A Partnership is one of the most important forms of a business organisation, where two or more people come together to run a business and divide the profits thereof in an agreed ratio
A partnership is a type of business organization in which two or more people come together to run and operate a Firm in accordance with the conditions and purposes set out in the partnership deed.
Partnership deed is an agreement between the partners in which rights, duties, profits shares and other obligations of each partner is mentioned.
A Partnership is easy to form, and the compliance is minimal as compared to companies.
Indian Partnership Act, 1932 governs the partnerships. Registration of partnership firm is optional and at the discretion of the partners.
By introducing a limited liability partnership (LLP), one may opine that Partnership firms has lost relevance because partners have unlimited liability, which means they are personally liable for the debts of the business which is not in case of LLP.
However, Partnership Firms are preferred since there are low costs of setting up the business and minimal compliance requirements, which makes it a sensible option for home/closed family businesses that are unlikely to take on any debt. Registration with Registrar of firms (ROF) is optional for Partnerships but advisable.
Step 1: Application for Registration of Partnership in Form No. 1
Step 2: Duly filled specimen of Affidavit
Step 3: Certified True Copy of the Partnership Deed
Step 4: Ownership proof of the principal place of business or rental/lease agreement thereof
Step 5: Obtaining Certificate of Incorporation from the Registrar
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|Cost of Formation|
|Around 6k-8k||Around 3k-4K|
|Ministry of Corporate Affairs, Central Government||Registrar of Firms, Controlled by the respective State Government in which the firm is registered.|
|Liability of partner’s|
|Partners are not responsible for other partner’s misconduct||One partner is not responsible or liable for another partner’s misconduct or negligence|
|No. of Partners|
|Minimum 2 Maximum unlimited||Minimum 2 Maximum 100|
|In case of a LLP, if the number of Partners reduces below 2, the sole Partner can still find a new Partner to fill the position without dissolution of the LLP.||In case of a Partnership Firm, if the number of partners at any time reduces below the mandatory minimum of 2 due to death, incapacitation or resignation of a Partner, the partnership firm would stand dissolved.|
Even after the foundation, the Partnership Firm can be registered at any time as per Section 58 of the Indian Partnership Act. A Partnership Firm is registered through the Registrar of Firms (ROF).
A partnership requires at least two partners. Bank partnership companies can have up to 100 partners, while companies operating in other companies can have 50 partners.
Registering a partnership firm is not mandatory but registering with ROF is beneficial for the partners as well as the partnership firm. By registering, firm can get benefits from bankers (at the time of applying loan / Credit facility), a partner can lodge a complaint or sue another partner or the firm itself. The LLP should also be registered so that the partnership can bring suit. However, for small or family businesses, it is fine if a firm is not registered.
Yes. The law assumes that each partner is a representative of the other partner and that dealing with one partner in good faith also binds the other partner.
If the partnership registration certificate does not include the duration of the partnership or the terms of the termination of the same, it is a voluntary partnership.
An individual with contractual skills can become partners of partnership companies. NRI’s also can become a partner in partnership firm subject to some conditions. Even a minor can be a partner in a partnership act however minor may be admitted to the benefits of a partnership.
The following can enter into a partnership:-
» Partnership Firm
» Karta of Hindu Undivided Family,
The transfer of ownership of partnerships is subject to restrictions. Partners may not transfer their interest in the firm to third parties (Excluding existing partners) without the unanimous consent of all other partners.
Yes, a firm can be converted into LLP or PLC by following the procedures laid down in the acts. However, converting a partnership into a company or LLP is cumbersome, expensive, and time-consuming. It is therefore advisable for many entrepreneurs to consider and set up LLP or a company instead of a partnership.