Partnership Firm in India
Partnership firms are usually formed by 2 or more individuals who share a common interest along with trust. Invariably each partner brings value to the table to complete the skill sets and requirements of the association.
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What is a partnership firm?
Like every business, a partnership firm is a business entity that is formed for making a profit through the business it has engaged in. A minimum of two individuals can form a partnership firm by coming together with a formal agreement which is known as a Partnership Deed. Together they own and manage the business. The strength of the partners in terms of expertise and capital benefits the business in achieving the milestones and goals.
The Partnership Act, 1932 defines the structure of a partnership firm by providing all the necessary provisions to run the same. The Act validates both registered and unregistered partnership firms in India. However, it is strongly recommended that the partnership firm be registered. This has a legal binding and helps in dispute resolution through legal channels. The firm registration can be done anytime after it is formed but the sooner it is done, the better it is for the health of the business.
ADVANTAGES
Some of the benefits of a Partnership Firm
This structure is far more beneficial than running a business as a Sole Proprietor. Partnerships can benefit from companionship, mutual support and a shared common goal. The roles and responsibilities can be predefined in the Partnership Deed.
The partners in a partnership firm can mutually decide how to operate the business and how the responsibilities are defined. The partnership deed can be changed from time to time to incorporate any changes in the way it is managed. There is no restriction on the partners as long as their roles are defined and covered under the signed agreement.
As a partnership firm, the goals, objectives and tenure can be defined at the time of preparing the partnership deed. If the firm is being registered to complete a specific task or project, the same can be spelt out in the agreement and on completion of the set goal, the partnership can be dissolved.
In a partnership firm, the partners involved earn various types of returns which includes profits from the business and returns on the capital employed. The working partner can also receive remuneration in addition to the return on capital invested. Every aspect can be clearly defined in the agreement.
Each partner in a partnership firm brings their own knowledge, skills, experience and contacts to the business, potentially giving it a better chance of success than the partners trading individually. Partners can share tasks, with each specialising in areas they’re best at and enjoy most. For example, finances can be handled by one partner while business development is handled by the other.
In a business partnership, the partners both own and control the business. Defining roles and responsibilities of partners helps to stay focussed and build the business faster. The partners can thus control the business through combined ownership.
As the business expands, this structure allows existing partners to bring in new partners who can contribute in the form of capital and benefit from the profits of the business.
Existing partners can add new partners based on their contribution to the business. This can also help retain talent by giving employees an incentive to become future partners based on performance. Everything can be defined explicitly.
ONLINE REGISTRATION
Documents required to register a Partnership Firm
Formation of Company Name
Unique Name
This builds the company brand and should preferably be a coined word
Business Object
A part of the name should suggest the business activity of the firm
Short and Simple
The name should not be unnecessarily long and should be simple to spell and remember
THE PROCEDURE
Partnership Firm Registration
There are a series of steps before the partnership firm formation is completed. They are listed below for easy reference. The entire procedure takes 10 to 12 working days to complete. (Based on standard government processing time)
- Collecting basic information
- Preparing the list of documents for partnership firm registration
- Drafting the Partnership Deed
- Review and revision of the partnership deed by partners
- Confirmation of the deed from partners
- Payment of Stamp Duty and Notarisation of the Partnership Deed
- Application for PAN and TAN
- Partnership Deed Registration (Strongly Recommended)
- Certificate of Registration from the regional Registrar of Firms (RoF)
FREQUENTLY ASKED QUESTIONS
Explore Partnership Firm Registration
Is a partnership deed compulsory?
A Partnership Deed is necessary to define the roles, responsibilities, and participation of each partner in the firm. While registering the deed is optional, it is strongly recommended. Both registered and unregistered partnerships are valid and recognised by law. The partnership can be registered at any time after its formation.
What is the minimum capital requirement to start a partnership firm?
There is no specific rule for this. You can start with adequate capital to commence the business. The contribution from each partner can be in any form such as cash, office space, goodwill, Intellectual Property and the said capital can be in any ratio. It need not be equal.
What happens if one doesn’t register a partnership firm?
If the partnership firm is not registered, the firm cannot file a suit against a partner or any third party. However, a third party can file a suit against the firm or the partners. It makes the firm vulnerable to any external threat in the form of a suit. Any dispute between the partners also may not have any legal standing.
How many persons are required to register a partnership firm?
The minimum is 2 partners. It is important that the partners of the firm are Indian citizens and residents.
NRIs or foreigners can invest in the firm but cannot be partners. Such an investment requires approval from the government.
Minors can be introduced to the firm only for profit with no execution powers or responsibilities.
Under which government authority is the application for registering a partnership firm submitted?
The regional Registrar of Firms (RoF) under whose jurisdiction the partnership firm falls is the government authority for application. The application is made by submitting the partnership deed along with the required documents. On successful submission, the Certificate of Registration is issued by the RoF.
What is the Stamp duty payable on Partnership Deed?
It differs from state to state in India and is prescribed under the State Stamp Act. It is based on the capital contribution of the partners of the partnership firm.
Is it necessary to notarise the Partnership Deed?
Yes. Notarising is necessary irrespective of whether the partnership is registered or not.
How does the partnership firm apply for PAN and TAN?
This process is initiated after the Partnership Deed registration is completed and the certificate is received from the RoF. The physical copy of the PAN Card and the details of TAN are dispatched by the Income Tax Department.
How long does it take to register a Partnership Firm in India?
This again differs from state to state. It can take anywhere from 10 days to 15 days. It is subject to the processing time of the department in each state.
What are the compliance requirements for Partnership Firm?
The Partnership Firm shall maintain the Books of Accounts and Financial Statement. The Income Tax Return shall be filed for the respective financial year before the due date as per the Income Tax Act.
Can a Partnership Firm be converted into a Private Limited Company or LLP?
Yes. It is possible although the process is time consuming and expensive. But it is surely possible to convert a Partnership to an LLP or Private Limited Company. However, it is advisable to choose the right company structure at the time of forming the company.
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