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Partnership Firm
What is Partnership Firm?
In a partnership firm, two or more individuals participate in the management and operation of the business intending to share profits and responsibilities. The Indian Partnership Act of 1932 governs the partnership.
Types of Partnership Firm
- Registered Partnership Firm.
- Non-Registered Partnership Firm
Key Features of Partnership Firm
- Members: Partnership firms can have a minimum of 2 partners and a maximum of 50 partners as per Companies Act 2013.
- Agreement: A Partnership Firm is built on a partnership deed which shows roles and responsibilities and profit sharing ratio.
- Liabilities: Partnership Firms have unlimited liabilities to the partners and personal assets can be used in the liabilities of business.
- No Separate Legal Entity: A partnership firm is not a different entity from its partners, partners and partnership firm is the same entity.
- Taxation: Taxes are applicable in partnership according to separate entities under the Income Tax Act of 1961.
Types of Partnership Firms
- General Partnership: All the partners have unlimited liabilities and share responsibilities.
- Limited Liability Partnership (LLP ): LLP is a separate structure governed by the LLP Act 2008, where partners have limited liabilities.
- Active Partners: Active partners are those partners who participate day to day operation in partnership activity.
- Sleeping Partners: Sleeping partner contributes in capital and share profit and loss but not engaged in daily operations.
- Registered Partnership Firm: Registered Partnership Firm is a business entity formed by two or more partners and officially registered under the Indian Partnership Act, 1932, with the Registrar of Firms (ROF).
- Non-Registered Partnership Firm: Non- Registered partnership Firm is a business formed through an agreement between partners but not registered with the Registrar of Firms.
Benefits of a Partnership Firm
- Easy to Start & Register – Minimal compliance and simple agreement-based formation.
- Low Cost of Formation – Requires less investment compared to companies.
- Shared Decision-Making – Workload and responsibilities are distributed among partners.
- Better Financial Resources – More capital as multiple partners contribute funds.
- Flexibility in Operations – Less regulatory burden compared to LLPs or companies.
- Profit & Loss Sharing – Partners share both risks and profits.
- Minimal Compliance – No mandatory audits, fewer legal formalities than companies.
- Tax Benefits – Taxed as per the partnership’s income, avoiding corporate tax rates.
Procedure for Registering a Partnership Firm
- Choose a Business Name:
- Select a unique and legally compliant name.
- Ensure it is not already registered.
- Draft a Partnership Deed:
- Define business details, partner roles, and profit-sharing ratio.
- Include capital contributions, dispute resolution, and dissolution rules.
- Execute on stamp paper and get it signed by all partners.
- Obtain Registration Certificate:
- Upon approval, receive the Certificate of Registration as legal proof of the firm’s existence.
- Apply for PAN & TAN:
- Obtain a Permanent Account Number (PAN) for tax purposes.
- Get a Tax Deduction and Collection Account Number (TAN) if required.
- Open a Business Bank Account:
- Use the firm’s PAN and registration certificate to open a dedicated business bank account.
- Register Under GST (If Required):
- If turnover exceeds ₹40 lakh (₹20 lakh for service businesses), apply for GST registration.
- Choose a Business Name: