Partnership Firm Registration: An Overview
Partnership firm registration in India involves an agreement between two or more individuals to run a business together, sharing profits and liabilities. This business structure is popular among small businesses and entrepreneurs due to its simplicity and low setup costs.
A partnership firm is established with the goal of earning profits and is governed by the Indian Partnership Registration Act of 1932. A partnership is defined as a group of individuals who have agreed to share the profits of a business carried on by all or any of them. For banking businesses, a partnership can have a maximum of 10 members, while other enterprises can have up to 20 members.
Partners in a partnership firm are separate legal entities, but the firm itself is not. This means the firm cannot own property, borrow, or lend money. The assets, liabilities, and credit of the firm belong to the partners. The partnership agreement should clearly outline the distribution of profits and losses among the partners to avoid future disputes. Each partner can act on behalf of the others in business matters.
Due to its low cost and straightforward setup, partnership registration is ideal for home-based businesses that are unlikely to incur significant debts. General partnerships can be registered optionally. For assistance in drafting a partnership deed, contact Taxtrix experts. If the partnership reduces to less than two partners due to death, incapacity, or resignation, it will be dissolved.
Advantages of Partnership Firm Registration Online
- Minimum Compliance: Unlike private limited companies, partnerships involve less compliance work, allowing you to focus more on your business.
- Simple to Begin: Registering a partnership firm is straightforward, usually requiring only a partnership deed. In contrast, forming an LLP takes 5 to 10 working days due to additional requirements like electronic signatures, DIN, name approval, and incorporation.
- Comparatively Economical: Establishing a partnership costs around ₹2,000, significantly less than the ₹15,000 required for a private limited company.
Documents Required for Partnership Firm Registration
- Partnership Deed
- Address Proof
- Identity Proof of Partners
- Passport-sized Photographs
- Address Proof of Partners
- Registration Certificate (if applicable)
- Bank Account Proof
- Specimen Signature
- Partnership Firm's PAN Card
- GST Registration (if applicable)
- Power of Attorney
- NOC from the Property Owner
- Affidavit
Eligibility for Partnership Firm Registration Online
Anyone legally capable of entering into a contract can join a partnership. The following entities are eligible:
- Individuals: Anyone who meets the legal requirements for majority and is of sound mind.
- Firms: While a firm cannot partner with another firm or individual, a partner in a firm can enter a partnership with another individual.
- Hindu Undivided Family: A Karta can join a partnership in their individual capacity.
- Companies: Juristic persons like companies can join a partnership if permitted by their objectives.
- Trustees: Trustees of private trusts, family trusts, and religious endowments can form partnerships unless restricted by their constitution or objectives.
Steps for Partnership Firm Registration Online
- Step 1: Submit a Register Partnership Firm Application: Submit an application form and the required fees to the Registrar of Firms in the relevant state, signed and verified by all partners or their representatives.
- Step 2: Choosing the Name of the Partnership Firm: Choose a unique name that complies with regulations.
- Step 3: Registration Certificate: Upon approval of the application and documents, the firm will be registered and issued a Registration Certificate. The Register of Firms contains updated information on all registered firms.
Characteristics of Partnership Firm
- Number of Partners: Minimum of two partners; maximum of 10 for banking and 20 for other businesses.
- Voluntary Registration: Registration is optional but recommended for additional legal benefits.
- Contractual Partner: Partners are bound by a contractual agreement.
- Competency of the Partners: Partners must be competent adults.
- Profit and Loss Sharing: Profits and losses are shared as per the agreement.
- Unlimited Liability: Partners are jointly and severally liable for the firm’s losses.
- Interest Transfer: Partner’s interest cannot be transferred without other partners’ consent.
- Principal-agent Relationship: Partners act as agents for the firm and each other.
Need for Partnership Firm Registration
Registering a partnership firm and documenting the agreement in a Partnership Deed helps avoid legal disputes and provides several advantages:
- Two or more individuals are required.
- Agreement to share business profits.
- Can be a verbal agreement but written documentation is advisable.
Need and Importance of Partnership Firm
Partnership firms allow pooling of resources, shared responsibility, tax flexibility, and are easy to form and dissolve. These features make partnerships an attractive option for many businesses.
Partnership Deed Format
- Obligations, rights, and liabilities of each partner.
- Terms and conditions of the partnership.
- Methods for resolving disputes.
- Profit and loss sharing arrangements.
- Roles and responsibilities of each partner.
- Compensation details.
Duties of Partners in Partnership Registration
- Fiduciary Duty: Act in the best interests of the partnership and fellow partners.
- Financial Contributions: Contribute financially as per the agreement.
- Management and Decision-Making: Participate in managing the partnership.
- Partnership Agreement: Follow the terms and conditions set out in the agreement.
- Due Diligence and Care: Exercise reasonable care and diligence.
- Financial Reporting: Maintain accurate financial records.
- Non-Compete and Non-Disclosure: Protect the partnership's interests.
- Acting in Partnership's Interest: Prioritize the partnership’s interests.
- Contributing Effort and Expertise: Contribute skills and effort.
- Good Faith and Fair Dealing: Treat partners with respect and fairness.
- Adhering to Legal and Regulatory Requirements: Ensure compliance with laws and regulations.
Relevance of Partnership Firm Registration
Registering a partnership firm provides legal benefits and prevents future disputes. Registered firms have several advantages, such as the ability to enforce contractual rights, sue third parties, and use set-off in legal actions.
Partnership Deed Online Registration Fees
Registration fees vary by state, but Taxtrix offers a comprehensive partnership firm registration plan for ₹999, including PAN application, partnership agreement drafting, document filing, and expert consultation.
How to Check Partnership Firm Registration Status
- Step 1: Visit the Ministry of Corporate Affairs (MCA) website.
- Step 2: Click on 'MCA Services' and select 'View Company or LLP Master Data'.
- Step 3: Enter the firm's name or registration number and search.
- Step 4: If not registered, a message stating 'No matching records found' will appear.
Distinction Between Partnership and Firm
Name Given to the Partnership Firm
The firm name is the registered name under which the partnership business operates. It should be unique and relevant to the business. Register the firm name with the Registrar of Firms.
Partnership Vs. Hindu Undivided Family (HUF)
Partnership Vs. Co-ownership
Partnership Vs. Association
Types of Partners
It is mandatory by law to have at least two partners to register a partnership firm. Based on the role of the partner they are classified into the following types:
Active Partner
An active partner is an individual or a group who is actively involved in the daily functioning of the partnership. They represent the other partners in all decisions made during the business activity.
Dormant Partner
As the name suggests these partners do not actively take part in the company's management. These partners are liable to third parties, share in the partnership firm's profits and losses.
Nominal Partner
Nominal partners are those people whose names are listed on the partnership agreement. They do not have any interest in the business and neither participate in the day's activities. A nominal partner is not entitled to the shares and profits of the phone. They also don't provide any capital investment. This partner has no ownership stake in the business and is not involved in its management. Even so, this partner is liable to third parties for all business-related actions.
Partner In Profits Only
This is a partner who is eligible for a cut of the gains but is not responsible for the losses. Only acts committed for personal benefit make these partners responsible to third parties.
Sub-Partner
Sab partner refers to an individual who is in a partnership firm and shares the profits to an outsider of the firm. The sub partner doesn't have any right against the form and is not liable to any debt.
Incoming Partners
This refers to a new partner who is accepted in an existing form with consent from all the partners. An incoming partner doesn't stand liable for any act of the firm conducted before their entry.
Outgoing Partner
An outgoing partner leaves the firm where the rest of the partners continue to carry on the business. It is mandatory to provide a public notice concerning the retirement of an outgoing partner. In most cases until the public notice is provided the outgoing partner stands liable to third parties for all the actions taken.
Partner By Holding Out (Section 28)
Partnership by holding out is also known as partnership by estoppel. In simpler words it denotes a person who may have given the impression that they are a partner through their words or behaviour, or they may have allowed others to do so. But in reality, they have no claim or connection with the partnership firm. They don't stand liable for any losses or benefits incurred for an creditor or an investor who has believed or assumed that they are a partner and made an investment.
What Are the Consequences if the Partnership Firm Is Not Registered?
If the partnership firm is not registered, the partners of the aforementioned firm may in fact enforce their rights under the terms of the Indian Partnership Act, 1932. This means that the involved firm is not permitted to file a lawsuit or make a setoff claim in the event of any dispute with a third party. However, the unregistered partnership firm is subject to third-party litigation.
Tax Compliances After Obtaining Partnership Firm Registration Online
- After the registration process for the registration of partnership firm is officially initiated, the partners of the aforementioned partnership firm must receive PANs Permanent Account Number and TANs (Tax Deduction Account Numbers) from the IT department.
- No matter how much money is made or lost, a partnership firm in india must file an ITR (Income Tax Return).
- In the case of a register partnership firm, the total income will be taxed at a rate of 30% plus an additional income tax surcharge.
- Furthermore, a tax audit must be performed by all partnership firms with a yearly revenue of over ₹100 lakhs.
Businesses that generate more than ₹40 lakhs in annual income must register for GST online (₹20 lakhs in the case of the north-eastern states). However, businesses involved in e-commerce, market place aggregation, and export-import must register for GST in order to operate.
After registering for GST, the concerned firm is required to submit monthly, quarterly, and annual GST returns. Partnership firms must also submit their quarterly TDS (Tax Deducted at Source) returns, which must deduct tax at source in accordance with the applicable TDS rules and have TANs.
Last but not least, all partnership firms must obtain an ESIC registration and file an ESIC return.
