Partnership Firms - The Important Features
Posted on: 2018-01-21 22:03:29
In India the Indian Partnership Act, 1932 governs the partnership firms. A partnership firm has been defined clearly in Section-4 of the act where a partnership has been said to be the relation between individuals who have consented to sharing the profits accrued from a business. By definition, this essentially must be a business where they are all involved to various extents.
Thus, if we go by the above definition, there are five things that should definitely be there in a partnership firm – a contract; the contract should be between at least two people; they should agree to do business together; they should have the common aim of sharing the profits; and they should all be involved in that business.
Contract for a partnership
Any and every partnership happens because there is a contract to that end. It does not happen because of factors such as status, inheritance, or operation of any law as such. This means that in case a partner in such a company passes away his or her daughter and son can definitely lay claim to a certain share in the property owned by that partnership but cannot become a partner immediately. For that she or he needs to enter a similar agreement that her or his deceased parent signed on.
The maximum number of partners in such a company
Normally, the highest number of people that can be there in a company such as this one is 20. A partnership is basically the aftermath of a contract and as such you need a minimum of two people to start one.
There is nothing mentioned as such in the Indian Partnership Act, 1932 regarding the highest number of people that can be there in a partnership.
However, the Companies Act has stated that you cannot have more than 10 people in case of a banking business and more than 20 in case of all other kinds of businesses.
Advantages of a partnership firm
One of the biggest advantages in a partnership is that the risk factor is always divided since there are plenty of people involved in the same. It is always easier to establish a startup as such since it does not cost you a whole lot of money to start one. Since there are more people pooling in money in a partnership; such a firm always has easier access to capital. It is also easier to borrow as a partnership because the capacity is much better.
With a partnership you can easily make a highly skilled employee your partner. There is always the possibility that you would be able to split your earnings. As a result of this a partnership is able to get tax related benefits as well.
How to register a partnership firm?
The first thing that you need to do in this regard is choose a name for your partnership firm. The next step is choosing a partnership deed or agreement. For this you can seek the help of professionals who specialize in work such as this.
The third step that you need to take in order to register a partnership company is to apply for a PAN (permanent account number) card, which will be issued in the name of your partnership firm. Once you get a PAN card, as well as the registered partnership deed, you need to open a current bank account for your partnership company.
There are certain documents that come in handy in cases such as these. The first of them is copy of an address proof cum ID card such as PAN card, Aadhaar card, voter ID card, and driving license of the partners.
Steps are taken for partnership firm registration in India
Here are the key steps we took to register a Partnership Firm in Bangalore, Karnataka or any other cities in India; to accomplish this, you need to follow the below 4 steps:
- Select Your Partnership Firm Name
- Draft the Partnership Deed/Agreement
- Apply for PAN Card
- Open a Business Current Account
Accordingly, here we explained briefly the steps of partnership registration; take a look over at this for gathering a little knowledge.
Step-1: Choose a Suitable Name of Your Partnership Firm – The partners have the right to choose a correct name for their business, cause they are the owners of the company and before choosing partnership firm name, they should keep it in mind that the name should not be violate the rules and regulations of Indian Partnership Act, 1932; according to the Section 58. And the name should not be identical to the existing one, otherwise it will be crucial to get name approval from District Registrar of Firms.
Step-2: Draft/Form a Partnership Agreement or Deed with the Help of Experienced Consultants – Partnership Dead/ Agreement/ Contract is a primary legal document which carries the objectives of nature of the business, capital contributed by each partner and their rights, roles, responsibilities and obligations to the firm, Managing Partner, registered office address, and etc.
To produce a partnership agreement or deed, you need to visit your nearest regional Sub-Registrar and register the Partnership Deed. Remember, partnership deed has to be notarized and it requires a stamp duty. The minimum value of stamp duty for partnership agreement/deed in Bengaluru Karnataka is Rs. 2000 and it varies from state to state as per their States Government Rules.
After verifying all the details of the Partnership Deed and partners documents, if the Registrar is being satisfied with your novelty then he shall enter your record of statements into Register of Firms and issue an acknowledgement of registration for your Partnership Firm, according to the Section-58(1) of the Indian Partnership Act.
The essential characteristics of Partnership Deed Agreement are as follows:
- Minimum number of members is 2 and maximum 20 as Indian Partnership Act.
- Partnership firm it stands on contract as operation of the law or inheritance.
- The partnership firm business should be carried on by al the partners or anyone acting them for all.
- The partnership firm registered to carry on the business and share the profits as per agreed in the partnership deed.
Required below mentioned details while preparing the Partnership Deed is as follows:
- Names of the firm
- Registered Office address of the firm
- Nature of business of the firm
- Address of partners
- Capital contribution by the each partner
- Profit sharing ratio among the partners
- Interest on capital, if any to be paid to partners
- Loans and advances by partners to the firm
- Who is the Managing Partner
- Who will be the auditor of the firm
- Whether or not to pay salary or commission to partners.
- Methods of Maintaining bank accounts
- The mode of admission and retirement of partners
- How to manage or adjust the value of goodwill on admission, retirement and death of a partner during the business process
- Introduce provisions for arbitration to solve the problem in case of disputes arise
- Specify the methods of dissolution of your partnership firm
- Mention the settlement procedure of accounts between the partners, in case firm dissolution happens
- Who is the sleeping partner and benefits, if any
Step-3: Apply PAN card online for Partnership Firm – After receiving Acknowledgement of Registration of firm or Certificate of Registration for partnership, you can proceed to apply PAN for partnership firm.
Documents required for applying PAN card for partnership firm
- Copy of Partnership Deed/Agreement.
- Copy of Certificate of Registration of partnership firm issued by Registrar of Firms.
Step-4: Open a Current Bank Account for your Company based on the Firm PAN card and Registered Partnership Deed – You can apply for a Current Account for your partnership firm with the help of PAN card, Partnership Deed and Certificate of Registration where all the transaction of firm accounts are to be kept here for future financial purpose.
Documents required for applying Current Account for partnership firm
- PAN card of the Partnership Firm
- Certificate of Registration of Partnership Firm
- Copy of Partnership Deed
The minimum essential documents required for Partnership Registration are as follows:
- Self attested PAN Card of all the partners.
- Self attested Address Proof – Aadhaar Card/Voter ID/Driving License/Passport of all the partners
- 2 passport size digital photographs of each partner.
- Rental agreement of office address from the owner of the building
- Electricity bill of office address, which is not older than 1 month; if rented premises
- Take No Objection Certificate (NOC) from the owner of property/building for official context.
- Received BBMP tax paid receipt copy
Partnership firm business is the most popular type of business organization in India since the early days of business because it is easy to form, has no complicated legal formalities and less compliances as compared to private limited company, limited liability partnership and one person company. But each and every business entity has the special unique features to carry out the business.
Whenever entrepreneurs or the innovators are thinking about to setup a business entity, they are more likely to intend to start a partnership business rather than others; because it creates more trustworthy to their clients for its bonding nature and characteristics.
Only two partners of the company can run the business; if they want to grow their business, they can add more partners and invest capital to expand their business by implementing with some creative ideas and better customer services. Journey starts from here towards your goal.
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