A Partnership firm is a popular form of business entity. The term “partnership” is defined under Indian Partnership Act, 1932, it is not mandatory to register a partnership firm under Partnership Act, 1932. When a partnership firm is registered, the partners can avail various benefits. Partnership firms are created by a deed amongst the partners under Indian Partnership Act,1932.
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What is a Partnership Firm?
A Partnership is one of the most important forms of business organization, where two or more people come together to form a business and divide the profits in an agreed ratio. A partnership is easy to form, and the compliance is minimal as compared to companies. Rights and Duties of partners with each other as well as with the third parties are governed under Indian partnership Act, 1932.
What is a Partnership Deed?
To register a partnership firm, one needs to draft a partnership deed. Partnership deed is a partnership agreement between the partners of the firm which outlines the terms and conditions of the partnership between the partners. A draft is a document that carries the name and address of the partners, the nature of the business, place of business, capital contribution and profit and loss sharing between the partners, remuneration payable to partners, and other agreements made between the partners.
Eligibility to enter into partnership
The following can enter into a partnership:
- Individual: An individual who is competent to contract, can become a partner in a partnership firm
- Firm: A partnership firm is not a person and therefore a firm cannot enter into partnership with any firm or individual but its partner can enter into a partnership with another person.
- Hindu Undivided Family: A Karta of the Hindu undivided family can become a partner in a partnership firm in his individual capacity.
- Company: A private limited/ public limited company being an artificial legal person can be a partner in a partnership firm, if it is authorized to do so by its objects.
- Trustees: Trustees of private religious trust, family trust and trustees of Hindu mutts or other religious endowments are juristic persons and can therefore enter into a partnership firm, unless their constitution or objects forbid.
Documents required to apply for partnership deed:
- Cover Letter
- PAN Card
- Proof of residential address
- Passport size photographs
- Aadhar Card
Registration of Partnership Deed:
All the rights and responsibilities of each member are recorded in the document known as a Partnership Deed. Essential elements of a partnership deed are described below:
- The name of the firm
- Name and addresses of the partners
- Nature of the business
- The term and duration of the partnership
- The amount of capital to be contributed by each partner
- The drawings that can be made by each partner
- The interest to be allowed on capital and charged on drawings
- Rights of partners
- Duties of partners
- Remuneration of partners
- The method used for calculating goodwill
- Profit and loss sharing ratio
Features of Partnership Firm:
- Number of partners: In case of a partnership firm carrying on a banking business, the maximum number of persons a firm can have is 10. In case a partnership firm is carrying any other business, the number of partners should not exceed 20.
- Agreement: The partnership is a result of a contract or an agreement that is entered into between or among the partners. The contract or agreement between the partners may be oral or writing but usually it is in writing.
- Lawful Business: Partnership business should be as per law of land. Association formed for conducting illegal actions like theft, black marketing and smuggling cannot be called a partnership.
- Profit Sharing: The main object of partnership is to make profit and share the profits as per agreed ratio. The non-profit making organisation cannot be called a partnership.
- Unlimited Liability: In a Partnership firm, all partners are collectively responsible for the payment of liabilities of the firm, they shall have unlimited liability and even their personal property can be utilised for recovery of debts of the firm.
- Non-transferability of Interest: There is a strict restriction on admission and retirement of any partner. Any changes concerning the partners are done as per the agreement, and or with the consent of all partners.
Steps for Registration of Partnership Firm
Step 1: Select a Name
Select any name as per the discretion of partners. Selected name should not be identical or similar to the name of the already registered firm.
Step 2: Partnership Deed
The duly signed copy of the Partnership Deed (which contains all the terms and conditions) must be created.
Step 3: Submit an application to Registrar
An application form along with specified fees has to be paid along with the necessary documents to be submitted to the registrar:
- Form-1 for applying for registration
- Duly filled specimen of an affidavit
- Certified original partnership deed
- Proof of address of firm
Step 4: Certificate of Registration
If the registrar approves an application after scrutinizing an application and all the documents, he will register the firm and issue a Certificate of Registration.