Partnership Firm

A partnership firm is a business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Deed that may or may not be registered. In such a business, the members are individually partners and share the liabilities as well as profits of the firm in a predetermined ratio. A partnership firm is best for small businesses that plan to remain small. Low costs, ease of setting up and minimal compliance requirements make it a sensible option for such businesses. Registration is optional for General Partnerships. It is governed by Section 4 of the Partnership Act, 1932. For larger businesses, it has lost its relevance with the introduction of the Limited Liability Partnership (LLP).. This is because an LLP retains the low costs of a partnership while providing the benefit of unlimited liability, which means that partners are not personally liable for the debts of the business. The partners in a partnership firm are the owners, and thus, are not a separate entity from the firm. Any legal issues or debt incurred by the firm is the responsibility of its owners, the partners. A partnership must have at least two partners. A partnership firm in the banking business can have up to 10 partners, while those engaged in any other business can have 20 partners. These partners can divide profits and losses equally or unequally. partnership registration is not necessary. However, it is advisable for you to have a partnership firm registration online. Also, remember that for a partner to sue another partner or the firm itself, the partnership should be registered. Moreover, for the partnership to bring any suit to court, the firm should be registered. For this reason, it is recommended that larger businesses register the partnership deed. The deed should contain names of the partners and their addresses, the partnership name, the date of commencement of operation of the firm, any capital invested by each partner, the type of partnership and profit-sharing matrix, rules and regulations to be followed for intake of partners or removal.

Following details are required in a partnership deed

General Details

  • Name and address of the firm and all the partners
  • Nature of business
  • Date of starting of business Capital to be contributed by each partner
  • Capital to be contributed by each partner
  • Profit/loss sharing ratio among the partners

Specific Details

Apart from these, certain specific clauses may also be mentioned to avoid any conflict at a later stage

  • Interest on capital invested, drawings by partners or any loans provided by partners to firm
  • Salaries, commissions or any other amount to be payable to partners
  • Rights of each partner, including additional rights to be enjoyed by the active partners
  • Duties and obligations of all partners
  • Adjustments or processes to be followed on account of retirement or death of a partner or dissolution of firm.
  • Other clauses as partners may decide by mutual discussion

ADVANTAGES

  • Minimum Compliance
  • Simple To Begin
  • Comparatively Economical

DOCUMENTS REQUIRED

  • Form No. 1 (Application for registration under Partnership Act)
  • Original copy of Partnership Deed, signed by all partners
  • Affidavit declaring intention to become partner
  • Rental or lease agreement of the property/campus on which the business is set