Partnership Registration

Advantages

  • Limited Liability Protection
    to Director's personal assets
  • No requirement of Audit
  • Lower Registration Cost
  • Separate Legal Entity
  • Less Procedural Compliances

Minimum Requirements

  • Minimum Two Partners
  • DIN of the Partners
  • No Minimum Capital required
  • DSC of one of the Partner
  • One Partner shall be Indian resident


Meaning of Partnership Registration

In India, Partnership Act, 1932 lays down the definition and regulations for Partnership Firm and the provisions of this act (under section 4) defines partnership as - “An agreement between persons who have agreed to share profits of the carried on by all or any one of them acting for all.”

When two or more persons have the same business idea and they wish to work together to turn that idea into reality, they get into partnership by incorporating a partnership firm. So, Partnership is combined ownership of a business between two or more people. Like a sole proprietorship, there is no legal separation between the business and the individual partners. The partnership is formed by an agreement among the partners in which all the terms of partnership is discussed.

The Registration of a partnership firm is not compulsory, though it is usually done as registration brings many advantages to the firm. It is optional for partners to set the firm registered & there are no penalties for non-registration but it is always advisable to get the registration done as it bestows a legal existence and avoid conflicts in future. Partnership Registration is done on their respective state websites. LLP is one of the easiest types of businesses to incorporate & manage and it integrates the advantages of a Partnership Firm and a Company.

Features of Partnership Firm

Advantages of Partnership Registration

  • Quick Response & Decision-making- Each partner can act independently on behalf of other partners, which enables the business to respond quickly to problems by lowering the amount of bureaucracy involved in decision-making.
  • Profits in Predetermined Ratio- Profits are passed directly to each partner following their Ratio under the partnership agreement. Each individual is then taxed normally on his portion of the partnership’s profits.
  • Low Commencement Cost & Lesser Formalities- Partnerships have low startup costs, few formalities & limited external regulation. Partnership firms are easy to establish at a low cost.

Is it necessary to Register a Partnership Firm?

According to the Indian Partnership Act, 1932 which governs the partnerships, Registration of partnership firms is optional and at the discretion of the partners. Registration of partnership firms may be done at any time – before starting a business or anytime during the continuation of the partnership.

It is always advisable to register the firm since registered firms enjoy special rights which aren’t available to the unregistered firms.

Documents Required For The Registration Of A Partnership Firm

If the registrar is satisfied with the documents, he will register the firm in the Register of Firms and issue Certificate of Registration.
Register of Firms contains up-to-date information on all firms and can be viewed by anybody upon payment of certain fees.

Process of Partnership Firm Registration

The process of Partnership Firm Registration includes a series of steps. These steps are as follows:

  • 1

    Selection of the name for the partnership Firm

  • 2

    Creation & Attestation of Partnership Deed or Agreement.

  • 3

    Registration on the portal as prescribed by the concerned states

  • 4

    Application for PAN after registration of the firm.

  • 5

    Initiation of current account and commencement of business.

Wrapping up

The role of Partnership firms is indeed critical for those with dreams of start-ups and profit & loss sharing. At one extreme, Partnership firm combines the fund of each partner and forms a big source of investment and at another extreme, it divides the risks, losses & uncertainties among the partners. Similarly, profits are dispersed among the partners in a certain predetermined proportion.
Therefore, to avoid conflicts over profit-sharing, decision making, loss bearing on later stages, a duly stamped partnership deed must be prepared and the Partnership firm must be legally registered. Registration of a partnership firm is very important yet very easy that requires only a few lawful formalities.

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FAQs on Partnership Registration

No. it is not necessary to register partnership firm but if not registered it leads to the following consequences:

  1. one cannot sue one partner against the another partner or against the firm and vice versa in the court to claim right.
  2. The Partnership firm cannot sue third party in the court of law for the enforcement of it’s right.

There is no minimum capital criteria for forming on of a Partnership Firm. It can be started with any amount of contribution by the partners as capital. The Partners have the option contribute in any amount agreed or/and in any form being tangible (cash, premise) or intangible (goodwill, intellectual property). The Partners may introduce capital in any ratio, equal or uneven.

A partnership firm can be formed with only two partners by following the process as described above. Further, the Partners to the firm must be an Indian resident and citizen. Non Resident Indian and Persons of Indian Origin can invest in a Partnership only with prior approval of the Government. The individual must be competent to contract and should not be a minor. A minor can be admitted only for profit.

  • Quick Response & Decision-making- Each partner can act independently on behalf of other partners, which enables the business to respond quickly to problems by lowering the amount of bureaucracy involved in decision-making.
  • Profits in Predetermined Ratio- Profits are passed directly to each partner following their Ratio under the partnership agreement. Each individual is then taxed normally on his portion of the partnership’s profits.
  • Low Commencement Cost & Lesser Formalities- Partnerships have low startup costs, few formalities & limited external regulation. Partnership firms are easy to establish at a low cost.

No, it is not necessary to have partnership deed for partnership registration . As the contract act does not mandates to have the agreement in writing. However, it is always wise to make a partnership deed in order it to produce to the bank, income tax authorities and to the clients with whom the partnership firm deals. Apart from them a written partnership deed is necessary serving as a reference document also helps in reducing conflict & confusion in due course of time.

The Partners must be major (i.e. who are above the age of 18), should be sane and should also not be disqualified by law from entering into a contract.

A minor can be admitted to the benefits of partnership, has also has the option to become a partner within six months of attaining majority i.e. 18  years generally and 21 years in case of adoption. He has to give a public notice stating his the acceptance or rejection of partnership. In the absence of any notice, it is considered that he has become a partner of the firm.

As a partner one cannot do the below mentioned things without the consent of the other partners:

  • Submit a dispute relating to business to arbitration pannel;
  • Opening a bank account on behalf of the firm in your own name;
  • Compromising or relinquishing any claim or the portion of a claim of the firm;
  • Withdrawing a suit or proceeding filed on the behalf of firm;
  • Entering into a partnership with an outsider on behalf of the firm
  • Acquiring or transferring an immovable property belonging to the firm;
  • Admitting any liability in a suit or the proceeding against the firm.

Yes, a partner can transfer his/her interest in the business to an outsider but he/she can only do with the consent of all other partners.