Partnership, in a layman language, refers to the coming together of two or more people to carry out a certain task. In the corporate structure of India, the Indian Partnership Act (1932) (referred to as Act hereafter), defines partnership as “the relation between two or more persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” In a proprietary business an individual has constraints on the ability, skill and capital to run the business, besides liability that can occur anytime.
A partnership is governed by a partnership deed, which must be a written document duly signed by all the partners. The deed fulfills the requirement of dissipating information about the firm – name, partners’ details, nature of the business, the location of the business and others. Without much hassle to accumulate a minimum capital, two or more people can start a partnership firm, as there is no minimum capital requirement under the Act.
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How to Register as a Partnership Firm?
The increasing use of technology has also allowed the government entities to make functions like registration and compliance online. In India, although a number of states still follow an offline procedure, there are few states who have adopted the online registration process which requires the application to be filed with the Register of Firms (ROF).
Follow these simple steps to register for a Partnership Firm under the Act.
Step 1: Choose name for a partnership
A firm should select a name that does not resemble the name or color-able imitation of the entity that is already public. Partnership name should not be similar or identical to existing company doing the same business. Applicant can check the validity of his/her chosen name at Ministry of Corporate Affairs website
Step 2: Draft a Partnership Deed
The partnership deed is the most important document for the registration of the company as it provides the registrar with the following necessary information:
- Name and address of company and all partners
- Contact details of partners
- Nature of the business
- Duration of the partnership
- Profit/Loss sharing ratio
- Rules regarding the solvency of the firm
- Information of capital to be contributed by each partner
Additionally, the Deed also contains information about the remuneration payable to partners in excess of the profit shares, responsibilities of partners, audit procedures, etc.
Step 3: Apply for a PAN Card in the Partnership Name
A firm, irrespective of registration under the Act, has to apply for a Permanent Account Number to the Income Tax Department. This can be applied on the basis of a current account in the name of the firm. The PAN is a requirement to fulfill the obligation of paying taxes.
Step 4: File a Registration Application
The registration application requires a firm to provide information regarding the name of the firm, the nature of the business carried out, address of the business, names and addresses of all the partners, date of commencement of business. This form is further taken to the registrar in the region of the firm’s main office.
Step 5: Submit the Documents
Along with the registration application, the following documents are to be submitted to the Registrar as a part of the registration process:
- Application for registration of partnership (Form 1)
- A certified original copy of partnership deed
- Specimen of Affidavit
- PAN Card in the name of partnership firm
- Proof of address of the partnership firm, ownership deed, lease and rent agreements, etc. are common acceptable documents
- PAN Cards and address proofs of all the partners
Step 6: Pay the Fees & Stamp duties
A registration fee and a stamp duty need to be paid at the time of the submission of the documents with the Registrar. The fees vary across states. One must understand that the registration is not complete until all dues are paid.
Step 7: Finalize the Deed
To legalize the Deed, it should be provided to each partner in a written form on a stamp paper. One stamp paper deed should be duly signed by all the partners in front of the notary. The value of the stamp varies from state-to-state. The signed copy is thereafter submitted to the Registrar during the registration process.
Step 8: Certification from the Registrar
The registrar, after thorough examination of the documents, will issue a registration certificate.
The firm will be thus on record in the Register of Firms . On the date of this entry, the firm shall be deemed to be registered. The partnership firm is required to add ‘(Registered)’ after its name from the date of registration.
A lot of states in India now provide the facility of registering partnership firms online. The online registration of partnership firm requires the firm to file an application online. The firm will have to furnish the same information on this form. The acknowledgement number raised after the submission of the application is further used to login on the website and the firm has to upload the scanned copies of all the above mentioned documents. The registrar will review the documents and the certificate will be sent through an email.
- Duly filled application form with passport-sized photographs
- Identity and Address proofs of partners
- PAN card and address proof of partnership firm (NOC from owner if property is rented)
- Partnership Registration Certificate
- Any registration document issued by state or central government, such as GST Registration
- Any other document required by the respective authority
What is the difference between Partnership Firm and LLP?
Below mentioned are the major differences between a Partnership firm and LLP:
|Category||Partnership Firm||Limited Liability Partnership (LLP)|
|Partners are personally liable for the unlimited amount of liabilities of the partnership||Liability of the partners is limited to the amount invested in the company|
|Partners||Minimum 2 and maximum 20 partners can be the member of the partnership firm.|
Minor can be a partner
|Minimum 2 and no upper limit for maximum number of partners in LLP.|
No minor can be partner
|Registration||Registered under LLP Act, 2008||Registered under Partnership Act, 1932|
|Registered To||Registrar of Firms||Ministry of Corporate Affairs|
|Cost of Registration||Up to Rs. 3000 (Approx.)||Up to Rs. 10,000 (Approx.)|
Types of Partnership Firms
- Active or Working Partner
- Based on Partnership Registration Status
- Dormant or Sleeping Partners
- General Partnership
- Limited Liability Partnership (LLP)
- Nominal Partner
- Partner by estoppel or holding out
- Partner in profits only
Key Features of a Partnership Firm
A partnership firm has elements that make it suitable for small and medium scale businesses.
Some of the key features of a Partnership Firm are:
- A partnership firm can have a minimum of two and maximum of hundred members, according to the Companies Act, 2013.
- A registered firm is also required to use ‘(Registered)’ after the firm name
- Increased manpower often leads to integration of specialised skills and abilities that could help in a rapid growth
- A partnership firm unlike a company has no separate legal entity, except if the type of partnership is a Limited Liability Partnership
- Each partner in a partnership firm has an unlimited liability, but a Limited Liability Partnership (LLP) removes this shackle and limits the obligations of a partner
- There is no minimum capital requirement for commencing a partnership firm
- A partner is restricted to transfer his/her profits or rights entailing from the partnership without the consent of all partners
- In either case, a partnership firm is registered or unregistered under the Act, third parties can sue the firm to enforce their claim
- A registered firm, which is mandated to comply with the legal and taxation documentation, has an added advantage when it approaches banks for capital or working capital loans
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Benefits of a Partnership Registration
A partnership firm compared to proprietary business has an upside of inculcating more skills, capital and risk sharing; and compared to a company it has an upside of easy processes, and minimal compliance that makes partnership a viable option for small and medium scale enterprises. Some of its key benefits include:
- The partners in a partnership firm get the benefit from risk sharing, unlike an individual in a proprietary firm whose liability can be unlimited
- The most important benefit that arises from the registration is that when there are disputes between or among the partners, a partner can sue the other partners
- Registration also enables the Partnership firm to sue third parties to enforce its claim
- The dissolution procedure for a registered Partnership firm is reliable and quick
In legal disputes, the first thing the court establishes is whether the incorporation is registered. Therefore, it is advisable to get the partnership registered under the Act.
Q. What are the fees for partnership firm registration in India?
Ans. The registration fee required for a partnership firm is approximately Rs. 3000. However, it shall vary from one authority to another and also depend on the applicant’s profile and nature of business.
Q. Is it necessary to draft a Partnership deed?
Ans. Yes, it is always recommended to draft a partnership deed as it helps in taxation and other legal purposes.
Q. Where can I get a partnership firm registration form?
Ans. The partnership firm registration form can be downloaded by clicking here https://www.bcasonline.org/
Q. What is the rate of income tax on partnership firms?
Ans. The Income Tax rate is fixed flat at 30% which is levied on Partnership Firms, as well as for LLPs.
Q. Who can register for a partnership firm?
Ans. A minimum of 2 members can start a partnership firm by signing a formal agreement to manage a business and share profit and losses both.
Q. In how many days do we get a certificate of registration in a partnership firm?
Ans. The complete registration process can take approximately 12-14 working days, depending upon the documents submitted and applicant’s nature of business.
Q. Is it Compulsory for Partnership firms to File Income Tax Return?
Ans. Yes, it is compulsory for any partnership firms to file the Income Tax Return without considering their profit or losses.
Q. Can I convert my Partnership firm into a Company or LLP?
Ans. Yes, you can convert but the firm should be registered as a partnership and the LLP partners should be same as of partnership firm. The maximum number of partners can reach up to 20 in case of LLP. For this transfer process, Ministry of Corporate Affairs permitted conversion of Partnership Firm into Company under Companies Act, 2013.
Q. Does the law prohibit a non-citizen to become a partner?
Ans. The Act does not prohibit a non-citizen from participating as a partner, subject to certain clearances from the Government.
Q. Can a minor become a partner?
Ans. The act prohibits a minor from entering into a partnership contract. However, a minor can be admitted to advantage from the profits with the consent of all the partners.
Q. What is a partnership at will?
Ans. According to the Act, when there is no mention about the duration of the partnership, or determination of the partnership, the partnership is considered ‘partnership at will’.
Q. Can a new partner be admitted to the partnership?
Ans. Yes. Generally, a partner nominates the successor in case of retirement or death of that partner. The terms of the admission of a new partner are usually mentioned in the Partnership Deed. A new agreement entailing the new profit sharing ratio is required to be made.
Q. Can a partnership firm become a partner in another firm?
Ans. The firm cannot become a partner in another firm as a partnership firm is not a separate legal entity. However, a partner may be a partner in multiple corporations.