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Traditional Partnership Firm
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 determined by them as per the mutual agreement. Apart from 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 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.
Benefits of Partnership firm:
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Easy to form:
Partnership firm can come into existence based upon the oral or a written agreement. Though, the registration of a partnership is desirable, but not obligatory.
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Higher Combined capital:
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 their business operations.
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Flexibility in 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.
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Taxation benefits:
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 shareholders.
Procedure of registration of Partnership firm:
Obtaining documents from Clients
Drafting the Partnership Deed
Registering the Partnership deed with the Registrar
Applying for PAN and other registrations, as applicable
Documents Required:
- Duly filed in form to be signed by all the Partners of the partnership firm;
- Duly filled in Affidavit;
- Certified True Copy of the Partnership deed;
- Ownership proof of place of business or Copy of rent agreement, as the case may be.
- Copy of PAN cards of the Partners
FAQ’s on Partnership firm:
1) What is a Partnership firm?
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.
2) Who can be partners?
Partners must be major (above the age of 18), should be sane and should not be disqualified by law from entering into a contract.
3) Is there any minimum capital requirement to set up a Partnership firm?
No, there is no requirement to have minimum capital to form a Partnership firm.
4) Is it necessary that the profit sharing ratio should be in line with capital contribution by each partner?
No. Not necessary. Profit sharing ratio is decided as per the mutual agreement between the partners.
5) Should Partnership deed be evidenced by a written agreement or an oral agreement?
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.
6) Is there a limit on the no. of partners in the Partnership Firm?
Yes. If the number of partners is more than 20, it has to be registered as a company.
7) Should a partnership firm be registered?
It is not necessary however it is always advisable to get the partnership firm registered to make it legally enforceable.
8) What is the current rate of tax for Partnership firms?
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.
Other auxiliary services provided by us with regard to setting up of business:
- Obtaining DSC for the Partners;
- Opening of the bank account for the firm;
- Applying PAN and TAN of the firm;
- Registration under GST/ service tax/ VAT/ Excise/ PF/ ESI;
- Review and maintenance of records as required under GST/ service tax/ VAT/ Excise/ PF/ ESI;
- Applying for Import/ export code;
- Assisting the clients in getting loans from the bank;
- Book-keeping services;
- Filing of TDS/ GST/Service tax/ VAT/ Excise returns;
- Computation of income tax and filing of Income tax returns;
- Assisting in finding CA’s/ lawyers/ CS and other solicitors for your work;
- Registration of Copyrights, trademarks and patents.