Partnership Firm

A Partnership firm is a business entity created by persons who have agreed to share profits or loss of the business. Partnerships are a very good choice of business entity for small enterprises wherein two or more persons decides to contribute to a business and share the profits or losses. In India, Partnerships are widely prevalent because of its ease of formation and minimal regulatory compliance. Also, the concept of LLP was introduced only in 2010, whereas the Partnership Act, 1932 has been in existence before the independence of India. Hence, partnership firms are the most prevalent type of business entity wherein a group of people are involved.

Advantages and Disadvantages of Partnership Firm

Advantages

Disadvantages

Shared Responsibilities

The partners in a partnership firm share the responsibility to work and manage the business together. Responsibilities for a particular field or task can be assigned to one or more partners by indicating the same in a Partnership Deed.

Operational Flexibility

A Partnership firm is operated on the basis of the Partnership deed executed by the partners, mutually. However, the Deed can be changed according to the requirement even after it is registered. There are no limitations or restrictions on the partners in regards to running the business, if covered by the signed agreement.

Minimal Compliance

Registered/unregistered Partnership Firms are not required to file any annual returns, & financial statements of a partnership firm would not be made publicly available. Also, unlike an LLP, the accounts of a partnership firm are not required to be audited.

Financial Returns for Partners

Partners involved with the firm get various types of returns for their capital as well as their individual efforts. The working partner also receives remuneration in addition to the interest on capital and share of profit, as may be agreed by the partners.

Liability Protection

A partnership firm does not provide the partners with limited liability protection. Consequently, the partners would be held personally liable in case of any loss or liability.

Transferability

Any license or registration obtained in the name of the partnershipcannot be transferred to any other person or entity.

Lifespan

Partnerships do not have perpetual existence. This is because existence of the partnership is tied to the partners & it would cease to exist when partners dissolve the partnership.

Fundraising

A partnership cannot raise equity funds from angel investors, venture capital firms or PE funds. Banks & other Financial Institutions also prefer to lend to Companies than Partnership Firms

Pricing

All Inclusive Pricing - No Hidden Fee

Starter

₹6999
5,999*
  • Partnership Deed Drafting
  • Notary of Partnership Deed
  • PAN Number
  • TAN Number
  • Firm Seal

Business

₹7999
6,999*
  • Everything in Starter Package, +
  • 100 Letterheads and Envelopes
  • 100 Visiting Card/Partner
Bestseller

Premium

₹8999
7,999*
  • Everything in Business Package, +
  • Deed Registration
  • TDS returns for 12 Months

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Documents required to register a Partnership Firm

PAN Card

A self-attested copy of PAN Card of all partners

Partner Address Proof

Self- attested copy of Aadhar Card and  Voter ID/ Passport/ Driving License of all partners

Address Proof

Latest(No Less than 3 months old) Telephone Bill /Electricity Bill/ Bank Account Statement of Partners.

Photograph

Latest Passport size photograph of Partners.

Business Address Proof

Latest Electricity Bill/Telephone Bill of the place of business.

Rent Agreement

Rent Agreement of the registered office should be provided, if any

NOC from Owner

No Objection Certificate to be obtained from the owner(s) of place of business, if rented

Attestation by Gazetted Officer

Documents of partner(s) must be attested by a gazetted officer.

4 Easy Steps to Register a Partnership Firm

Step 1: Submit the Information
Submit the information and documents required for registration of partnership firm
Step 2: Drafting of the Partnership Deed
After the documents and information are verified, a partnership deed will be drafted and sent to the Partners.
Step 3: Sign the Partnership Deed
All the Partners must sign the partnership deed, printed on stamp paper and send a copy to us.
Step 4: Registration of Partnership Firm
After, the signed partnership deed is available - it is registered with the concerned Registrar of Firms and Certificate of Registration of Partnership Firm is provided
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How to Create a Company Name

Unique Name

A unique name helps to recognize the Partnership distinctly and build brand value

Business Objective​

The second part of the name should suggest the business activity of the firm

Constitution Type​

The name should not be unnecessarily long and should be simple to spell and remember.

Frequently Asked Questions about Partnership Firm

The Partner must be an Indian citizen and a Resident of India. Non-Resident Indians and Persons of Indian Origin can only invest in a Proprietorship with prior approval of the Government of India.

The Partner must be an Indian citizen and a Resident of India. Non-Resident Indians and Persons of Indian Origin can only invest in a Proprietorship with prior approval of the Government of India.

There are restrictions on the transfer of ownership interest in a Partnership firm. A Partner cannot transfer his/her interest in the firm to any person (except to the existing partners) without the unanimous consent of all other partners.

No, a Partnership firm has no separate legal existence of its own i.e., the Partnership firm and the partners are one and the same in the eyes of law. Liability of the Partners is also unlimited, and the partners are said to be jointly and severally liable for the liabilities of the firm. This means that if the assets and property of the firm is insufficient to meet the debts of the firm, the creditors can recover their loans from the personal property of the individual partners.

Indian Nationals and Indian Residents are allowed to invest in a Partnership firm without any approval. Usually those who invest in the Partnership firm become a Partner of the firm and in the absence of any agreement to the contrary, all partners will have a right to participate in the activities of the business.

Yes, there are procedures for converting a Partnership business into a Company or a LLP at a later date. However, the procedures to convert a Partnership firm into a Company or LLP are cumbersome, expensive and time-consuming. Therefore, it is wise for many entrepreneurs to consider and start a LLP or Company instead of a Partnership firm.

There is no limit on the minimum capital for starting a Partnership firm. Therefore, a Partnership firm can be started with any amount of minimum capital.

PAN Card for the Partners along with identity and address proof is required. It is recommended to draft a Partnership deed and have it signed by all the Partners in the firm.

If the Partnership firm is registered, the Partnership deed will be registered and a Registration Certificate will be issued by the Registrar of Firms.

Only a registered Partnership firm can file a suit in any court against the firm or other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act. Also, only a Registered Partnership firm can claim a set off (i.e. mutual adjustment of debts owned by the disputant parties to one another) or other proceedings in a dispute with a third party. Hence, it is advisable for Partnership firms to get itself registered sooner or later.

To open a bank account for a Partnership firm, a registered Partnership deed along with identity and address proof of the Partners need to be provided.

Partnership firm will have to file their annual tax return with the Income Tax Department. Other tax filings like GST filing may be necessary from time to time, based on the business activity performed. However, annual report or accounts need not be filed with the Ministry or Corporate Affairs, which is required for Limited Liability Partnerships and Companies.

It is not necessary for Partnerships to prepare audited financial statements each year. However, a tax audit may be necessary based on turnover and other criterion.

We help you start your partnership firm after understanding your business requirements and drafting the Partnership deed. We also help register the Partnership deed with the relevant Authorities to make the Partnership Firm a Registered Partnership firm.

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Comparison Between Various Business Structures

Act

Companies Act, 2013

Companies Act, 2013

Limited Liability Partnership Act, 2008

Indian Partnership Act, 1932

No specified Act

Registration Requirement

Registration under Companies Act is mandatory

Registration under Companies Act is mandatory

Registration under LLP Act is mandatory

Unregistered partnerships are legal, but registered entity enjoys certain advantages

There is no registration criteria prescribed. But, registration is recommended

Number of members

Minimum 2 and not more than 200 shareholders

Only an individual,and an Indian resident can be the shareholder

No bar on maximum number of partners, but minimum 2 Designated Partners are required

It is formed with minimum 2 partners, but not exceeding 50

Proprietor is the only owner of the firm

Separate Legal Entity

Yes. It is a separate entity and can own assets in its name.

Yes. It is a separate entity and can own assets in its name.

Yes. It is a separate entity and can own assets in its name.

No. It does not have any separate identity from its partners 

No.  Proprietor and business are considered the same

Liability Protection

Limited up to the total value of shares subscribed

Limited up to the total value of shares subscribed

Limited up to the capital amount agreed to introduce

Partners are jointly and severally liable to pay the debts of the Partnership Firm

Proprietor’s liability is to pay-off all the debts and obligation of the firm

Statutory Audit

Auditor must be appointed within the 30 days of incorporation

Auditor must be appointed within the 30 days of incorporation

Applicable when turnover exceeds INR 40 Lakh or contribution exceeds INR 25 Lakh

Statutory audit not applicable. Tax audit may be applicable based on turnover

Statutory audit not applicable. Tax audit may be applicable based on turnover

Ownership Transferability

Shares can be transferred with the consent of other Shareholders

Shares are not easily  transferable 

Ownership can be changed with consent of other partners

Ownership is not transferable easily, clause of partnership deed should be referred

Firm is no different from proprietor and so ownership is not transferable

Uninterrupted Existence

Yes. Perpetual existence as the management and owners are different. Ownership is easily transferable

Yes. The nominee will take place of member.

Change in Partners or Designated Partners does not affect the existence of LLP

Change in partner leads to dissolution or formation of another partnership firm

Death or insolvency of proprietor directly affects the firm

Foreign Participation

Foreign national are allowed to invest under the Automatic Route

Member, nominee and director must be an Indian resident

Foreign nationals are allowed, subject to FDI Guidelines

Foreign nationals are not allowed to be a partner

Foreign Nationals cannot commence proprietorship business

Tax Rates

Moderate. Tax rate applicable for small companies is reduced to 22%, dividend distribution tax applicable

Moderate. Tax rate applicable for small companies is reduced to 22%, dividend distribution tax applicable

High. With tax rate of 30% on business profit, no tax on income distribution to partners

High. With tax rate of 30% on business profit, no tax on income distribution to partners

Low. Tax rates of individual applied to Proprietorship Firm

Statutory Compliances

High. Companies have to meet high compliance requirements 

High. Companies have to meet high compliance requirements 

Moderate. Lesser compliance requirements compared to companies

Low. Separate ITR of partnership is filed, else there is no filing requirement

Low. No compliances and no requirement to file a separate ITR