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Partnership Firm

Partnership refers to that form of ownership in which two or more people come together with an intention to carry out some legal and commercial activity and share the profit among them.

Rs 2000/- onwards

What is a partnership firm?

Partnership is a common form of business. Two or more people come together to carry on a business and share the profits and losses. Liability of the partners in a partnership firm is joint and several.

More about partnership

  • Partnerships are governed by Indian Partnership Act, 1932. Registration of a partnership is not mandatory under the Act, but registered partnerships get to enjoy some additional benefits such as the right to sue
  • Terms with regard to profit sharing ratio, remuneration to partners, interest on capital etc are agreed upon by the partners in the partnership deed.
  • Maximum no. of partners in a firm is 20 (10 in case of a firm carrying on banking business).
  • All the partners must share the profits of a firm in whatever ratio as may be agreed upon by them. However, sharing of losses by all partners is not mandatory.
  • Minors can be admitted as partners but to the benefit of the minor i.e., minor should not share the loss.
  • Agreement between partners in a unregistered firm can be an oral agreement too.

Advantages

  1. Easy to form

    Easy to form

    A partnership firm is easy to form. An oral or written agreement between the partners is all that is needed to start a partnership.

  2. Larger resources

    Larger resources

    More resources can be procured from all the partners when compared to sole proprietorship.

  3. Better Management

    Better Management

    Better management of business can be done as the number of persons managing the business are more.

  4. Sharing of risk

    Sharing of risk

    Risk is shared amongst the partners.

  5. Ensures secrecy

    Ensures secrecy

    The statement of accounts of the firm need not be published and this ensures secrecy.

Disadvantages

  1. Cannot access public funds

    Cannot access public funds

    A partnership firm cannot invite funds from public.

  2. Unlimited liability

    Unlimited liability

    Limited liability concept does not apply in case of a partnership firm. All the partners are jointly and severally liable for the liabilities of the firm.

  3. Lead to dissolution

    Lead to dissolution

    A partnership firm does not exist for an indefinite period of time. The death, insolvency or lunacy of a partner may lead to dissolution of the partnership firm.

  4. Separate legal status

    Separate legal status

    A partnership firm does not have a separate legal status i.e., a firm cannot own property.

  5. Limited number of partners

    Limited number of partners

    Due to the limited number of partners there is flexibility in the operations of business as the partners can amend any objectives or change any operations any time by mutual consent.

Procedure for registration

  • Draft a partnership deed
  • Fill Form 1.
  • Submit the duly filled Form 1, stamped partnership deed and Lease agrrement to RoF(Registrar of Firms)
  • Certificate of registration is issued by RoF

FAQs

How many people are required to start a partnership firm?

A minimum of 2 persons are required to form a partnership. Maximum of 20 persons are allowed in a partnership concern. Maximum partners would be 10 in case of partnership carrying on banking business.

What are the requirements to be a partner in partnership firm?

A partner must be an Indian citizen and resident of India.

What are the documents required to start a partnership firm?

ID proof, Residence proof and PAN card of all the partners along with a Partnership deed signed by all the partners.

What is the capital required to start a partnership?

There is no minimum capital required to start a partnership firm. A partnership firm can be started with any amount of capital.

What are the advantages of a registered partnership firm?

Only a registered Partnership firm can file a suit in any court against the firm or other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act. A Registered Partnership firm can claim a set off or other proceedings in a dispute with a third party.

How to open a bank account for partnership?

To open a bank account for a Partnership firm, a registered Partnership deed along with identity and address proof of the Partners should be provided.

What is a partnership deed?

A partnership deed is a written agreement entered into by all the partners of the firm which specifies the terms under which partnership is to be carried on.

How can I transfer my partnership?

A partner cannot transfer his interest in partnership to an outsider without the consent of all other partners.

Is audit required for partnership?

Tax audit under Income Tax Act is required for only few assessees.

Can a proprietorship be converted into LLP/Company?

Yes. A sole proprietorship concern can be converted into LLP or Company by following procedures laid down in respective Acts.

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