Partnership Firm
What Types of Businesses Should Register As a Partnership Firm?
Small businesses usually have a sole proprietorship, which is ideal when one person can easily handle the business needs. But as the business grows and demands more than one skill set, a salesman, and a management person, for example, small enterprises turn towards the partnership form of doing business.
Partnership firms are ideal for:
- Family businesses that have siblings, husband, and wife, parents and children, or cousins working as partners
- Businesses that require a different skill set, managerial talent, and expertise like legal firms, construction firms, etc
- The businesses that want to avoid the several complex compliance requirements for flexibility of operations
- Further, businesses like small manufacturing units, wholesale and retail trade, etc. that have a medium capital requirement.
What is a Partnership Deed?
An agreement that defines the terms and conditions among the various parties involved in a partnership is termed a partnership deed. The partnership deed format covers the following details:
- A business that is being or to be undertaken by the firm
- The Duration for which the partnership is being made, for example, a limited period, say 5-10 years, or a specific project
- Details about the partners, like their names and addresses
- The name of the partnership
- The date from when the firm commenced its operations
- Investments made by each partner of the firm
- The ratio of profit and loss that is to be shared among the partners
- The rules and regulations pertaining to the removal or intake of partners
- Obligations and duties of the partners involved
- The type of partnership
How to Register a Partnership Firm
The registration of a partnership is not compulsory but is advisable because you cannot bring any case related to it in court without registration. The procedure for partnership registration is fairly simple:
- Application in Form A for the registration of the partnership to the Registrar of Firms along with the following
- Duly signed/certified copy of the partnership deed
- Necessary stamp duties and fees
- After the registrar’s approval, a certificate of incorporation is issued and the firm is added to the records
You can consult your chartered accountant or hire a lawyer to proceed with the registration of your partnership firm or can for the partnership firm registration online. Additionally, companies like VakilSearch specialize in services like partnership registration also offer the necessary basic legal advice with the help of their team of advocates and legal experts.
Benefits of a Partnership Deed
- A written and registered agreement serves as a formal agreement between two or more parties. Hence, a partnership deed serves better than an oral agreement.
- Also, a partnership deed also clearly states the rules and regulations, as well as, profit sharing ratio, to be followed by partners.
- A partnership deed helps in avoiding confusion among partners of the firm, as it clearly states the details of each partner.
- In the event of a dispute, partners can refer to the partnership deed to resolve disputes.
What Are the Checklist Clauses of a Partnership Deed Format?
- Company name and address on the partnership deed of a firm
- Partner Details on the partnership deed of a firm
- Partner Capital Contribution
- The Accounting period on the partnership deed of a firm
- Partnership Formation Date
- Rules of Operations for Bank Accounts as stated on the partnership deed of a firm
- Profit and loss sharing ratio
- The rate of interest on capital, loan, drawings, etc
- The rules to appoint the auditor
- Payables to partners
- The rights, duties, and liabilities of each partner
- Rules & regulations to be followed when it comes to the dissolution of the firm
- Rules & regulations to be followed when it comes to admission, retirement, the death of a partner.
What is a 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.
Is a partnership firm a separate entity?
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.
How many partners can there be?
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.
How much time does it take to register a partnership firm?
The registration of a partnership firm in India can take up to 10 to 12 working days. However, the time taken to issue a certificate of incorporation may vary as per the regulations of the concerned state. The registration of a partnership firm is subject to government processing time which varies for each state.
What are the minimum and the maximum number of partners required for the formation of partnership firms in India?
Minimum of 2 persons and maximum of 20 is required for the formation of a partnership firm.
Who can be the partners in a partnership firm?
The individuals who are residing in India can only become partners or members in a partnership firm. Foreign individuals who want to form their business in India can choose private limited companies.
What is the capital amount needed for the partnership firm registration in India?
There is no minimum capital requirement for the registration of a partnership firm in India.
Are there any grounds on which my partnership can be invalid?
Often, if the partnership agreement is not registered, the court may deem a partnership invalid. If the object of the business is illegal, the court may consider the partnership invalid and dissolve the partnership.
What is the scope of liability when it comes to partnerships?
Every partner is jointly and severally accountable for any acts/activities of the firm committed throughout the course of business while he or she is a partner. This means that if a third party is injured or a penalty is imposed during the course of business, all partners will be held accountable, even if one of the partners caused the injury or loss.
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