Partnership registration is the second most well-known form of the business structure after proprietorship in India. It is known to be one of the most favored forms of the business constitution that are controlled, owned and managed by 2 or more persons.
The objective behind a partnership firm registration is to share the profits among the partners equally. Partnership firm registration is relatively easy to commence and is prevalent amongst the small and medium-sized business organizations in unorganized sectors.
This article will take you through the guidelines and the procedures involved in a partnership firm registration.
Meaning of a Partnership
The term partnership firm itself says the engagement of more than one person. It is one of the business structures where two or more persons manage and operate a business as per the terms and the objectives specified in the Partnership Deed.
Now let us understand the Importance of a Partnership Deed
As we have already discussed what a partnership is all about, let me throw some light what is a partnership deed and its importance.
A Partnership Deed is a vital document prepared among the partners that outline in detail the powers, duties, rights, and the responsibilities of all the partners.
Here are some of the major benefits of having a well-drafted partnership deed:
- It states the rights, duties, and the liabilities of all the partners.
- It helps to avoid any misunderstanding among the partners since all the terms and the conditions are clearly explained beforehand in the partnership deed.
- Any disputes among the partners can be sorted out easily as one can refer the deed which can be readily referred to.
Hence, it is always better to have a written document like a partnership deed instead of making agreements through word of mouth to be on the safer side.
Can one apply for a PAN Card for starting a new partnership firm where one of the partners is from a private limited company?
Yes, application for the new PAN Card can be done by a partnership firm in which one of the partners is from a private limited company.
Here, in this case, the private limited company can designate its Director, Company Secretary or any other person as an authorized signatory to act on their behalf.
Now let us know the benefits of a partnership firm:
Any person planning to start a partnership firm would be under an impression that a partnership firm yields no benefits. This is not true. In fact, a partnership firm has several advantages/ benefits that are listed below.
No Minimum Capital Required
No minimum capital is required to run a partnership firm. The partners can invest in the business without any limitations.
Easy To Start The Business
It is very easy and simple to start a partnership firm as no legal formalities are involved. Registration is also not necessary if the firm is not registered. But if the partners want the partnership firm to be registered they have to get approval from the Registrar of Firms.
Select a Firm Name
A partnership firm has the distinction of selecting a name of its choice as long as the name selected do not infringe on a registered trademark. The name selected should not be similar to an existing firm’s name.
Filing of Returns Not Mandatory
One of the major highlights of a partnership firm is that it need not file its annual returns with the Registrar every year unlike a private limited company or a limited liability partnership.
Availability of Large Resource
Since a partnership firm requires two partners to commence the business, there’s availability of large resources as compared to a proprietorship firm.
The operations of a partnership firm are always scalable. To put in simple terms it means any new partner can be introduced only by executing a supplementary partnership deed. A partner can retire or can be removed by executing a similar deed.
Risks Can Be Shared
Since a partnership firm has more than one person financial risks are diversified between the partners unlike an OPC or a proprietorship firm.
Better Tax Planning
Being a separate legal entity a partnership firm is a legal tool for better tax planning. It provides remuneration and interest to working partners.
Does a partnership firm require any documents that need to be submitted?
Partnership registration is not mandatory. It is up to the sole discretion of the partners whether they want to register the firm or not. However, a partnership firm cannot avail legal benefits if not registered.
Before registering a partnership firm, the partners are requested to submit some important documents like PAN Card, Aadhar, driving license, Voter ID, passport, rental agreement, sale deed, NOC from the landlord, utility bills like water, electricity or gas, and property tax receipt.
But you need not to worry about the document submission. Just send us the scanned copy through e-mail or in person, and we will take care of the rest.
Many partners are in a state of confusion whether they need to get the partnership firm registration done or not.
No, registration of a partnership is not mandatory. However, the firm should be registered if a partner wants to lodge a complaint or sue another partner. Moreover, for the partnership to bring any suit to the court, it is quite necessary for the partnership firm to get registered.
Is the partnership firm liable for the wrongful act of one partner?
Yes. The partnership firm is liable for the wrongful act or fraud which causes loss or damage to any third parties.
What is a partnership at will is all about?
When the partnership deed does not contain any clause or a provision for the duration of neither the partnership nor it has specified the conditions for the termination of the partnership firm, situations like this is termed as a partnership at will.
A partnership firm can be closed or dissolved by an agreement among all the partners as per the Section 40 of Indian Partnership Act of 1932. It allows the dissolution of a partnership firm if all the partners agree to terminate it. As a partnership firm is created by an agreement similarly it can be dissolved by an agreement too.
By the way, have you ever analyzed there are different modes of dissolution of a partnership firm?
This is one aspect where one needs to focus on. Following are the modes of dissolution of a partnership firm:
- Dissolution by Agreement
- Compulsory Dissolution
- Dissolution Due to the Happening of Certain Contingencies
- Dissolution by Notice of Partnership at will
- Dissolution by the Court
Hope this article must have been useful to you in one way or the other. Due to easy incorporation, it remains the most preferred choice for businessmen looking to save their precious time and hard earned money. Partnership registration brings in more credibility to your business ventures.
Do you know that partnership firms are formed by drafting a Partnership Deed among the partners and Aavana can help start a partnership firm registered not just in Bangalore but anywhere in India?
Aavana Corporate Solutions is one of the emerging business platforms with a progressive concept, which help clients with end-to-end financial services under a single roof. Our services extend from company registrations in India to filing compliances in an easy, seamless, cost-effective and efficient manner.