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The Partnership is the relation which subsists between individuals, who have decided to pool their money, skill and resources in business, to share profits and losses, in an agreed ratio.
According to section 4 of the Partnership Act of 1932, “Partnership is defined as the relation between two or more persons who have agreed to share the profits of a business carried on by all or any one of them acting for all”. This definition supersedes the previous definition given in section 239 of Indian Contract Act 1872.
The members of a partnership, are jointly known as the partnership firm and severally known as partners.
The business partnership offers a lot of advantages to those who choose to use it.
1. Ease of Formation and Closure :- A partnership firm can be formed easily (requiring fewer legal obligations) with an agreement between two or more persons to carry some lawful business. Closure of the firm too is an easy task. Simply by agreement of all partners it can be dissolved.
2. Risk Bearing and Sharing :- Starting and managing a business alone can feel stressful and daunting, particularly if you’ve not done it before. In a partnership, business risks are borne and shared by all the partners together. This reduces the burden and stress on individual partners. Partners perform their functions in a better way.
3. Access to knowledge, skills, experience and contacts :- In a partnership, each partner will bring their own knowledge, skills, experience and contacts to the business, potentially giving it a better chance of success than any of the partners trading individually.
4. Better decision-making :- Compared with operating on your own, in a partnership the business benefits from the unique perspective brought by each partner which can collectively contribute towards better decision making.
5. Privacy :- It enjoys greater privacy than a limited company. A firm need not place its books to public scrutiny. It need not get its accounts audited.
6. Ownership and control are combined :- In a limited company, ownership and day to day management of the business is split between shareholders and directors and there may be conflicting issues. In a partnership business, as the owners exercise the control, it is more effective.
7. More partners, more capital :- Easy to raise more capital with the combined benefit to easily bring on board new prospective partners.
Partnership deed is an agreement between the partners that lays down the terms and conditions regulating the partnership, such as, profit and loss sharing ratio, nature of the business, duration of business, duties and obligations of partners, capital contribution by each partner, manner of conducting business and so on.
There are two basic forms of partnership :-
1. General Partnership :- A partnership in which all the partners manage the business and are personally liable for its debts. General partners have an obligation of strict liability to third parties injured by the Partnership. General partners may have joint liability or joint and several liability depending upon circumstances.
2. Limited Partnership :- A partnership in which general partners manage the partnership’s operations, and limited partners forego the right to manage the business in exchange for limited liability for the partnership debts. The liability of limited partners is limited to their investment in the partnership.
Professionals like doctors and lawyers often form a limited partnership. Some law and accounting firms make a further distinction between equity partners and salaried partners.
A partnership firm can be easily formed as no complex business formalities are required to be fulfilled. Partnership business can be started with just a simple agreement between two or more persons who have decided to pool their money, skills and resources with an intention to start a business and share its profit and losses. The following steps are involved in :-
1. Preparation of Partnership Deed :- Although partnership deed can be oral, it is generally written to avoid any future conflict. Partnership deed is created on a judicial stamp paper of Rs. 2,000/- and has to be signed by all the partners. It lays down the terms and conditions regulating the partnership, such as, profit and loss sharing ratio, nature of the business, duration of business, duties and obligations of partners, capital contribution by each partner, manner of conducting business and so on.
2. Registration of Partnership deed :- In case partners wish to register the partnership firm, they need to submit partnership deed, ID and address proofs of the firm as well as the partners to the Registrar of Partnerships. With it, an affidavit is also required to be submitted certifying that all the details mentioned in deed and documents are correct.
3. PAN of the firm :- Permanent account Number is required for the purpose of depositing Income tax and filing of statutory returns. For obtaining PAN, form 49A has to be filed online by visiting the website of NSDL or UTIITSL.
4. TAN of the firm :- Tax Deduction or Collection Account Number is required for the purpose of deducting tax at source or collecting tax at source. For obtaining TAN, form 49B has to be filed online at NSDL-TIN website, viz., https://tin.tin.nsdl.com/tan/index.html.
5. GST Registration :- GST registration can be easily done by filling a form available on the online GST portal, viz. www.gst.gov.in.
For the purpose of GST Registration the following documents are required :-
Authorized signatory will sign the application either using a digital signature certificate or E-Aadhar verification.
6. MSME Registration :– Udyog Aadhaar Number
7. PF/ESI registration, if applicable
8. Registration under Shop and Establishment Act, if applicable
9. Factory License, if applicable
10. Opening of Current Bank Account :- For opening a current bank account, a firm needs to submit following documents :-
Authorization letter on the letterhead of the firm authorizing a partner as authorized signatory for the bank account
Note :- Stamp paper and notarization is part of client. Cost will be bear by the client himself / herself.
We have standardized the following procedure for rendering our services :-
Not necessarily. However, unless a partnership firm is registered with the registrar of firms and societies, the rights of the partners inter se or against strangers cannot be enforced in a court of law. If the partnership deed itself creates, transfers or affects an interest in immovable property.
No, it is not necessary. However it is often prudent to make a partnership deed to produce to the bank, income tax authorities and to clients with whom the partnership firm deals with.
Yes. A person may become a partner with another for a single adventure or undertaking.
Yes. If the number of partners is more than 20, it has to be registered as a company.
A person may sue a partnership firm but the plaint has to disclose the name of all the partners who constitute the firm. However under the Income Tax Act, a firm can be assessed to tax independently of its partners. A partnership firm therefore enjoys a quasi independent status.
Yes. The law presumes that each partner is an agent of the other and dealing in good faith with one partner binds the other partners as well. There are certain exceptions to this rule, which is answered in the next question.
Yes. The death of a partner automatically dissolves the partnership firm. It is however usual for the partnership deed to provide before hand that the firm should continue in spite of death, retirement or insolvency of a partner.
When the partnership deed does not contain any provision for the duration of the partnership nor conditions for the termination of partnership, it is a partnership at will.
Several back to back registrations are required for starting a partnership business, most of which are interconnected to one another. It is highly recommended that you seek the help of a professional for starting a partnership business in an expeditious, smooth and hassle-free manner. We are just a phone call away to serve you for all your needs in this regard.
Upon receipt of your call, our business advisor shall arrange a meeting with you at your time of convenience. During the meeting he shall explain you the whole process of starting a partnership business and thereafter obtain all necessary details pertaining to proposed business, office address, nature of business/activity, name of the partners, each partner’s initial contribution to capital, profit sharing ratio, duration of business, duties and obligations of partners, manner of conducting business and so on. He shall also guide you about various registrations that shall be required to start the partnership business. Depending upon the different registrations you may require, he shall collect all relevant details on pre-printed data entry forms specially designed by us for this purpose along with copies of all necessary documents as per the check list provided.
The information so collected along with the documents shall be forwarded to our team of experts comprising of document writers, legal experts, tax professionals and practitioners, CA, CS etc. who shall work in tandem with each other for preparation of the partnership deed, and if required, for its registration, and for obtaining various other registrations as required by you. The entire process takes about 30 working days under normal business conditions.
⇒ Strong team of qualified experts – Our strength in matters related to Incorporation of a Private Limited Company is attributed to our team of highly qualified and experienced working professionals from different disciplines, including legal experts, Chartered Accountants, Company Secretaries, Document Writers etc. who work in tandem with each other and are assisted by junior officers.
⇒ Smooth and seamless interaction – We endure to provide our best services in all matters relating to Incorporation of Private Limited Company, by ensuring smooth and seamless interaction with you preferably through digital communication mode to save your time and efforts.
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