Partnership firms in India and its registrations are governed by partnership act, 1932. Anyone can form it with more than one individual. Each and every individual forming a partnership firm will be called as partners.
Each partner will share their profits out of the income generated from the partnership firm’s business based on the ratio that they have mentioned in the partnership deed.
Most of the mid-sized businesses in India are run on this form of business. There are two ways to form a partnership firm;
- Without registration
- With registration
Without registration
It’s not mandatory under the act to register your partnership firm. If you have chosen not to register then follow the following procedure;
- Create a partnership deed with all the terms and conditions in it.
- Sign it in presence of two witness (partners and each witness must sign each and every page of the deed and the last page should be signed with their address and name)
- Notarize your deed
- If you want any proof then apply for TIN number or service tax registration number as required by your partnership firm
With registration
In addition to the above four steps you have to perform following steps to register it;
- File an application in “form no: 1” to the registrar of firm based on your place of business or your proposed location of business. Each and every partner must sign the application form. Along with the application you need to provide a certified true copy of the deed and address proof for your business location.
- After your application, registrar of firms will enter the name in “register of firms” and as a proof of your registration a certificate will be issued to you.
The problem with partnership firm registration is that you need to reapply for any changes to the constitution and place of business. But there are certain advantages for registration your partnership firm;
- Partners of a registered partnership firm can sue against the firm or other partners for their rights. This cannot be done if it is not registered with register of firms.
- You can file a case against third party in a court which is not possible if it is not registered.
List of things a partnership deed must specify;
- Name of the firm
- Nature of the business to be carried out
- Full Names of the partners
- The place of business with complete address
- Amount of capital to be contributed by each partner
- Loans and advances
- the interest payable
- drawings and the rate of interest allowed
- Duties and powers
- Profit sharing ratios
- Special terms and conditions of partnership like admission, retirement and others
- Any other terms and conditions to carry on the business
Advantages of partnership firm
- Partnership firm formation is very easy process compared to a company registration or any other registration.
- Compare to sole proprietorship business you can manage a partnership firm better with more partners in it.
- Terms and conditions are defined and documented
Disadvantages of partnership firm
- Each partner’s liability will be unlimited i.e. for any debt all the partners will be liable to pay is from their personal assets.
- Each partner will be liable for the work and conduct of other partners
- Number of partners cannot exceed 10 in case of banking business and 20 in other type of business.
- Partnership firm has no legal existence i.e. the firm and partners are all same.
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