A partnership firm is a business form in which two or more individuals come together to operate and manage a business in accordance with terms and conditions set out in partnership deed.
How should be the agreement between partners formed?
Partnership deed is an agreement between the partners in which rights, duties, profits shares and other obligations of each partner is mentioned.
Partnership deed can be written or oral, although it is always advisable to write a partnership deed to avoid any conflicts in the future.
Following details are required in a partnership deed:
- 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
- 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
Is it necessary to register a partnership firm?
Indian Partnership Act, 1932 governs the partnerships. Registration of partnership firm is optional and at the discretion of the partners.
Registration of partnership firm may be done at any time – before starting a business or anytime during the continuation of partnership.
It is always advisable to register the firm since a registered firm enjoy special rights which aren’t available to the unregistered firms.
How to register the partnership firm?
An application form along with fees is to be submitted to Registrar of Firms of the State in which firm is situated. The application has to be signed by all partners or their agents.
Documents to be submitted to Registrar are
If the registrar is satisfied with the documents, he will register the firm in Register of Firms and issue Certificate of Registration.
Register of Firms contains up-to-date information on all firms and can be viewed by anybody upon payment of certain fees.
Benefits of a Partnership
For General Partnerships, there is no need for an auditor to be appointed or, if the company is still in the process of registration or incase unregistered, annual accounts filing with the registrar is not necessary either. When compared to LLP, annual compliances are also fewer. Further, taxes depending on turnover, service and sales tax also need not be filed in General Partnerships.
General Partnerships can begin simply with an unregistered deed of the partnership within 2-4 business days. However, having registration for the same has its own perks and advantages. The primary advantage for having a registered firm is that it will allow you to book lawsuits in courtrooms opposing another business or the business associates in the firm for the administration of rights addressed in the Partnership Act.
In comparison to LLP, a General Partnership is much cheaper to begin. Even in the longer run, it will still work out inexpensive as the compliance requirements are very minimal. For example, there is no need for an auditor. Therefore, Home businesses still opt for this, although it offers unlimited liability.