Partnership firm is not a separate legal entity from the person it constitutes of; however, for income tax purpose, it is considered as a separate legal entity. A partnership firm...
Partnership firm is considered to be one of the most convenient forms of business, which is seen to easier to form as they only require the involvement of people to kick-start the business. Partnership firm registration process you need to adhere less compliance if we compare to other forms of business entities in India.
If you are looking to start your own partnership firm in India, then let us inform you that partnership firm registration is not compulsory, even so, it is always advisable to register the partnership firm to avail the benefits provided after the registration of partnership firm. For registering the partnership firm in India, you just need to file an application or registration with the registrar of the firms, as mentioned under the provision of section 58 of Indian partnership (Uttar Pradesh Amendment) Act, 2001.
For the incorporation of the partnership, you just need a basic list of documents which includes office address proof, identification of all the partners involved in the partnership firm, the objective of starting the partnership firm, the ratio of profit sharing, duration of the partnership.
If you are looking to have your own partnership firm, you just need to contact smart advisors. We have a team of professionals at want advisors who are thoroughly trained and have helped a number of clients to start their partnership firm. Our team will educate, guide and help you from scratch till the incorporation of the partnership firm.
Further, in this article, we will discuss the partnership firm registration process, characteristics of a partnership firm in India, partnership firm deed, documents required for the partnership firm, compliances regarding it etc.
Features of Partnership Firm
If you are operating a partnership firm registration process in India, there are several features that you must take a look at registering the partnership firm.
- There have to be at least two people for the incorporation of the partnership firm
- In a partnership firm, there are certain responsibilities and duties that have to be performed by the members involved in the partnership
- These types of business entities are really easy to set up, however, the partnership registration is not mandatory
- It has a minimum number of legal formalities
- Partnership firms involve less compliance to adhere
- In a partnership firm in India, a minor cannot be a part of the partnership firm
- These partnership firms make the decision making to be very flexible
- For setting up the partnership firm, you do not need an ample amount of investment that makes it Inexpensive for the establishment.
What if you are Running a Partnership firm which is not Registered?
- If you are operating a partnership firm in India, partners won’t be able to bring those rights into the effect which is mentioned under the Indian Partnership Act, 1932.
- Whenever there is a conflict with the third party, if your partnership firm is not registered you won’t be able to claim for the set-off but, the third party could easily sue your partnership firm.
Steps involved in the Process of Partnership firm Registration
There are certain steps that need to be followed to register the partnership firm in India-
Step1: Partnership Firm Name
The initial step in the process of partnership firm registration is to select the name of the partnership firm. The name of your partnership firm must not resemble with any of the already registered names. There is a website called IP India online which you can use for the verification of the name. And you can also visit the website of MCA (Ministry of corporate affairs) for the availability of the name and follow the guidelines mentioned by the government.
Step2: Partnership Deed
The second step is to come up with the Partnership Deed. It consists of the rules and regulations, terms and conditions to be followed by the partners of the firm. If you are planning to form a partnership firm then you must keep in mind that the partnership deed must be executed on the stamp paper and be notarized properly.
Points to be taken care of in Partnership Deed-
- Name of the partnership firm
- The Office address of the partnership firm
- The kind of business, partnership firm will be dealing in
- You must specify the profit sharing ratio of all the existing partners
- Details of all the partners of the partnership firm must be clearly mentioned in the partnership deed
- Every detail regarding the capital contribution
Apart from them, there are few more clauses in relation to the admission, retirement or death of the partner.
Step3: registration of the partnership firm
The last steps of the partnership firm registration are filling the application in the prescribed format, in accordance with the state laws and submit the essential documents such as Affidavit, partnership deed and proof of address of the business place.
Once you submit the application, it will be verified y the registrar and after the successful verification of the application, the partnership firm will be recorded in their database.
List of Documents Required for the Partnership Registration in India
There is a list of documents that need to be submitted at the time of filing the application of partnership firm registration-
- Partnership firm registration application in Form 1
- You need to submit the certified copy of notarized partnership deed on a stamp paper
- A specimen of Affidavit
- Then you are required to provide the ownership documents if you own a business place
- If there is a rented office space, then you need to submit the rental agreement for the address proof
- At last, you will be asked to provide the Identification proof and address proof of all the partners involved in the partnership firm (PAN/ Aadhar card/ Driving license/ Copy of Voter ID/ Passport).
Compliances of Partnership Firm
Let’s take a look at the compliances to be followed by the partnership firms-
Right from the start of the incorporation till the functioning of the partnership firm, you are required to adhere to these compliances at every step.
- The list of compliance starts with the Form I that has to be filled for the partnership firm registration
- If you want to bring a change in partnership firm in relation to the name/ address of the business/ nature of the business then you have to file the Form II
- There is a Form III available that has to be filled for the closing or opening the branch
- During the operation of the partnership firm, if there is a need to change the details of the partners, you just need to submit the Form IV
- It may be possible that you want to change the constitution or dissolve the partnership firm. In this case, you have to fill the Form V
Let’s take a look at the tax compliances that has to be pursued by the partnership firms-
The partnership firm must have the Permanent Account Number and Tax Deduction Account Number from the Income Tax Department, once the partnership firm is registered.
The rate of Income Tax if you are Operating a Partnership Firm
When you are a part of the partnership firm then you must keep in mind that the tax rate on the total income earned by the partnerships is 30% and there may be a surcharge on income tax.
If the annual income of your partnership is more than Rs. 1 crore, you have to file the income tax according to the section 111A or section 112 of the Income Tax Act, 1961. You can opt for any of the modes for paying the taxes-
Physical mode– In this mode of paying the income taxes, you can make the payment by submitting the challan at the designated bank (Challan ITNS 280).
Mode of E-payment– In this mode you can make the payment through electronic mode.
Please keep in mind that if your partnership firm comes into the category where the accounts have to be audited then you must use the E-payment mode for filing the income tax.
Points to ponder-
- When most of our clients connect with us the question they ask is that they know, they will be requiring at least two members for the incorporation of the partnership firm, but what is the maximum number of partners that can be involved in the partnership firm in India?
If you are looking to start your own partnership firm in India, then let us inform that for the incorporation of the partnership firm in India you need at least 2 members and the maximum number of partners can be 20.
- The most important aspect of operating any kind of business in India is the investment made by the people involved in it. But what is the amount of capital investment that partners have to make to kick-start any partnership firm?
Forming a partnership firm in India doesn’t require any kind of minimum investment, basically, there is no minimum set limit for the capital investment in a partnership firm. Once you start operating a partnership firm in Indi, you just need to maintain the current account balance.
- It always comes to the mind of people who are involved in the partnership firm, that if it is not mandatory to register a partnership firm, why do we attract extra hassle and put so much of time in it?
If the partnership firm is not registered, then you won’t be able to file a case against the firm who are violating the integrity of your business. You will not be able to claim the set-off.
- As we have mentioned above that there is a requirement of capital investment to start the partnership firm then is it possible to make the investments in the partnership firm?
Yes, you can make the investments in the partnership firms; however, you cannot enjoy the benefits such as limited liability which is offered in business entities such as limited liability partnership or private limited company. Investments in partnership firms can only be made by the Indian residents.
- As members of the partnership start making profits out of the business, can they take their partnership firm to the next level that is to convert them into a private limited company or limited liability partnership?
If your business is making profits and wants to convert your partnership firm into a private limited company then yes you can form a private limited company out of your partnership firm by filling the prescribed forms. We hope you have a better understanding of partnership firms in India by now. But still, if you have any question or query regarding the same. Please do contact smart advisors.