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Partnership Firm Formation

Most common business formation in India

A Partnership Firm is a very common form of business in India. A Partnership firm is a suitable form of business especially for micro, small or medium type of businesses, where requirements of fund raising are very less. The Indian Partnership Act 1932, governs and regulates the partnership firms in India. A Partnership Firm is formed under a contract between two or more partners, which is called the partnership deed. In a Partnership Firm, the partnership deed regulates the relationship among the partners and also between the partners and Partnership Firm.

Major advantages of a Partnership Firm in India

Major advantages of a Partnership Firm in India

Easy to Start: Partnership Firms are easy to set up; the only requirement in most of the cases is a partnership deed. Apart from the partnership deed, no other documents are required. Registration of a Partnership Firm with the Registrar of Firms at a later date is voluntary, but not mandatory.

Quick Decision Making: Decision making in a Partnership Firm is faster as there is no concept of passing of resolution like in other entities. Partners of a Partnership Firm enjoy a range of powers to undertake any business on behalf of the partners consent.

Less Compliance: A Partnership Firm has very little compliance to adhere to as compared to Company or LLP. Introduction of any changes in a Partnership Firm can be done easily.  In this point of view a Partnership Firm is very cost-effective and its registration process is cheaper as compared to company or LLP. Also, the dissolution of Partnership Firm is easy and does not require many legal formalities.

Sense of Ownership: Partners have the liberty to manage and control the firm’s activities.  The partners share the profits or losses of the firm as per the ratio decided by them mutually on partnership deed. Any loss or profit of the firm will be borne by them according to the partnership deed ratio. Thus, they are liable jointly or severally for the activities of the firm.

Registered and Unregistered Partnership Firms

A Partnership Firm can be classified into two types – Registered and Unregistered Partnership Firm. As per Indian Partnership Act, the only criterion to commence the business as a partnership firm is a finalization and partnership deed’s execution between the partners. Thus, it is not mandatory for a Partnership Firm to be registered, but unregistered Partnership Firms have been denied some rights and benefits.

Benefits of Registering a Partnership Firm:

  • A partner of Registered Partnership Firm can sue against any partner or the firm for enforcing his/her rights arising from a contract against the partner or a firm. But, in case of a unregistered partnership firm, the partners cannot sue against the firm or other partners to enforce his/her rights.
  • A registered partnership firm can file a suit against any third party for enforcing any right arising from a contract unlike an unregistered firm. However, any third party can file a suit against the unregistered firm.
  • A registered partnership firm can claim set-off or other proceedings to enforce a right arising out of a contract, but an unregistered firm cannot claim set-off in any proceedings against it.

Disadvantages of a Partnership Firm

Unlimited Liability: The biggest disadvantage of a partnership firm is its unlimited liability of its partners. The partners have to bear any unexpected losses out of their personal assets, which is not the case for LLP or a Company. Moreover, liability created by one partner is to be borne by all the partners of the firm. If the debts of a Partnership Firm are insufficient to pay from the firm’s assets, then the partners will have to pay off the debts from their personal property to the creditors.

No Perpetual Succession: A Partnership Firm will come to an end upon the death of a partner or insolvency of all the partners except one. Thus, a partnership firm can come to an end at any time.

Limitations of Resources: There is a restriction on the number of partners for a partnership firm and thus the capital invested in the firm is also restricted. Thus, the resources of a partnership firm is restricted and so cannot take up large scale business.

Limitations on Fund Raising: Due to absence of perpetual succession and separate legal entity, a partnership firm is not well positioned to raise capital.

Documents required for a Partnership Firm Formation

Documents requirements for Partnership Firm Formation is very simple.

Documents & Details required for Partnership Deed

  • Name and Address of the proposed firm.
  • Name and address of all the partners with documentary support.
  • Nature of Business
  • Date of commencement of business.
  • Capital to be contributed by each partner.
  • Profit and loss sharing ratio among partners.
  • Nature of bank account operation authority.
  • Salaries, commissions and other amounts to be payable to partners.
  • Duties and obligations of partners.
  • Any other clauses as advised by partners.

Documents Required for Partnership Firm Registration:

  • Application of Registration.
  • Certified Copy of Partnership Deed.
  • Certificate of Declaration by partners.
  • PAN Card and address proof of partners.
  • Proof of principal place of business of the firm

 

TRUSTLINK offers total package for Partnership Firm Formation.

  • Preparation of Partnership Deed
  • PAN for the Partnership Firm
  • TAN of the Firm
  • Bank Resolution for Account Opening
  • Free 1 year web hosting* with ssl.

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