You must have heard about the quote, "1+1=11". This is what perfectly describes a partnership. Two people come together to create a business providing synergy and enhancing capacity of each other. Thus, to overcome the limitations of sole proprietorship and Hindu Undivided Family, Partnerships are formed. There can be a situation where one person has the capital but he won’t be having the business management skills and on the other hand, one would be having no capital but he has skills. So, both of them can come together and start a business.
Section 4 of Indian Partnership Act of 1932 defines partnership as "the relation between person who has agreed to share profits of a business carried on by all or any of them acting for all.
"Partnership is the relation which subsists between persons, who have agreed to combine their property, Labour or skill in some business and share the profits thereof between them" -Indian Contract Act, 1872.
Decisions - As every decision in any partnership firm involves intellect of two or more person, the chances of that decision being wrong or bias is much low.
Capital - More the partners, more the amount of money which can be invested into the business. Also, with every partner, the borrowing capacity of the firm also increases. Partners get interest for the amount invested in the firm by them at the rate of 12%.
Sharing - From sharing profits, losses and every part of the business, partners also share the burden and responsibility of the business. Starting and managing a business alone can feel stressful, particularly if you’ve not done it before. In a partnership, this downside of sole proprietorship can be avoided. As two different partnership having different experiences can help the business grow together.
Ease of Formation - The partners can agree mutually to create the partnership.The process of making partnership deep and getting it at registered with Registrar of firms is comparatively easy as compared with registration of a private limited company. This deed contains all the details like how the partnership will work, the rights and responsibilities of partners and what would happen in various possible situations, including if the partners fundamentally disagree or someone wants to leave.
Compliances - There are very fewer compliances for partnership firm as compared to a company. There is no requirement like board meeting, etc. Audit is mandatory if the turnover/ gross receipt exceeds Rupees One Crore in case of business and Rupees twenty-five laces in case of profession.
Easy dissolution - Dissolution of the partnership concern is very easy. The partnership can be dissolved on the death, lunacy or insolvency of a partner. There are no legal formalities involved in the dissolution. Any partner can get the partnership firm dissolved by giving notice to other partners or as per the terms of their deed.
Liability - There is no limited liability like companies but this works in favor for the firm as all the decisions and investment would be made sensibly as the partners will be responsible as well as liable for it themselves.
This form of business organization is most popular among lawyers, chartered accountants, doctors, solicitors and estate agents. Overall if one doesn’t want much statutory obligations on them and want to do business with ease, they can go for this kind of entity
Any name can be provided to a partnership firm as long as the following requirements are met:
Step 1 - Document Verification
Step 2 - Name Selection: - The name of the firm should not be identical or similar to the name of already registered firms. The name should not contain any words which reflect state patronage
Step 3 - Partnership Deed Drafting
Step 4 - Submission of application for registration with Registrar of Firms (ROF) with necessary forms and prescribed fees: -
(a) Application in Form-1;
(b) Duly filled specimen of affidavit;
(c) Certified original partnership deed;
(d) Proof of address of firm (Lease deed/ Rent deed if rented or copy of registry if owned)
Step 5 - Scrutinizing of the documents by ROF
Step 6 - Issuance of Registration Certificate
There is no need to appoint an auditor for general partnerships, and annual accounts filing with the registrar is not required if the firm is still in the process of registration or is unregistered.
When compared to an LLP, annual compliances are also lower.
Starting a general partnership is far less expensive than starting an LLP. Because the compliance requirements are low, it will still be cost effective in the long run.
Simple to start:
A general partnership can be formed within 2-4 business days, with an unregistered deed of partnership. However, registering for the event offers its own set of benefits.
Partners must be major, should be sane and should not be disqualified by law from entering into a contract. A minor cannot be a partner in Partnership firm. However as per Section 30 of the Indian Partnership Act, with the consent of all the partners for the time being, he may be admitted to the benefits of partnership by an agreement executed through his guardian with the other partners.
Yes, partners may be partners in another firm in their individual capacity.
A person may sue a partnership firm but the plaint has to disclose the name of all the partners who constitute the firm. However, under the Income Tax Act, a firm can be assessed to tax independently of its partners. A partnership firm therefore enjoys a quasi-independent status.
Once tax is paid by firm, no tax will be payable by the partners on share of income from the firm. However, Interest and/or remuneration etc. received by a partner will be taxed in his hands as Business or Professional Income.
Yes. The death of a partner automatically dissolves the partnership firm. It is however usual for the partnership deed to provide beforehand that the firm should continue in spite of death, retirement or insolvency of a partner.
Yes. If the number of partners is more than 20, it has to be registered as a company.
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