Firm’. A partnership firm can be formed with a minimum of 2 (two) partners, and it can have a maximum number of 50 partners.
Partnership firms in India can be divided into two categories, namely, registered partnerships and unregistered partnerships. Registered partnership firms are those firms having a registration certificate from the Registrar of Firms. All other partnerships that do not have a registration certificate would be classified as unregistered partnership firms.
After the introduction of a Limited Liability Partnership (LLP), a general partnership firm has turned out to be a less favorable option the businesses due to the unlimited liability of partners, non-transferability of partnership and absence of central authority, etc. However, easier formation, low costs of registration and compliance, and minimal compliance make it a sensible option for some businesses that have minimal debt requirements.
A Partnership Firm Registration is optional and not compulsory under the Indian Partnership Act. However, it is always advisable to register the partnership firm, as a registered firm enjoys certain special rights and benefits as compared to unregistered firms.
A partnership firm can be formed only on the basis of lawful business activity. Its business may include any trade, industry, or profession. It can engage in any activity such as production and/or distribution of goods and services with a view to earning profits.
A partnership is formed on the basis of an agreement between two or more persons to carry on business. The terms and conditions of partnership are laid down in a document known as Partnership Deed.
In a partnership firm, partners are entitled to share in the profits and are also to bear the losses, if any at an agreed ratio.
The liability of partners is unlimited as in the case of a sole proprietorship. In case some obligation arises, then not only the partnership assets but also the private property of the partners can be used to pay off the debts of the partnership firm.
No partner can transfer his interest in the partnership to any other person. He may, however, do so with the consent of all other partners.
Dissolution of Partnership Firm can occur, if any partner dies, retires, or becomes insolvent. However, if the remaining partners agree to work together under the original firm’s name, the firm will not be dissolved and will continue its business after settling the claim of the outgoing partner.
Every Partnership Firm has to pay taxes on its profit and in order to avoid double taxation, the partners are not required to pay tax on the share profit they receive from Partnership Firm.
It is not mandatory for a partnership firm to be registered unlike Companies and LLPs, therefore it can be formed just with the help of a partnership deed and without many legal formalities and expenses.
A partnership firm has lower compliances as compared to a company or LLP. There is no mandatory requirement for conducting the statutory audit or annual ROC filing and the partners of a firm do not need a Digital Signature Certificate (DSC), Director Identification Number (DIN), etc.
A partnership firm is operated on the basis of a Partnership Deed executed by the partners mutually. The partners have the flexibility of amending the partnership deed with the consent of the partners and can change the business objectives, add or remove the partners, and dissolve the firm in accordance with the Deed.
The cost of registering a partnership firm is low compared to the cost of incorporating a private limited company or an LLP.
In the first step, we shall collect the required information and documents as per the checklist. We shall verify and confirm the documents and information provided by you and then proceed towards the next step.
A partnership firm does not require name approval from government authorities. Any name which is not identical to an existing business or which is not prohibited under any law can be selected by the firm. The name of the partnership firm should be ideally unique and suggestive of the firm’s business.
Once the name is selected by the applicant, we shall prepare and draft the partnership deed/agreement. A partnership deed shall contain all the rights, duties, profits-sharing ratio, and other obligations of each partner. Stamp duty as per the applicable rate has to be paid on such agreement.
After the partnership deed/agreement is signed by all the partners and notarized by the Notary Public, it shall be submitted to the Regional Registrar of Firms of the state along with the application form, government fees, and other required documents for registration of the Partnership Firm.
The Regional Registrar of Firms shall verify the application submitted and issue a registration certificate to the Partnership Firm. However, the process and time period shall vary as per different Registrar of Firms of different states.
After the partnership deed/agreement is prepared, simultaneously we can make an application for PAN and TAN of the Partnership Firm. You shall receive an E-Copy of PAN and TAN within 5-7 working days, and thereafter a physical copy of the same.
Now, in the final stage, you can approach any bank and open a current account with it. You need to submit all the above documents for opening the bank account.
