The Indian Partnership Act, 1932, Section 4, defined partnership as “the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all”. The persons who own the partnership business are individually called ‘partners’ and collectively they are called as ‘firm’ or ‘partnership firm’. The name under which partnership business is carried on is called ‘Firm Name’. It is one of the most popular forms of entities through which business is carried on by the people in India.
Partners share the profits and losses of the business in the ratio, as per the mutual agreement. In comparison to Limited Liability Partnership (LLP) firms, the liability in case of partnership firms is unlimited i.e. if the assets of the partnership firm fall short to meet the firm’s obligations, the partners’ private assets will also be used for the purpose.
A partnership firm may be established by way of an oral contract or a written contract. However, it is always advisable to form a written contract and the same should be registered with the registrar.
Partnership firm can come into existence based upon the oral or a written agreement. The registration of a partnership is desirable, but not obligatory.
Since the partners of the firm are contributing to the common pool of resources, thus they have higher pool of capital available at their disposal that can be used to expand business operations.
The partners can easily expand their capital base or change the profit sharing ratio or any other clause of partnership agreement, without much of legal hassle.
Share of profits from partnership firm is exempt in the hand of the partners unlike in case of Companies under which dividend exceeding Rs. 10 lakhs is taxable in the hands of the shareholders.
Obtaining documents from Clients
Drafting the Partnership Deed
Registering the Partnership Deed with the Registrar
Applying for PAN and other registrations, as applicable
Partnership is an agreement between two or more people to share the profits of a business. The business can be carried on together by all the partners or any one partner representing the others. A partnership can be for a fixed period of time or it may be limited to a specific project or it may be dissolved at will.
Partners must be major (above the age of 18), should be sane and should not be disqualified by law from entering into a contract.
No, it is not required to have minimum capital to form a Partnership firm.
No. Not necessary. Profit sharing ratio is decided as per the mutual agreement between the partners.
It can come into existence both with the help of written as well as oral agreement however it is always advisable to have a written agreement in place to avoid any future disputes.
Yes. If the number of partners is more than 20, it has to be registered as a company.
It is not necessary however it is always advisable to get the partnership firm registered to make it legally enforceable.
The profits arising during the business carried out by partnership firms are taxed at the flat rate of 30% as increased by surcharge (if applicable) and education cess. The profits of the firm are exempt in the hands of the partners.