Menu
Looking to start a company with 2 or more Partners. Apki Return team is dedicated to handle all the compliance needs for your Partnership Firm, ensuring a smooth and efficient setup.
A Partnership Firm is a popular form of business organization found across the globe, especially favoured by small and medium-scale businesses. It strikes a balance between sole proprietorship and corporation, bringing together individuals who share a common vision of business. This essay delves into the various facets of a partnership firm including its definition, formation, characteristics, types, advantages, disadvantages, and the legalities involved.
A partnership firm is defined as a business entity that is formed with mutual consent by a group of people known as partners, who agree to carry on a business and share its profits and losses collectively. The formation of a partnership firm typically starts with a partnership agreement or deed, which is a document stating the various terms and conditions agreed upon by the partners. This agreement covers aspects like capital contribution, profit sharing ratio, roles and responsibilities, dispute resolution mechanisms, and procedures for dissolution of the partnership.
One of the key characteristics of a partnership firm is that it is not a separate legal entity from its partners. This means that the partners are personally liable for the firm’s debts and obligations. The partnership has a limited life; it may dissolve due to the death, bankruptcy, or withdrawal of a partner, unless the partnership deed states otherwise.
Get the business name availability status directly on WhatsApp
Choose a unique name for the firm. The name should not infringe upon existing trademarks and should not be too similar to other firms, especially in the same industry.
This is the most crucial step in the entire process of creation of a Partnership Firm. A partnership deed is a written agreement between the partners that outlines the terms and conditions of the partnership. It typically includes:
Once drafted, the partnership deed should be executed on a stamp paper of the value as prescribed by the respective State Stamp Act and should be signed by all partners. It then needs to be notarized.
If you opt to register the firm, submit an application to the Registrar of Firms of the state where your business is located. The application should include:
Apply for a Permanent Account Number (PAN) for the partnership firm and if applicable, apply for a Tax Deduction and Collection Account Number (TAN) for the firm.
Open a current account in the name of the partnership firm. The bank will require the partnership deed, PAN and other KYC documents of the partners.
PAN Card of proposed Directors
Both PAN and Aadhaar Card of all Indian Shareholders and Directors.
Business Address Proof
If Owned Property: Copy of Registry and Latest Govt. Electricity Bill. If Rented Property: Rent Agreement + Latest Govt. Electricity Bill + NOC from Landlord.
Aadhaar Card/ Passport of proposed Directors
Either Voter ID, Passport or Driving License of the Shareholders and Directors.
Mail ID and Mobile number
Mail ID and Mobile number of proposed Director along with Draft Articles of Association and Draft Memorandum of Association.
Latest passport size photograph of proposed Directors
Latest passport size photographs of all the Shareholders and Directors.
Setting up a partnership firm is generally easier and involves fewer formalities compared to corporations. The process is less cumbersome, with fewer legal requirements, making it a convenient choice for many entrepreneurs.
In a partnership, each partner can contribute different skills, expertise, and resources to the business. This diversity can lead to more effective decision-making, better problem-solving, and a broader range of skills and contacts, which can be advantageous for business growth and operations.
The financial burden of starting and running the business is shared among the partners. This can ease individual financial risks and make it easier to secure funding, as each partner can contribute capital.
With more than one owner, a partnership may have a stronger financial base, making it easier to obtain loans and credit. This can be beneficial for business expansion or for covering operational costs.
One of the most significant advantage is the pass-through tax treatment. The income is passed through to the partners, who then report their share of the profits or losses on their individual tax returns. This avoids the issue of double taxation, which is common in corporations.
Partnerships allow for shared decision-making and management. The partners have equal rights in the management of the firm, leading to more collaborative and democratic decision-making processes.
A partnership firm enjoys operational flexibility. Decisions can be made quickly without the need for extensive procedures and protocols typical in larger corporations.
Due to the nature of the business structure, partnerships often provide more personalized service. This can lead to better customer relations and loyalty, which is crucial in many service-oriented businesses.
Compared to a corporation, dissolving a partnership can be simpler. If the partners decide to terminate the business, the process is usually less complicated and less costly.
Partnerships can offer employees the opportunity to become a partner, which can be a powerful incentive for attracting and retaining top talent.
We believe in complete hand holding of our client, we will assign a personal manager to help you complete the entire process of Partnership Firm registration. Our team will guide you through the entire process and will get all the requisite registrations done for your Partnership Firm in a reasonable time subject to providing of necessary documents/information by the client.
Open a current account in the name of the partnership firm. Use the partnership deed, PAN card of the firm, and other relevant documents for this purpose.
Consider obtaining insurance policies like liability insurance, property insurance, etc., to protect the business from unforeseen risks.
While there are no statutory requirements for annual reporting like in the case of companies, it is good practice to prepare annual reports detailing financial performance.
Follow proper legal procedures as per the partnership deed for the admission of new partners or exit of existing ones.
Develop a strategy for marketing and promoting your firm to attract clients/customers.
A Partnership Firm is a business entity formed by two or more individuals who agree to manage and operate a business in accordance with the terms and objectives set out in a Partnership Deed. They share profits, risks, and liabilities of the business.
A Partnership Firm is formed through an agreement between the partners. This agreement, often in the form of a Partnership Deed, outlines the terms of the partnership, including profit sharing, capital contribution, and management roles.
No, registering a Partnership Firm is not mandatory in India, but it is advisable as it provides legal recognition and helps in case of disputes or legal proceedings.
A Partnership Deed is a written agreement between the partners of a firm. It details the terms of the partnership, including the nature of the business, capital contributions, profit sharing ratio, rights and duties of partners, and procedures for dissolution.
In India, a Partnership Firm can have a minimum of two members and a maximum of twenty members.
There are several types, including:
The advantages include ease of formation, combined resources and expertise, shared financial burden, flexibility in management.
Disadvantages include unlimited liability (except in LLP), potential for conflicts between partners, difficulty in raising capital compared to corporations and instability due to the reliance on the partnership agreement.
Profit sharing in a Partnership Firm is usually governed by the Partnership Deed. If the deed does not specify, profits are shared equally among the partners.
Yes, a partner can transfer their interest in the firm, but the transfer does not entitle the transferee to become a partner or to interfere in the management of the firm, unless other partners agree.
We proudly announce our new website packed with updated data, resources, and valuable information