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According to the Indian Partnership act,1932, Partnershipship Firm exists when people do a business together or any one person acts on the behalf of all and agrees to share the profits among themselves. Partners are the people who have entered into the business, collectively, they are called a Firm and the name under which the business is conducted is called the Firm name.

What Are The Features of Partnership Firms?

Partnership firms are associated with the subsequent characteristics:

Number of Members

The minimum number of people who can form a partnership firm is two. However, the utmost number of individuals who can enter into this kind of firm is 20. According to the Indian Partnership Act, 1932, a Partnership of 10 people in a banking business or a partnership of more than 20 people in other businesses is considered illegal if not registered as a joint-stock company.

An Agreement Based Business

Partnership firm is formed when the individuals enter into an agreement-based business and are ready to sign a partnership deed/agreement.

Registration isn’t mandatory

The partnership firms are not compliant to get themselves registered. However, if not registered, they may not get access to legal benefits in cases where legal actions are required.

Equal Sharing of Profits And Losses

In a partnership firm, the members agree to share the profits as well as the losses equally or in any agreed ratio.

Unlimited Liability

In partnership firms, the partners have unlimited liability and therefore in case of losses or debts, all the members are called for joint action. Also, the personal assets of the members can be attacked to repay the debts.

Not Recognized As Separate Entity

Partnership firms aren’t recognized as separate legal entities and can cease to exist in the event of death, bankruptcy, or any mishappenings.

No transfer of asset

Any partner can't transfer his share of assets until and unless all the partners agree to it unanimously.

Types of Partnerships

On the basis of the duration, Partnership firms are of two types-

Partnership at-will

Where there is no agreement made for the duration of the partnership firm, such a partnership is called Partnership at-will. There is no determination regarding the time period of the partnership and till when it’ll continue to operate.

Partnership for a fixed term

When the partnerships are made for a certain period of time and cease to exist beyond that duration, such partnerships are called fixed-term partnerships. In such cases, if the partners agree to continue the business beyond the time period, the role of the partnership changes, and it becomes a Partnership at will.

On the basis of the extent and the nature of the business activity, partnerships are of two types-

Particular Partnerships

To carry on an existing business or to create a new or a particular venture, sometimes, the partners enter into an agreement and such partnerships are called Particular Partnerships. Such Partnerships dissolve after the competition of the target and if the partners wish to continue the business, the Partnership continues to exist.

General partnerships

Unlike a particular partnership, General Partnerships arise where there’s no particular motive and scope of business, and to continue an existing business, the partnership is defined.

Advantages of Partnership Firms

Ease of Registration -Partnerships are easy to be formed and require no mandatory registration with the Registrar of companies. The only thing required is a partnership deed and that's it.

Fewer Compliances -There’s lesser complexity when it comes to Partnership firms. They have few legal restrictions and the registration process is quite simple. All the more, the formation and dissolution of a partnership are quite easy and hassle-free.

Quick Resolution of Problems -In Partnership firms, there’s a gap between the owners and the management, and all the decisions are made by the partners collectively. Even in the absence of one or more partners, one partner can effectively make decisions on behalf of others, and thus, there’s a quicker solution to the day-to-day activities.

Equal Sharing of Profits And Losses -In Partnership firms, the partners agree to share all the profits and losses equally or depending upon the partnership ratio. The partnerships are accountable for all the profit and losses and there is no loophole in the management.

Disadvantages of Partnership Firms

Greater Liability -The biggest disadvantage of a Partnership firm is the bearing of liability. In cases of losses, the partners have to bear the burden of loss from their personal assets. The liability of one partner has to be borne by all the partners and this can create a harmful impact on the financial status of the company.

No perpetual succession -The Partnership firms do not come with a policy of perpetual succession. This means that the firm will dissolve if the partners face bankruptcy or death. Also, the firm can be dissolved by simply passing notice of dissolution to other partners.

Limited Partnership -The maximum number of partners in a Partnership firm can be 20 only. This means that the resources that can be brought in the company get restricted as it is coming through a restricted number of resources. This in turn can lead to huge financial constraints and the business cannot scale higher at times.

Difficult to raise capital -Partnership firms don't have any legal compliances and keeping a check on the accounts is not mandatory, therefore people may seem less interested and may show lesser trust in these companies. Also, being a separate entity and the easily dissolvable nature of these firms too creates distrust in the firm.

Is It Mandatory To Register A Partnership Firm?

The registration of partnership firms is not mandatory under the Indian Partnership Act, 1932. However, if the businesses wish to get their forms registered, they can do so at the time of formation of the firm or during the continuation of its existence.

There are certain benefits when it comes to the registration of a Partnership firm and should be taken into consideration to enjoy special privileges. Here are some of them:-

  • ⦿ A partner can sue the opposite partner/partners in cases of fraud or not following any terms and conditions. If the form isn’t registered, the court cannot intervene in these matters.
  • ⦿ In cases where a 3rd party is involved, the Partnership firm cannot file a suit against the third party for not following any contract protocol which is not possible if the firm isn’t registered.
  • ⦿ Claims regarding set-off can be made by a registered firm, which is not possible in cases where the firm isn’t registered.

Procedure To Register a Partnership Firm

There are two ways within which the registration of partnership firms can be carried out.

How To Register Yourself With The Registrar?

The first step involves selecting the correct name for the partnership firm. There are two conditions that require to be fulfilled while selecting the name of the firm:-

  • ⦿ The name of the firm shouldn’t be the same as any existing firm
  • ⦿ The name should not be a dead ringer for a public limited firm.
  • ⦿ The applicants can check the availability of names by visiting the website of the Ministry of Corporate Affairs.

The next step is drafting a Partnership Deed containing the basic details of the firm such as:-

  • ⦿ Name, address, and contact details of all the partners
  • ⦿ Nature of the firm
  • ⦿ duration of the business
  • ⦿ profit/loss sharing ratio
  • ⦿ rules regarding the stability of firm
  • ⦿ details of capital to be contributed by each partner

Apply for a PAN card in the name of the firm with the Income Tax Department.

Draft an application to the Registrar of Firms of the state where you wish to start your partnership firm mentioning the following details;-

  • ⦿ Name of the firm
  • ⦿ The official place of business
  • ⦿ The addresses of all the locations where the firm wishes to work from.
  • ⦿ Name and permanent addresses of all the partners
  • ⦿ The duration of the existence of the firm

Next, submit all the desired documents:-

  • ⦿ Application of registration (Form 1)
  • ⦿ a xerox of partnership deed
  • ⦿ copy of affidavit
  • ⦿ pan card
  • ⦿ proof of address of the firm
  • ⦿ pan card and address proof of all the partners
  • ⦿ One stamp paper deed duly signed by all the partners

Next, submit all the desired documents:-

How To Register A Partnership Firm With Filing Lounge?

  • ⦿ Our website Filing lounge offers a simple and convenient solution to your registration problem. You can sit back and target other areas of your business leaving the registration process in our hands.
  • ⦿ Just visit our website and under the Business formation tab, select Partnership firm from the drop-down menu.
  • ⦿ A page opens with a basic form to be filled out by the applicant.
  • ⦿ Furnish all the fundamental details regarding your partnership firm and Submit the form.
  • ⦿ Our executives will provide you a call shortly and facilitate you with the application process.
  • ⦿ We charge an inexpensive fee and supply solutions to all/ any of your registration-related queries.

Are Partnership Firms Different From Limited Liability Partnerships?

Partnerships firms are completely different from limited Liability firms in the sense that:-

Particulars Partnership firms LLPs
Registration These are registered under section 58 of the Indian Partnership Act, 1932 of Limited liabilities. The partners are free from any personal liabilities
liability Unlimited liability. The partners need to bear the burden of any loss These are registered under the Companies Act, 2008
Number of partners Minimum 2 and maximum 20 partners are required. Minors can even be partners with the joint decision of the partners Minimum 2 partners are required and there is no upper limit on the partners. Minors can’t be a part of LLPs.
Agreement Partnership deeds govern all the activities LLP agreement governs all the activities of the firm
conversion A Partnership firm can be converted into an LLP registration or Private Limited Company. LLP cannot be converted back to partnership firm but can be upgraded to Private
Annual filing Not mandatory to file annual returns It is mandatory to file annual returns


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Frequently Asked Questions

1. In how many days does a Partnership firm get registered?

The registration of the partnership firm may take up to 4 to10 days depending on the situation and the availability of the documents.

2. Are LLPs different from Partnership firms?

Yes, LLPs come with limited liability and the liability of the partners is limited to their amount invested in the company. Partnership firms, on the other hand, bear unlimited liability on the partners, and any loss or the debt has to be borne by the partners personally.

3. Is a partnership deed necessary for the reformation of a partnership firm?

No, it isn't necessary to make the partnership deed but it is a sensible approach when it comes to money handling matters.

4. Can a non-citizen be a partner in the Partnership firm?

Yes, a person of foreign origin can be a partner in the partnership firm, if he or she fulfills all the necessary guidelines and permissions.

5. What is the minimum capital requirement for a Partnership firm?

A Partnership firm is constituted solely on an agreement between the partners and hence, there is no requirement of any minimum paid-up capital.

6. Can a partner of one firm be a partner in another firm?

Yes, a partner can be another firms’ partner too.

7. Do partners need to file income tax returns?

The income tax is applicable on the income of the firm and not on the partners’ individual income. So, they don't need to file for income tax returns.