Partnership refers to ‘relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all’. The one that gets established after entering into a contract is ‘partnership firm’ and the ones joining hands become partners. Business is carried out under firm’s name. Partnership firm registration in India needs certain rules and regulations to be followed under Partnership Act 1932.
For Limited Liability Partnership advantages and disadvantages are there and one needs to choose wisely which form of business he needs to opt for. In addition, if one does not want to disclose any secret of his business idea he can plan to start a One Person Company.
But if someone plans to start a Limited Liability Partnership, he can enjoy the benefits of limited liability.
Key Characteristics Of Partnership Firm.
Two or more Persons
Sharing Of Profit
General Partnership: Here, the liability of each partner is unlimited which means that the firm’s creditors can realize their dues in full from any of the partners by attaching their personal property in case the firm’s assets are found to be inadequate to pay off its debts.
Limited Partnership: In this, some partners have their liabilities limited to the amount of capital contributed by each. The personal property of a limited partner is not liable for the firm’s debts. However, this limited partner cannot take part in the management of the firm.
So now, the question is how to register a partnership firm in India. A set of steps need to be followed for this.
How to Start a Partnership Firm in India
(Formation of Partnership firm Rules and Steps)
A partnership firm can be registered whether at the time of its formation or even subsequently. What we need to do is just need to file an application with the Registrar of Firms of the area in which your business is located.
Application of Registration of Partnership in Form No. 1 for partnership registration in India
Duly Filled Specimen of Affidavit
Certified True Copy of the Partnership Deed
Ownership proof of the principal place of business or rental/lease agreement thereof
a. There must be an agreement between two or more persons.
b. The agreements must be to share the profits of the business.
c. All partners together, or any one on behalf of the others must carry on the business.
The partners can actively participate in the business and share the profits or losses of the business. A partner can inspect and make copies of the books of the firm & receive interest on capital if specified in the partnership deed.
To form a partnership firm in India, there is a minimum requirements of 2 persons and maximum of 20 with a common motive of sharing profit.
There is no minimum capital requirement for partnership firm in India unlike private limited company.
It is not compulsory for a partnership deed to be in writing. Partnerships can also be oral.
The income earned by the partnership is only taxed at the individual level. Income earned by a corporation, is taxed at the corporate level and then the individual level when that income is distributed to shareholders.
Yes, a partner can transfer his interest in the business to an outsider but only with the consent of all partners.
A partner can nominate a successor to take his place in the event of death or retirement of the partner. The mode of introducing a new partner or successor is based on provisions in the partnership deed.
A partnership firm can be dissolved at any time if all the partners decide to dissolve it. This is known as dissolution by consent.
Yes, it is necessary to give a public notice at the time of dissolution otherwise the partners remain liable to third parties for their actions, even after the dissolution.
Compare your alternatives
Below is the comparison between Sole proprietorship, Partnership, Private Limited Company, Limited liability partnership, One person company and Public limited company
Small manufacturers and traders
Professional services firm
2 Shareholders / Directors
1 Director and 1 nominee
Few tax benefits
Few tax benefits
Few tax benefits
Allowed with prior approval of RBI and FIPB approval