OVERVIEW

A partnership firm is a contractual agreement between two or more persons who join hands for mutual terms and conditions in order to run a business and gain profit from joint efforts. Members of the partnership firm are commonly known as Partners and the union of partners is called Partnership. Partnership firms are regulated by the Indian Partnership Act, 1932. The instrument on which mutual terms and conditions are written is called Partnership Deed. Partnership Deed is executed between partners to form a Partnership. The Indian Partnership Act, 1932, does not compulsorily require registration of partnership firms, but there are certain benefits if the partnership firm is registered. In other words, there is an option available with partners to get the firm registered or not. 

Features of partnership Firm are as follows:

1. Minimum and Maximum Partners: There must be at least two partners but it can be maximum to 20. The maximum limit of 20 partners shall be reduced to 10 if the partnership firm is engaged in the Banking Business. 
2. Lawful Arrangement: Partnership is created by executing a Partnership deed in which every partner gives consent to terms and conditions mutually agreed in writing and every partner puts signature on partnership deed. By this arrangement, each partner is lawfully bound to other partners. 
3. Optional Registration: The Indian Partnership Act, 1932, does not compulsorily require registration of partnership firms but there are certain benefits if the partnership firm is registered. In other words, there is an option available with partners to get the firm registered or not. 
4. Allocation of gain and loss: Gain and loss are allocated between partners as mutually agreed in partnership deeds. If no such division of gain and loss is specified then it will be equally distributed between each partner. 
5. Limitless Liability: As a Partnership firm and partners are not considered or treated as separate persons, the losses or damages which a Partnership firm is liable to pay can be recovered from the partners in case assets of the firm are not enough to cover the losses.  
6. Legal Standing of Firms: There is no legal standing of the firm as Partners are not treated separately from partnership firms. 
7. For Income Tax Purpose: For the purpose of Income tax, there is a separate method of taxation. That is, a partnership firm is taxed separately from its partners. However, profits earned from partnerships are exempted in the hands of partners because firms pay tax on profits earned at applicable rates. 

ADVANTAGE OF PARTNERSHIP FIRM:

1. Simple Start: As there is no requirement for mandatory registration required, it can only be started by executing a written partnership deed. 
2. Less Compliance: As there is a lot of compliances in case of a Private Limited Company LLP and OPC, there are not many compliances for a Partnership Firm. Therefore, starting a Partnership firm is a cost-effective method. 
3. Vast Capital: As each partner introduces capital to a partnership firm, it can gather adequate assets according to the need of business. 
4. Division of Risk: Due to the number of partners, risk is spared among all partners. 
5. Easy to wind up: Closure of partnerships is much easier than LLP and private limited companies.
6. Privacy: As information from the partnership firm is not uploaded to any public portal. There is less chance of information leakage. 

DOCUMENTS REQUIRED

The following documents are required for the formation of the Partnership Firm:

• Firm Name. It means the name of a partnership firm whose partners may mutually decide. 
• Address proof of place of business. Address proof of location from where the business of partnership shall be conducted is required. There can be more than one place of business. 
• Dates of joining of every partner. 
• Name and residential address of every partner is required. 
• Signed partnership deed. Partnership deeds must be signed by each partner. 

Note: Documents requirement may differ for each state.

FREQUENTLY ASKED QUESTIONS 

1. What is known as the Partnership Firm?

A partnership firm is a contractual agreement between two or more persons who join hands for mutual terms and conditions in order to run a business and gain profit from joint efforts.

2. How many members are required to form a partnership firm?

Minimum 2 and maximum 20. However, if the partnership firm is carrying out the business of Banking then maximum members can be only 10.

3. Can partnership be oral?

Yes, but it is strongly recommended that terms of partnership must be written. 

4. Is there any compulsion to register the Partnership Firm?

There is no such compulsion but there are certain benefits if a partnership firm is registered. 

5. Who is the competent authority to register a partnership firm?

There is a Registrar of Firms in every district who has the right to register the Partnership Firms. 

6. What are the necessary requirements to register a partnership firm?

There is a separate requirement for every state. But some basic requirements are as follows:

• Firm Name. It means the name of a partnership firm whose partners may mutually decide. 
• Address proof of place of business. Address proof of location from where the business of partnership shall be conducted is required. There can be more than one place of business. 
• Dates of joining of every partner. 
• Name and residential address of every partner is required. 
• Signed partnership deed. Partnership deeds must be signed by each partner. 

7. Is it possible for a partnership firm to become a partner in another partnership firm?

It is not possible. 

8. What should be the amount of stamp duty on which partnership deed is executed?

The amount of stamp duty for execution and registration of partnership firms changes from state to state. However, it is necessary that partnership deeds must be executed on correct stamp duty papers. Notary charges are also to be additionally incurred. 

9. Who is liable to bear the losses of a partnership firm?

Partners are liable to bear the losses in proportion to their share of profit and loss. If assets of the firm are not sufficient to cover the losses, then losses shall be recovered from the personal assets of the partners.