Partnership form of business is an easy and simple way to get into the business and it is an easy way for a good start-up. As compare to Sole Proprietorship, a partnership is a better form of business.
As per section 4 of the partnership act 1932, the partnership is the relationship between persons who have shared the profits of a business carried on by all or any of them acting for all. The one who has entered into a partnership with another are called individually, "partners" and collectively "a firm", and the name under which their business is carried on is called the "firm-name"
The partnership consists of three essential elements mentioned below:
a. There must be an agreement between proposed partners
b. An agreement must be built to share the profits obtained from business
c. Business must be run by all or any of them representing all.
Following are the minimum legal requirement to incorporate a partnership firm:
a. There must be at least two partners to form a partnership firm.
b. There must be an agreement between the partners. The agreement can be written or oral.
c. The agreement must be with a motive of Sharing of profits. The agreement must be made with a motive to share profits, however, it is advisable that the agreement should clearly define the ratios in which profits and losses of the firm will be shared amongst the partners.
a. Easy to setup
b. Minimum compliance to be fulfilled
c. Profit and loss is shared between two or more person
d. Division of Risk and liability between partners.
e. Two heads are always better than one.
f. Greater borrowing capacity
g. Freedom to choose the name of your business
h. Partnerships are easy to manage and enjoy liberal compliance requirements
Any name can be given to a partnership firm, as long as the following conditions are fulfilled:
a. the name should not be too much similar or identical with the name of an established company doing the same business.
b. The name does not include terms such as emperor, crown, empress, empire, or anything other than government approval or permission.
Identity and Address Proofs of the Partners
a. PAN card of the Partners
b. Aadhar card of the Partners
Address proof for principal place of business of proposed company (any one)
a. Utility bill like telephone bill, electricity bill, gas bill, water bill
b. Rent agreement with rent slip
c. Proof of ownership
A partnership deed is the essence of a Partnership Firm. It is literally the charter of the partnership firm which governs the operations, changes and other aspects of the firm within the ambit of the law. A partnership deed is an agreement between two or more persons who come together to form the partnership. It should specifically make provisions for rights, duties, profits shares and other obligations of each partner is mentioned. This deed does not necessarily have to be in writing. It may be oral as well. However, it is highly advisable to have a partnership deed in writing and registered with the registrar of partnership to ensure its acceptance as evidence and avoid any complications pertaining to the charter of the firm.
A partnership deed generally comprises of the following elements:
a. Details of the Partners: Name, Address and occupation of the partners;
b. Details of the Firm: Name of the firm, Address of the Firms, business activity to be undertaken by the firm
c. Capital: Details of Capital infused or contributed by the partners
d. Date of Commencement of the business
e. Profit-Sharing: A partnership deed should clearly describe the ratios in which the profits and loses of the firm shall be distributed.
f. Interest Clause: The deed should make provisions for interest on loans given, capital contributed and drawings made by the partners of the firm.
g. Remuneration Clause: The deed should also define the salaries, remunerations, commissions or any other form(s) of payments to be made to the partners.
h. Rights & Duties of Partners: A well-drafted partnership deed should contain provisions clearly defining the rights & duties of all the partners of the firm, whether active or inactive.
i. Changes in Partnership: The processes to be followed in case of changes in the structure of partnership or business of the partnership shall be provisioned in the deed. The deed should also define the process to be undertaken in case of retirement, cessation, death or induction of any partner in the firm.
As per the Partnership Act 1932, the registration of a partnership company is not compulsory. The firm does not have a separate legal identity and the registration does not alter that fact. Nonetheless, registration is a direct proof of the life and legitimacy of the company.
The non-registration of a corporation has certain real-life legal implications for the investors and the business itself. It is therefore often best to draw up a formal relationship contract and to register the company with the Registrar of Firms. The effects of not doing so are as follows:
a. The Firm can not, under any circumstances, lodge court lawsuits against third parties. For example, if the client would not pay the company's fees, the firm would not be able to sue him if it is unregistered.
b. An unregistered firm cannot sue a partner in case of mismanagement, theft or any act prejudicial to the business.
c. The partners can file suits against each other in case of any wrongful act by the other.
It is not compulsory to register a partnership deed nor there is any time-limit prescribed by the Partnership Act 1932 regarding registration of a Partnership firm. It may be registered any time on or after the day of its formation. Following are the steps involved in the registration of partnership deed with the registrar of Partnership of the Respective State:
STEP 1: Selection of Name:
You should choose a name that does not imitate any other registered name or does not use terms that break any rule. Search the available name that MCA for a safer side in the event that your name is not already registered. You may also receive a trademark name and logo for legal protection.
STEP 2: Drafting & Finalisation of Partnership Deed:
The partnership deed should be carefully and meticulously drafted and signed by both the partners once they mutually agree to the terms of the partnership. The deed should contain all the details mentioned above. The deed should be printed on stamp paper of appropriate amount of stamp duty in accordance with the Stamp Duty Laws of the respective state.
STEP 3: Notarizing of Partnership Deed
On execution of the deed, the same shall be attested by a notary public after examining the deed and stamp duty paid on the partnership firm.
STEP 4: PAN Application
Post the attestation of the partnership deed, the partners should apply for the PAN of the partnership deed, in compliance with the Income Tax Laws of India. A partnership firm is not considered to be different from its partners, yet, it is advisable to obtain a separate PAN for the firm apart from the partners.
STEP 5: Application for Registration
Apllication for registration of partnership firm should be carefully drafted and should contain all the relevant details regarding the partners, partnership firm, business activities, address of the firm, commencement date of the firm. Theis application hall be signed by both the partners and notarised.
STEP 6: Submission of the Application
Post the attestation of the application by notary public, the Application for registration shall be submitted with the registrar of Partnership along with the following attachments:
a. Certified copy of Partnership Deed
b. PAN of the firm
c. Proof of registered office of the firm (Registry, Lease deed, Rent agreement, etc)
d. ID and address proof of all the partners
e. An affidavit declaring and certifying the accuracy of the particulars of the application.
STEP 7: Fees & Stamp Duty
The process of submission of application is complete only after submission of the form along with the respective stamp duty and prescribed registration fees. In India every state has the right to prescribe its own provision pertaining to fees & stamp duty for registration of a partnership firm.
STEP 8: Issuance of Registration Certificate
The Registrar meticulously examines the application for defects or incompleteness. Once the registrar is satisfied that the application if complete in all aspects, He/She issues the Certificate of Registration of Partnership. The Certificate if sent on the email of the partners and also to the registered office of the Firm.
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