A Partnership firm is a business concept where two or more persons have agreed to share profits or loss of the business. There In India, this form of business is very popular because of its ease of formation and minimal regulatory compliance explained by Edge Legal.
Types of Partnership Firm
- Registered Partnership– In terms of the Indian Partnership Act, 1932, (Act), Registration of partnership is not mandatory in India so the firm which gets itself registered as per provision of applicable Laws of India is a registered partnership firm.
- Unregistered Partnership– Partnership that is not registered is Unregistered Partnership and this is the most popular form of business in India because the formation of this is very easy and it can be formed in a few hours.
However, In terms of Section 69 of the Indian Partnership Act, 1932 registered partnership firms have certain rights that cant be availed by unregistered Partnership Firms.
Difference between LLP & Partnership Firm
ACT: LLPs are controlled by LLP Act, 2008 whereas Partnership firms are controlled by the Indian Partnership Act, 1932.
Governing Authority: LLPs are governed by the Ministry of Corporate Affairs in India, formed by Central Government. Partnership firms are registered with the Registrar of Firms, controlled by the respective State Government in which the firm is registered.
Protection of duty of partner: In a Limited Liability Partnership the liability of a partner is limited to his Act only whereas there is no such concept exists in the case of the partnership firm.
Number of Partners: In both the case minimum two members is required for registration of a new entity but after registration in case of an LLP we can increase the number of a member without any limitation but in case of Partnership Firm we can’t do the same.
Registration of Partnership Firm
A partnership firm can be registered under Section 58 of the Indian Partnership Act, 1932 at any time, after its formation also under the jurisdiction of the registrar where the partnership is proposed to be incorporated or it has already been incorporated.
Documents Required for Registration of Partnership Firm
The following two documents can be used:
- PAN Card
- Driving License
- Aadhar Card
- Voters ID
Proof of the principal place of business can be established by submitting the following documents:
- Sale deed in case one of the Partner owns the place of business
- Rental agreement copy if the premises are rented
- Copy of latest electricity bill or water bill or property tax receipt
Duly drafted copy of partnership agreement between the partners of the firm.
Advantages of a Partnership Firm
One of the main advantages of a Partnership Firm is that there are very minimal requirements in terms of compliance. For instance, a Company or LLP requires the annual filing of its financial statements with the Registrar of Companies. Such documents filed with the MCA are also made public documents. On the other hand, registered/unregistered Partnership Firms are not required to file any annual returns, and the financial statements of a partnership firm would NOT be made publicly available. Also, the accounts of a registered / unregistered partnership firm are not required to be audited. Whereas, the accounts of a Limited Liability Partnership (LLP) are required to be audited by a practicing Chartered Accountant when the turnover exceeds Rs.40 lakhs per annum or when capital contribution exceeds Rs. 25 lakhs.
Disadvantages of a Partnership Firm
A partnership firm does not provide its Partners with limited liability protection and does not have perpetual existence. Also, the interest of a Partner in a Partnership firm is not easily transferrable, and the ownership structure does not allow for investment from Angel Investors, Venture Capitalists, or Private Equity Firms. Banks / Financial Institutions also prefer to lend to Companies than Partnership Firms as Companies are separate entities and the regulatory requirement for financial reporting of Companies – makes a company more transparent and structured.
Partnership Firm Registration Process
We are here to help you to start a new partnership firm or register your old partnership firm anywhere in India, for that you simply need to submit your query once we will receive your query, we will help you out to start your business.
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