MEANING

A Partnership Firm is a business structure where two or more persons or an association of people own, manage & operate a business in accordance with the terms and objectives stated in the Partnership Deed. It is thought to have lost its relevance since the introduction of the Limited Liability Partnership (LLP) because in partnership, the partners are liable for the debts of the business due to unlimited liability. However, being inexpensive, the ease of setting up and fewer compliance formalities make it a practical option for some.

A partnership firm is considered ideal for micro and small-scale business which have multiple promoters.

Also, General Partnerships can be either registered or unregistered. Though it is not mandatory to register a Partnership firm, it is preferred to register a Partnership firm due to the added benefits.

REASONS TO OPT FOR A PARTNERSHIP FIRM

EASY TO START

The registration of the partnership firm is not mandatory, hence making it easy to start business as there are no legal formalities involved. However, an unregistered firm will lack certain legal benefits. The Registrar of Firms is responsible for partnership firm registrations.

LESS COMPLIANCE

The appointment of an auditor or if the partnership firm is unregistered, filing annual accounts with the registrar is not required. General Partnerships need not file Income Taxes & depending on its turnover, service and sales tax is also not required. Compliances are much fewer as compared to a LLP.

RELATIVELY INEXPENSIVE

A partnership firm is less inexpensive to start unlike LLP, and even in the long run, due to the lesser compliance requirements, is inexpensive, i.e. an auditor may not be hired. Despite its severe shortcomings (unlimited liability), small businesses may go for it.

ANNUAL FILING NOT NEEDED

A Partnership firm need not file its annual accounts with the Registrar of Companies unlike a LLP or a Company each financial year.

DOCUMENTS REQUIRED

  • Form No. 1 (Application for registration of the firm under The Indian Partnership Act)
  • Original copy of Partnership Deed, duly signed by all concerned partners.
  • Affidavit declaring an intention to become a partner.
  • Rental or lease agreement of the property on which the business is set up.

IMPORTANT FACTORS TO BE CONSIDERED IN A PARTNERSHIP DEED

The deed should have the names of the partners and their respective addresses, the name of the partnership firm, the date of commencement of operation of the firm, capital invested by each partner, the type of partnership concerned, the profit-sharing ratio, and rules and regulations that need to be followed for intake or removal of partners.

REGISTRATION PROCEDURE

The registration of a partnership firm can be done before its commencement or during its continuance.  An application should be filed with the Registrar of Firms of the area in which the concerned business is situated.

  1. Application for partnership registration includes the following:
  • Name of the firm.
  • Name of the place where business is carried.
  • Names of any other place where business is carried on.
  • Date of partners joining the partnership firm.
  • Full name and permanent address of partners.
  • Duration of the firm.
  1. Every partner needs to verify and sign the concerned application.
  2. Ensure that the following documents and prescribed fees are enclosed with the  application:
  • Application for Registration in the prescribed form.
  • Duly filled Specimen of Affidavit.
  • Certified copy of the Partnership deed.
  • Proof of ownership of the place of business or the rental agreement.

Once the Registrar of Firms is satisfied that the application procedure has been duly complied with, it shall record an entry of the statement in the Register of Firms and issue a Certificate of Registration to the partnership firm.

 

To comply with regulations stipulated by the Code of Ethics prescribed by Institute of Chartered Accountants (ICAI) of India that does not permit solicitation in any form or manner, by accessing this site you acknowledge that you are seeking information of your own accord and volition and that no form of solicitation has taken place by Shah and Doshi, Chartered Accountants or its members. This site (www.shahdoshi.com) should not be construed as an attempt to create a CA-client relationship of any manner. This site is meant to provide information to those who specifically request this information and does not purport to be exhaustive in relation to the information contained herein. Shah and Doshi, Chartered Accountants does not assume any responsibility for any acts or omissions arising from the use of information provided on this site and visitors to this site are advised to seek independent professional guidance before proceeding to act on any information provided herein.

Subscribe For Latest Updates

Signup for our newsletter and get notified when we publish new articles!
Email address
Secure and Spam free...