- Minimum Compliance
Whenever a private limited company is involved, something else always gets in the way (unless you hire someone to handle this for you). You avoid this hassle when you form a partnership. Seriously you don’t want to start out your business burdened with compliance work. You simply want to concentrate on your company. - Simple to Begin
One of the simplest types of businesses to launch is a partnership. In most cases, a partnership deed registration is the only necessity for register partnership firm in india. As a result, a partnership can be established today. On the other hand, an LLP enrollment would take between 5 and 10 working days to complete because the MCA must be contacted for the electronic signature, DIN, name approval, and incorporation. - Comparatively Economical
You will have to pay at least ₹15,000 to establish a private limited company, not to mention compliance and auditor fees. When you’re just getting started, do you want all this baggage? A partnership, however, will only set you back about ₹2,000.
Registering a partnership firm in India is a common business structure that allows two or more individuals to collaborate and share responsibilities, making it essential to complete the necessary documentation and legal formalities for a smooth and compliant operation. Documents required for partnership firm registration are as follows.
- Partnership Deed
- Address Proof
- Identity Proof of Partners
- Passport-sized Photographs
- Address Proof of Partners
- Registration Certificate (if applicable)
- Bank Account Proof
- Specimen Signature
- Partnership Firm’s PAN Card
- GST Registration (if applicable)
- Power of Attorney
- NOC from the Property Owner
- Affidavit
Anyone with the legal capacity to enter into a contract may enter into the partnership agreement. Every individual who meets the legal requirements for majority, is of sound mind, and is not prohibited from contracting by any laws to which they are subject, may form a partnership.
The following people are eligible to enter into a partnership
1. Individual: A person who has the legal capacity to enter into a contract may join the partnership firm as a partner. An individual can be a partner in a company with more than two partners both as himself and as a representative known as Karta of the Hindu undivided family.
2. Firm: Because a partnership firm is not a person, it cannot form a partnership with another firm or person. Yet, a partner in a partnership firm is free to form a partnership with another individual and split the firm’s profits with his other parent company partners.
3. Hindu Undivided Family: As long as the member has contributed their own effort and ability, a Karta of the Hindu undivided family may join a partnership in his or her individual capacity.
4. Company: If permitted to do so by its goals, a business may join a partnership firm registration as a partner because it is a juristic person.
5. Trustees: Unless its constitution or goals forbid it, trustees of private religious trusts, family trusts, Hindu mutts, and other religious endowments are legal persons and can thus form partnerships.
Step 1: Submit a Register Partnership Firm Application
The Registrar of Firms in the state where the company is located must receive an application form and the required fees. All partners or their representatives must sign and verify the registration application.
Step 2: Choosing the Name of the Partnership Firm
A partnership firm registration can be referred to by any name. But make sure they abide by the rules—for example, no two names should be the same, nothing related to the government, etc.
Step 3: Registration Certificate
The firm will be registered in the Register of Firms and given the Registration Certificate if the Registrar is pleased with the registration application and supporting documentation. All firms’ most recent information is available in the Register of Firms, which anybody can access for a fee.
1. Number of Partners: A partnership registration must have at least two partners. When performing banking transactions, the maximum is 10; in all other situations, the maximum is 20.
2. Voluntary Registration: Although it is not required to register a partnership, it is always advisable to do so because doing so has many additional advantages.
3. Contractual partner: There is a contractual tie between each partner. A original partnership deed registration format proposes that in order on various aspects governs the relationship. Each and every partner signs the deed, binding each and each of them.
4. Competency of the Partners: According to the Act, the partners entering into the agreement must be competent adults and cannot be minors.
5. Profit and Loss Sharing: The partners divide the profits or losses according to the percentages that were agreed upon and recorded in the agreement.
6. Unlimited Liability: In all partnership firm registartion governed by the aforementioned Act, each partner is jointly and severally liable for any losses incurred by the firm.
7. Interest Transfer: A partner’s interest may not be transferred without the other partners’ approval.
8. Principal-agent relationship: Partners and the firm have a principal-agent relationship. The agent acts on behalf of the company, so it is expected that he will act in the company’s best interests. Any one of the partners may act on behalf of the other partners, or the entire partnership may carry out the business jointly.
If there is an agreement, it must be in writing and is known as a ‘Partnership Deed’ or ‘Deed of Partnership’ in any partnership. To enjoy the legal benefits and to avoid various legal restrictions, it is always advised to register your partnership firm and document the partnership. The following criteria has to be satisfied
- Two or more people/individuals are required
- The interested persons must enter into an agreement to share the business’ profits, and the enterprise must be operated by all of them, or by one of them acting on their behalf
- It does not need to be registered or in writing; it can be verbally assured.
Need and Importance of Partnership Firm
A partnership firm is a business entity that is formed by two or more individuals who agree to share the profits and losses of the business in a specific ratio. Partnership firms are relatively easy to form and operate, and they offer a number of advantages over other business structures, such as sole proprietorships and companies.
Need and importance of partnership firm:
- Pooling of resources: Partnership firms allow two or more individuals to pool their resources, such as capital, skills, and experience, to start and run a business. This can be particularly beneficial for small businesses that may not have the resources to start a company on their own.
- Shared responsibility and decision-making: Partners share the responsibility of running the business and making decisions. This can be a great advantage, as it allows partners to draw on each other’s strengths and expertise.
- Tax flexibility: Partnership firms are taxed as pass-through entities, which means that the profits of the business are passed on to the partners and taxed at their individual tax rates. This can be a tax advantage for partners who are in a lower tax bracket than the business
- Easy to form and dissolve: Partnership firms are relatively easy to form and dissolve. All that is required is a partnership agreement between the partners. This agreement should outline the terms of the partnership, such as the profit-sharing ratio, the roles and responsibilities of each partner, and the procedure for dissolving the partnership.
The legal options available to the firm’s partners are summarised in a partnership deed format. It should cover:
- Each partner’s obligations, rights, and liabilities are governed by it
- The deed contains all of the terms and circumstances of the partnerships, which is very beneficial in preventing misunderstandings between the partners
- The partnership deed will be simply referred to in the event of a dispute among the partners, making a resolution simple
- The partners’ misunderstanding of how to split losses and receive reimbursement for earnings
- Explains the part played by each partner
- The partnership deed will also include sections that specify the amount of compensation that shall be paid.
1. Fiduciary Duty: Partners have a fiduciary duty to act in the best interests of the partnership and fellow partners. This includes acting honestly, in good faith, and with loyalty to the partnership.
2. Financial Contributions: Partners are typically required to contribute financially to the partnership according to the terms outlined in the partnership agreement. These contributions can include capital investments, property, or other assets.
3. Management and Decision-Making: Partners share the responsibility of managing the partnership’s operations. They must participate in decision-making and contribute their skills and expertise to benefit the partnership.
4. Partnership Agreement: Partners should follow the terms and conditions set out in the partnership agreement. This legal document outlines the rights, responsibilities, and obligations of each partner, as well as the rules for profit distribution, decision-making, and dispute resolution.
5. Due Diligence and Care: Partners have a duty to exercise reasonable care and diligence in carrying out their responsibilities. They should make informed decisions, avoid conflicts of interest, and seek advice when necessary.
6. Financial Reporting: Partners are often required to maintain accurate financial records and provide regular financial reports to other partners. Transparent financial reporting helps ensure accountability and proper management of the partnership’s finances.
7. Non-Compete and Non-Disclosure: Partners may have obligations not to compete with the partnership’s business or disclose confidential information to third parties. These obligations protect the partnership’s interests and trade secrets.
8. Acting in Partnership’s Interest: Partners should prioritize the interests of the partnership over personal interests. They should not engage in activities that harm the partnership’s reputation, finances, or operations.
9. Contributing Effort and Expertise: Partners are expected to contribute their skills, knowledge, and effort to the partnership’s success. Each partner’s unique contributions help enhance the partnership’s value and competitiveness.
10. Good Faith and Fair Dealing: Partners should treat each other with respect and fairness, engaging in honest and transparent communication. They should work collaboratively and resolve conflicts amicably to maintain a positive partnership environment.
11. Adhering to Legal and Regulatory Requirements: Partners must ensure that the partnership operates in compliance with applicable laws, regulations, and licenses. This includes fulfilling tax obligations, obtaining necessary permits, and meeting reporting requirements.
The Indian Partnership Act states that partnership registration is neither necessary nor needed. It is optional and up to the partners’ discretion. The firm may be registered at the moment of its formation, incorporation, or ongoing operation as a partnership.
However, according to experts it is always recommended that you register the civil partnership because registered firms are entitled to a number of unique rights and advantages over unregistered ones. The advantages of registration of partnership firm are:
- In order to enforce his contractual rights against a partner or the firm, a partner may file a lawsuit against any other partner or the partnership itself. Partners cannot file a lawsuit to enforce their rights against their fellow partners or an unregistered partnership firm registration in india
- To enforce a contractual right, the registered corporation may file a lawsuit against any third party. A non-registered business cannot sue a third party to enforce its rights. Any unregistered business, however, is subject to third-party litigation
- The registered business may use set-off or other legal actions to enforce a contractual right. The unregistered company cannot use setoff in any legal action brought against it.
Depending on the contribution of the partners, different states have different government fees for registering a partnership firm in india. However, the Vakilsearch Partnership Firm Registration Online Plan allows you to register a partnership firm online.
Start your partnership firm registration online at Just ₹999
The following services are included in the partnership firm registration online plan cost:
- Application PAN
- Drafting partnership agreements
- Documents must be filed with the Registrar of Corporates (RoC), including a deed
- 100% online registration certificate issuance
- Expert consultation.
- Step 1: Visit the Ministry of Corporate Affairs (MCA) website
- Step 2: Click on the ‘MCA Services’ tab and select ‘View Company or LLP Master Data’ from the drop-down menu
- Step 3: Enter the partnership firm’s name or registration number in the search field and click on the ‘Search’ button the partnership firm will be displayed, including its registration number, date of registration, and address
- Step 4: If the partnership firm is not registered, a message stating ‘No matching records found’ will be displayed.
Distinction Between Partnership and Firm
| Partnership | Firm |
|---|---|
| Business owned by two or more persons | Business owned by an individual or group |
| Owners are called partners | Owners are called proprietors |
| Partners share profits and losses | Proprietors bear profits and losses |
| Partners are personally liable | Proprietors are personally liable |
| A partnership deed is necessary | No separate deed is required |
| Registration is optional | Registration is mandatory |
| Dissolution is by mutual agreement | Dissolution can be voluntary or compulsory |
| Criteria | Partnership | Company |
|---|---|---|
| Legal Status | Unincorporated | Incorporated |
| Number of Owners | Two or more | One or more |
| Liability | Unlimited liability for partners | Limited liability for shareholders |
| Management | Managed by partners | Managed by directors appointed by shareholders |
| Ownership | Joint ownership by partners | Individual ownership of shares by shareholders |
| Raising Capital | Limited options | Can issue shares and raise capital from public |
| Legal Compliance | Less formalities governed by Partnership Act, 1932 | More formalities, governed by Companies Act, 2013 |
| Taxation | Partners pay tax on share of partnership income | Company taxed as separate legal entity, shareholders taxed on dividends |
| Continuity | Dissolves on death or resignation of a partner | Continuity of existence |
| Transferability of Ownership | No transferability of ownership without consent of partners | Shares can be bought and sold freely |
| Reporting | No mandatory reporting requirements | Must maintain books and file annual returns and financial statements |
| Criteria | Partnership | Club |
|---|---|---|
| Legal Structure | Unincorporated | Unincorporated |
| Formation | Requires an agreement between two or more persons | Formed by individuals with a common interest |
| Members | Called partners, who jointly own and manage the business | Called members, who are part of a group with a common interest |
| Liability | Partners have unlimited liability for the firm’s debts and obligations | Members have limited liability, typically up to the amount of their contribution |
| Management | Partners manage the business jointly | Club is typically run by a board of directors or an elected group of officers |
| Taxation | Partnerships are pass-through entities, with the profits and losses flowing through to partners’ personal tax returns | Clubs may be taxed as nonprofit organisations, and may be exempt from federal income tax |
| Ownership | Partners jointly own the assets and liabilities of the business | Clubs may be owned by a nonprofit organisation or by the members collectively |
| Partnership | Hindu Undivided Family (HUF) |
|---|---|
| A partnership is a type of business organisation in which two or more people come together to carry on a business. | HUF is a type of business organisation in which the family members of a Hindu undivided family collectively own and manage the business. |
| A partnership is governed by the Indian Partnership Act, 1932. | HUF is governed by the Hindu Succession Act, 1956. |
| A partnership deed, which outlines the partnership’s terms and conditions, including the profit-sharing ratio, each partner’s capital commitment, their respective roles and responsibilities, etc., creates a partnership. | HUF is created by the operation of law, that is, by the birth of a male child in a Hindu undivided family. |
| Each partner’s responsibility in a partnership is uncapped. This indicates that the partners are liable for the debts and obligations of the partnership jointly and severally. | In an HUF, the liability of the members is limited to the extent of their share in the HUF property |
| A partnership can have a maximum of 20 partners in a general partnership and 50 partners in a banking business. | There is no upper limit for the total number of members in the HUF. |
| A partnership is a separate legal entity | HUF is not a separate legal entity |
| In a partnership, the partners divide the company’s gains and losses according to the proportion specified in the partnership deed. | In a HUF, members split the business’s gains and losses proportionately to their ownership stakes in the HUF’s assets. |
| Partnership firm is dissolved based on the mutual consent from every partner or through legal operations | An HUF can be dissolved by the members of the HUF or by operation of law. |
| In a partnership, the partners have the right to manage the business and make decisions jointly. | In an HUF, the karta or head of the family has the right to manage the business and make decisions on behalf of the family. |
| Partnership | Co-ownership |
|---|---|
| Formation | Formed by agreement between two or more partners |
| Ownership | Partners own the business and share profits, losses, and liabilities. |
| Management | The business is managed by the partners jointly |
| Liability | Partners are jointly liable for all the debts and obligations. |
| Transfer of interest. | With the consent of all partners or referring to the terms and conditions provided in the partnership deed. |
| Taxation | The firms are not taxed as separate entities. The partners report their share on their personal tax returns. |
| Termination | Partnerships may be dissolved by agreement, death or incapacity of a partner, bankruptcy, or court order |
| >Partnership | >Association |
|---|---|
| A partnership firm is a business structure where two or more individuals share ownership and responsibility. | On the other hand an Association represents a group of people who come together to attain a common interest. |
| Both the profits and losses are shared equally among the partners | Association members do not typically share profits and losses, and the organisation is run according to its bylaws. |
| Partners stand liable for all the debt accumulated in the business | Association members generally do not have personal liability for the debts of the organisation |
| Partnerships are typically formed for the purpose of conducting business activities. | Associations can be formed for a variety of purposes, such as social, cultural, or charitable. |
| Partnerships are obligated to report their partnership revenue on their tax returns and pay taxes on it. | Associations may be tax-exempt if they meet certain criteria, such as being organised for a charitable or educational purpose. |
| Partnerships may be dissolved by agreement of the partners, death or withdrawal of a partner, or court order. | Associations may be dissolved by agreement of the members, expiration of the organisation’s charter, or court order. |
| Termination | Partnerships may be dissolved by agreement, death or incapacity of a partner, bankruptcy, or court order |
It is mandatory by law to have at least two partners to register a partnership firm. Based on the role of the partner they are classified into the following types:
Active Partner
An active partner is an individual or a group who is actively involved in the daily functioning of the partnership. They represent the other partners in all decisions made during the business activity.
Dormant Partner
As the name suggests these partners do not actively take part in the company’s management. These partners are liable to third parties, share in the partnership firm’s profits and losses.
Nominal Partner
Nominal partners are those people whose names are listed on the partnership agreement. They do not have any interest in the business and neither participate in the day’s activities. A nominal partner is not entitled to the shares and profits of the phone. They also don’t provide any capital investment. This partner has no ownership stake in the business and is not involved in its management. Even so, this partner is liable to third parties for all business-related actions.
Partner In Profits Only
This is a partner who is eligible for a cut of the gains but is not responsible for the losses. Only acts committed for personal benefit make these partners responsible to third parties.
Sub-Partner
Sab partner refers to an individual who is in a partnership firm and shares the profits to an outsider of the firm. The sub partner doesn’t have any right against the form and is not liable to any debt.
Incoming Partners
This refers to a new partner who is accepted in an existing form with consent from all the partners. An incoming partner doesn’t stand liable for any act of the firm conducted before their entry.
Outgoing Partner
An outgoing partner leaves the firm where the rest of the partners continue to carry on the business. It is mandatory to provide a public notice concerning the retirement of an outgoing partner. In most cases until the public notice is provided the outgoing partner stands liable to third parties for all the actions taken.
Partner By Holding Out (Section 28)
Partnership by holding out is also known as partnership by estoppel. In simpler words it denotes a person who may have given the impression that they are a partner through their words or behaviour, or they may have allowed others to do so. But in reality, they have no claim or connection with the partnership firm. They don’t stand liable for any losses or benefits incurred for an creditor or an investor who has believed or assumed that they are a partner and made an investment.
What Are the Consequences if the Partnership Firm Is Not Registered?
If the partnership firm is not registered, the partners of the aforementioned firm may in fact enforce their rights under the terms of the Indian Partnership Act, 1932. This means that the involved firm is not permitted to file a lawsuit or make a setoff claim in the event of any dispute with a third party. However, the unregistered partnership firm is subject to third-party litigation.
- After the registration process for the registration of partnership firm is officially initiated, the partners of the aforementioned partnership firm must receive PANs Permanent Account Number and TANs (Tax Deduction Account Numbers) from the IT department
- No matter how much money is made or lost, a partnership firm in india must file an ITR (Income Tax Return)
- In the case of a register partnership firm, the total income will be taxed at a rate of 30% plus an additional income tax surcharge
- Furthermore, a tax audit
- must be performed by all partnership firms with a yearly revenue of over ₹100 lakhs.
Businesses that generate more than ₹40 lakhs in annual income must register for GST online (₹20 lakhs in the case of the north-eastern states). However, businesses involved in e-commerce, market place aggregation, and export-import must register for GST in order to operate.
After registering for GST, the concerned firm is required to submit monthly, quarterly, and annual GST returns. Partnership firms must also submit their quarterly TDS (Tax Deducted at Source) returns, which must deduct tax at source in accordance with the applicable TDS rules and have TANs.
Last but not least, all partnership firms must obtain an ESIC registration and file an ESIC return.