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Partnership Firm Registration

Partnership Firm Registration Service in India!

A partnership firm is often formed by a group or two or more entrepreneurs / persons with a common goal, who have agreed to join together and do business. Normally, prior to forming a Limited Liability Partnership (LLP) or a Private Limited Company (Pvt Ltd Company).

What is a Partnership Firm? – Introduction and Meaning

A partnership is a type of business entity that is brought into existence by virtue of an agreement known as a Partnership Deed. In essence, a Deed is an agreement between the Partners on the entire business of the partnership.

For example, the Partnership Deed will contain the following details:

  • Names and addresses of the Partners
  • Nature of Business proposed or carried
  • Office Address
  • Total Capital of the firm,
  • The capital and other contribution of each partner towards the business
  • Partner’s share in the profits and losses of the business
  • The extent of the authority of each partner in the management of the Firm
  • Salary or Commission payable to the respective Partner
  • Interest on Capital or Drawings, if any
  • Maintenance of books of accounts and audit
  • Allocation of powers and duties of Partner
  • Procedure for the Retirement of a Partner
  • Procedure for admission of a New Partner
  • Procedure for Dissolution of the firm
  • Arbitration clause for settlement of disputes, etc

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Any other clause, that is mutually agreed by all the partners can be included in the Partnership Deed. If the partnership deed is silent on any of the points, then the provisions of the Indian Partnership Act will apply.

In India, a partnership business is governed by the Indian Partnership Act, 1932.

The minimum number of Partners in a partnership is two, and ideally, the Deed should be Written or Printed on a Stamp Paper and Registered at the respective Sub-Registrar’s Office, within whose jurisdiction the office of the firm lies.

The applicable stamp duty must be paid upon the Registration of Deed. The exact amount of the stamp duty will depend on the location of the firm and can be found in the Schedule to the relevant Stamp Act.

Characteristics or Features of Partnership Firm

Ease of starting

Partnership firms are easy to start. You can execute the Partnership Deed, apply for GST registration or Professional Tax Registration or a Shops and Establishments registration and open a current bank account to get started.

Agreement

A partnership business must be formed by agreement among the partners. It must come into existence by an express voluntary agreement and Not due to the operation of law.                                                                               

Minor Partner

A minor, (who has not attained the age of 18 years) can also be admitted as a partner. However, the minor partner may not have any liability and can only be admitted for the share in the benefits of the partnership business.

Minimal Compliance

Compliance requirement in a Partnership firm is minimal as there is no mandatory audit requirement or any requirement to file forms with the Ministry of Corporate Affairs / MCA, etc.                                                                       

Winding up is easy

Closing/winding up a Partnership firm is easy as a Dissolution deed can be executed and the statutory registration like GST/Professional tax, etc can be surrendered.

Altering is easy

If a Partner resigns, or a new Partner joins, it is easy to amend the Partnership agreement. This could be done by reconstituting the Partnership firm.

Collective Responsibility

A partnership firm cannot have a separate identity from the partners. A firm name is only a representation to the collective name of partners. No firm can exist without partners.

Unlimited Liability

Unlike in the case of a Sole Proprietorship Business, the liability of the partners of a firm is unlimited. The partners are fully liable individually and collectively.

Profit / Loss share is amendable

The Profit / Loss share of a Partner does not have to depend on the investment and can be amended easily as per the requirement.

Two or more Persons

As the term Partnership implies, there must be at least two or more persons or partners required to form a partnership business.

Business Name

Partnership firms have no restriction in terms of choosing the name for their business and does not require any formal approval.

Restriction on Transfer of Shares

A partner cannot sell or transfer his share of his business to anybody else without the consent of the other partners.

No minimum capital requirement

There is no minimum capital required to start a Partnership firm. There is no legal requirement specifying any minimum capital threshold.

Relatively inexpensive

Since the compliance requirements are minimal, Partnership firms are relatively inexpensive to maintain.

Registration of Partnership Deed or Agreement. Is it Mandatory?

In India, anyone can form a Partnership Firm either by drafting a partnership deed / agreement in writing or just by Oral Agreement. Hence, as per law, it is not mandatory to have a Written Partnership Deed. Even registration is not mandatory. But in order to avoid any conflict between the partners in the future, it is highly recommended to have a written agreement and get it registered.

Further, the Partnership Act discourages the unregistered partnership business by limiting the legal recourse for such unregistered partnership firms. If a Partner of an unregistered Firm wishes to file a suit / case, the Deed must first be registered before any action can be taken in reliance on the contents of the Deed.

Advantages of Partnership Firm

As already mentioned in the list of Characteristics above, one of the primary advantages of a partnership firm is that it can be executed fairly quickly and the process is simple. As soon as the Partnership Deed is executed, you can apply for a PAN card for the firm, using which you may open the bank account in the business name.

Disadvantages of Partnership Firm

The most obvious disadvantage of a Partnership is the “Unlimited Liability” of the Partners. To provide an example:

A partnership firm as A and B as partners, who have invested 10,000/- in total. In the course of business, they incur a debt of 12,000/-. In this scenario, A and B would lose their total investment and would then have to incur additional personal liability, i.e. the additional 2000 would have to be arranged from their personal sources.

Further, continuing the same example, in case B incurred some liability in the name of the business, A, being the other Partner, shall also be responsible for B’s actions, to the extent B’s action was done in pursuance of the business of the partnership.

Few Other Disadvantages are:
Client credibility is low as winding up is simple and quick
It is not a separate legal entity
Cannot issue shares or have investors in a Partnership firm (only Partners)
A partnership firm will be dissolved upon the death or insolvency of a partner

When to Opt for a Partnership Firm as a business entity:

  • If you are planning to start a business by joining with another party,
  • If you want to start the business quickly and do not want any legal compliance burden,
  • If you want to test the market before opting for a Private Limited or Limited Liability Partnership (LLP),
  • If you want the freedom to add and remove partners without a hassle,
  • If you want flexibility in profit / loss sharing mechanism

Partnership Firm Registration Process and Procedure

A Partnership Firm form of business can be started in a simple process of 4 steps.

Step – 1
Prepare and execute a Partnership Deed on Stamp Paper.

Step – 2
Apply for PAN card of the firm. PAN application needs to be made on the firm’s name.

Step – 3
Apply for the relevant tax licenses and other business registrations, such as:
MSME Registration
GST Registration
Professional Tax Registration
Shops and Establishments Registration, etc

Step – 4
Open a current account in a bank and get started with your business.

List of Documents Required for the Registration of a Partnership Firm

  1. Application for Registration of the Firm as per the Indian Partnership Act, 1932.
  2. Original Copy of the Partnership Deed on Stamp Paper.
  3. An Affidavit from the Partners.
  4. Rental Agreement or Sale Deed of the property which shall be the Place of Business of the Partnership firm.

Timeline – How long does it take to form a Partnership firm in India

If you want to form a partnership firm, it can be done in 2-4 working days.

If you want to register the Partnership firm at the Sub-Registrar’s Office, it takes anywhere between 5-10 working days.

This timeline is further subject to Government processing, approval time, public holidays, etc.

Fees / Cost for Registration of Partnership Firm

The charges and registration fee for forming a Partnership Firm will depend on the:

  • Stamp Duty Payable,
  • Location or Place of Business,
  • Applicability of additional legal Registration (like GST, MSME, etc).

For instance, MSME registration charges would cost you Rs.1,000, GST registration fee would cost you an additional Rs. 2,000.

Dissolution of a Partnership Firm

When the partnership between all the partners of a firm ceases to exist, then it is called dissolution of a firm. A firm can be dissolved either Voluntarily by the partners or Compulsorily by an order from the Court.

Voluntary Dissolution of a Firm (without the order of the Court)

As per the Indian Partnership Act, 1932, partners can dissolve the partnership voluntarily by mutual agreement and with the consent of all partners.

Partners can also dissolve the partnership based on a contract that has already been made.

Compulsory Dissolution (by the order of the Court)

In case of any unlawful event happening for the firm to carry on its business, it is compulsory for the firm to dissolve:

  • On the happening of certain contingencies
  • By notice of partnership at will
  • When an active partner becomes insane or of an unsound mind
  • If a partner becomes permanently incapable of performing his business
  • Long term or permanent physical disability, illness of a partner
  • Willful Breach of the Partnership Agreement
  • Any other just and equitable grounds

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