PARTNERSHIP FIRM
The Indian Partnership Act, 1932 governs and regulates partnership firms in India. The persons who come together to form the partnership firm are knowns as partners. The partnership firm is constituted under a contract between the partners.
The contract between the partners is known as a partnership deed which regulates the relationship among the partners and also between the partners and the partnership firm.
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NATURE OF PARTERSHIP FIRM
The Indian Partnership Act, 1932 governs and regulates partnership firms in India. The persons who come together to form the partnership firm are knowns as partners. The partnership firm is constituted under a contract between the partners.
The contract between the partners is known as a partnership deed which regulates the relationship among the partners and also between the partners and the partnership firm.
The Indian Partnership Act, 1932 governs and regulates partnership firms in India. The persons who come together to form the partnership firm are knowns as partners.
The partnership firm is constituted under a contract between the partners. The contract between the partners is known as a partnership deed which regulates the relationship among the partners and also between the partners and the partnership firm.
IMPORTANCE OF REGISTRING OF PARTERSHIP FIRM
The registration of a partnership firm is optional and not compulsory under the Indian Partnership Act. It is at the discretion of the partners and voluntary. The firm’s registration can be done at the time of its formation or incorporation or during the continuance of the partnership business.
However, it is always advisable to register the partnership firm as a registered firm enjoys certain special rights and benefits as compared to the unregistered firms. The benefits that a partnership firm enjoy are:
- A partner can sue against any partner or the partnership firm for enforcing his rights arising from a contract against the partner or the firm. In the case of an unregistered partnership firm, partners cannot sue against the firm or other partners to enforce his right.
- The registered firm can file a suit against any third party for enforcing a right from a contract. In the case of an unregistered firm, it cannot file a suit against any third party to enforce a right. However, any third party can file a suit against the unregistered firm.
- The registered firm can claim set-off or other proceedings to enforce a right arising from a contract. The unregistered firm cannot claim set off in any proceedings against it.
ADVANTAGE OF PARTERSHIP FIRM
- Easy to Incorporate- The incorporation of a partnership firm is easy as compared to the other forms of business organisations. The partnership firm can be incorporated by drafting the partnership deed and entering into the partnership agreement. It need not even be registered with the Registrar of Firms. A partnership firm can be incorporated and registered at a later date as registration is voluntary and not mandatory.
- Less Compliances- The partnership firm has to adhere to very few compliances as compared to a company or LLP. The partners do not need a Digital Signature Certificate (DSC), Director Identification Number (DIN). The partners can introduce any changes in the business easily. It is cost-effective, and the registration process is cheaper compared to a company or LLP. The dissolution of the partnership firm is easy and does not involve many legal formalities.
- Quick Decision- The decision-making process in a partnership firm is quick as there is no difference between ownership and management. All the decisions are taken by the partners together, and they can be implemented immediately.
- Improved Management- The business of a partnership firm is extremely well managed by all of the partners, who are actively involved in the day-to-day operations of the company as a result of their ownership, profit, and control.
- Risk-sharing- In a partnership, each member is responsible for his or her own risks because it is less complicated than operating as a sole proprietorship.
- Sharing of Profits and Losses- The partners share the profits and losses of the firm equally. They even have the liberty of deciding the profit and loss ratio in the partnership firm. Since the firm’s profits and turnover are dependent on their work, they have a sense of ownership and accountability. Any loss of the firm will be borne by them equally or according to the partnership deed ratio, thus reducing the burden of loss on one person or partner. They are liable jointly and severally for the activities of the firm.
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DOCUMENTS FOR REGISTRATION OF PARTERSHIP FIRM
The documents required to be submitted to Registrar for registration of a Partnership Firm are:
- Application for registration of partnership (Form 1)
- Certified original copy of Partnership Deed.
- Specimen of an affidavit certifying all the details mentioned in the partnership deed and documents are correct.
- PAN Card and address proof of the partners.
- Proof of principal place of business of the firm (ownership documents or rental/lease agreement).
- Letter of Authority signed by all partners.
- License to carry business.
PARTNERSHIP DEED
A partnership deed is an agreement between the partners in which rights, duties, profits shares and other obligations of each partner is mentioned.
A partnership deed can be written or oral, although it is always advisable to write a partnership deed to avoid any conflicts in the future.
DETAILS REQUIREMENT IN A PARTNERSHIP DEED
General details
- 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.
Specific details
Apart from these, certain specific clauses may also be mentioned to avoid any conflict at a later stage:
- Interest on capital invested, drawings by partners or any loans provided by partners to the 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 the firm.
- Other clauses as partners may decide by mutual discussion.
TIMELINES FOR PARTNERSHIP FIRM REGISTRATION
The partnership firm registration process takes approximately 10 days, subject to departmental approval and reverts from the respective department.
FAQs ON PARTNERSHIP FIRM REGISTRATION
Q1. How a partnership firm is registered?
The partnership firm can be incorporated by drafting the partnership deed and entering into the partnership agreement. Apart from the partnership deed, no other documents are required. It need not even be registered with the Registrar of Firms.
Q2. Do partnership firms need to be registered?
It is not mandatory to register a partnership firm as per the provisions of the Partnership Act, 1932. However, it is better to register a partnership firm. If the firm is not registered it cannot avail any legal benefits provided to the firm under the Partnership Act, 1932.
Q3. What is partnership registration?
As per the Partnership Act 1932, it is not compulsory to register a partnership firm. The firm does not have a separate legal identity and registration will not alter this fact. However, registration is the definite proof of the existence of the firm and its legality.
Q4. What is the tax rate for partnership firm?
30%, For the AY 2022-23, a Partnership Firm (including LLP) is taxable at 30%. What is Surcharge? Surcharge is levied on the amount of income tax at following rates if Total Income exceeds specified limits: 12% if Taxable Income Exceeds ₹ 1 Crore.
Q5. What are types of partnership?
The three different types of partnership are:
- General partnership.
- Limited partnership.
- Limited liability partnerships.
Q6. Is it mandatory to file ITR for partnership firm?
Yes, it is mandatory for every partnership firm to file the return of income irrespective of amount of income or loss.
Q7. Why chooses a partnership?
In a partnership, each partner is equally invested in the success of the business. Partnerships have the advantage of pooling resources to obtain capital. This could be beneficial in terms of securing credit, or by simply doubling your seed money. Complementary Skills.
