An Overview of Partnership Firm Registration
The term "Partnership" is a short & straightforward word but has a robust meaning attached to it. In the corporate field, the term partnership refers to a relation or an association between two or more people who decides mutually to establish a business and also to share the profits and losses of such business. This business structure is either carried on by all the partners or by any one of them acting for all (Principal and Agent Relationship). Moreover, it is established on legal terms; hence, all the rules and regulations must be complied with while obtaining Partnership Firm Registration. Lastly, this business format is usually chosen either by the budding start-ups and entrepreneurs or by the small and medium-sized businesses operating in the unorganized sectors.
What is a Partnership Firm?
A Partnership Firm is one of the types of business models which is governed and regulated by the Indian Partnership Act, 1932. This business structure basically requires two or more individuals to manage and operate a business according to the terms, conditions, regulations, and goals decided in the Partnership Deed. Further, it is noteworthy to note that the Partnership Deed is considered the Magna Carta of the Partnership Firm and all the details, specifications, roles and responsibilities of each Partner, profit sharing ratio, nature of the work, etc., are embedded in the Partnership Deed itself.
Benefits of Partnership Firm Registration
The following listed are the benefits of Registration of a partnership firm:
- Decision Making: In a Partnership Firm, decision-making could be faster as there is no concept of passing resolutions. All the partners in a Partnership Firm enjoy a variety of powers & in most cases, they can engage any transaction on behalf of the firm without the consent of other partners.
- Easy to Start: Partnership Firms in India are easy to start and the only requirement for starting a Partnership Firm in most instances is a Partnership Deed. Therefore, a Partnership can be started on the same day.
- Raising of Funds: A Partnership in India can easily raise funds and multiple partners make a more feasible contribution. Moreover, banks also view a Partnership Firm more favourably while sanctioning credit facilities instead of a Proprietorship Firm.
- Less Compliances: The Partnership Firm in India has to follow very few compliances as compared to an LLP or a company. The partners don't require a DSC (Digital Signature Certificate) or DIN (Director Identification Number), which is required for the designated Partner or directors of an LLP. The Partners do have legal restrictions on their activities, and it's cost-effective, and the Registration is way cheaper than a Company or LLP.
- Sharing of Profits & Losses: The partners share the profits & losses of the Firm equally. The turnover of the Firm depends on their work; they have a sense of ownership & accountability. Any loss of the Partnership Firm will be borne by them equally or as per the Partnership Deed Ratio, lessening the burden of loss on one Partner or person. They are liable together and severally for the activity of the Firm.
What are the Different Types of Partnership Firms in India?
The concept of a partnership firm is further bifurcated into the following listed:
- General Partnership
- Partnership at Will: Normally, in the case of partnership at will, whenever a partnership is created or established, it is upon the partners working to decide when they want the said partnership to continue. Hence, whenever a partnership is formulated without a specific time limit for its closure, it is known as the partnership at will.
- Particular Partnership: In the case of a Particular Partnership, a Partnership is established with a motive to carry out a specific and explicit undertaking. Further, whenever a partnership firm is established for a contract-based project or for one particular business only, then they are known as the particular partnership. Moreover, this type of partnership comes to an end once the objective for which it was made is achieved. However, it is noteworthy to note that the discretion of the partners also plays a significant role here. This means if the partners want to continue the said partnership, they can modify and extend the agreement between them for the same.
- On the basis of Registration
- Registered Partnership: The Partnership that is registered by the Registrar having jurisdiction under the provision of the Indian Partnership Act, 1932, is considered the Registered Partnership.
- Unregistered Partnership: An unregistered partnership firm is formulated just by executing an agreement among the partners. Further, obtaining Registration of a partnership firm is optional. However, it is always advisable to get the said partnership firm registered, as in the case of an unregistered partnership, partners are not to sue the third party but are eligible to get sued.
Checklist for Partnership Firm Registration
- Drafting of Partnership Deed;
- Selection of an appropriate name;
- Maximum of equal to or less than 20 partners;
- A minimum of 2 members are required as partners;
- Principal place of business;
- Bank Account & PAN Card of the Firm.
Documents Required for Partnership Firm Registration
Following are some vital documents required for Partnership Firm Registration:
- Application Form-1 for Partnership Firm Registration;
- Certified original copy of Partnership Deed;
- Address proof & PAN Card of the partners;
- Specimen of an affidavit certifying all the details mentioned in the Partnership Deed & Documents are correct;
- Principal place proof of business of the Firm (Lease/Rental Agreement or Ownership Documents).
Note: In case the Registrar is satisfied with the documents, he or she will register the Firm in the Register of Firms & issue a Certificate of Registration.
Procedure for Partnership Firm Registration
The following listed are the steps involved in the procedure of partnership registration:
- Choose a Unique name for the Firm
The first and foremost step is to select a unique name for the Partnership Firm. Further, the name must not only be unique but should not include words such as the emperor, empire, crown, empress, etc., which show some sort of approval or sanction from the government. Furthermore, the selected name must not be similar to the name of any existing firm engaged in the same nature of business.
- File an Application for the Registration
In the second step, the partners of the partnership firm are required to file an application for the Registration of the partnership firm in Form 1. Further, the said application is filed with the Registrar of Firm (RoF) of the concerned state where the Firm is situated. Further, it is relevant to note that the application is required to be filed in the prescribed format, together with the specified fees.
- Preparation of a Partnership Deed
In the next step, all the partners are mutually required to draft a partnership deed on a stamp paper. Further, a partnership deed can be both oral and written. However, it is always suggested and advisable to draft a partnership deed as it eradicates or minimizes the chance of any future conflict.
- Submission of the Documents
Thereafter, partners are required to submit all the prerequisite documents together with the drafted partnership deed.
Further, once all the documents submitted and the application filed is closely verified by the authorities, and if no objection is found, then a Certificate of Registration will be issued to the said partnership firm.
Cancellation of Partnership Registration
In a certain case, a Partnership Certification of Incorporation can be cancelled; this is often termed dissolution. A dissolution can be brought upon automatically when all partners except one are declared insolvent or if the Firm is carrying out illegal activities such as trading in drugs or other illegal products, corporate mismanagement or making business engagements with nations that may harm the interest of India.
Is it compulsory to obtain Registration of a Partnership Firm?
No, obtaining Registration of a Partnership Firm is not at all compulsory, but the same is optional and discretionary for the partners. However, it is pertinent to take into consideration that it is always advisable and suggested to get the partnership firm registered under the provisions of the Indian Partnership Act, 1932. The reason for the same is that a registered partnership firm enjoys more benefits, special rights and privileges that are not available in the unregistered partnership firms.
Main Elements of a Partnership Deed
The Partnership Deed format is an agreement signed among the partners regarding the working and operation of the partnership firm. Further, a Partnership deed can be both oral and written. However, it is always advised and suggested to draft a partnership deed in a written form to avoid future conflicts.
The following listed are the main elements that are to be incorporated while drafting a Partnership Deed:
- Details concerning the Firm and its partners, such as the name and address
- Nature of the Business
- Details regarding the capital contribution made by each Partner
- Profit and loss sharing ratio among all the partners
- Interest on the amount of capital invested
- Details of the drawings made by the partners or the loans provided by partners
- Salaries, commissions or any other such amount to be payable to the partners
- Rights and duties or obligations or responsibilities of each Partner
- A process which will be shadowed in the case of retirement or death or incapacity of any partner
- Any other mutually decided clause
Further, it is relevant to take into consideration that, for obtaining a Partnership Firm Registration in India, the said partnership deed must be duly notarized and stamped.
What are the consequences if in case the Partnership Firm is not registered?
If in case the Partnership Firm is not registered, then the partners of the said Firm cannot enforce their rights provided under the provisions of the Indian Partnership Act, 1932. This means in the case of any dispute with the third party, the concerned Firm is neither able to file a suit nor is able to claim for setoff. However, the third party is eligible to sue the unregistered Partnership Firm.
Tax Compliances after obtaining Partnership Firm Registration
The following listed are the tax compliances that are to be abided by after obtaining Registration of a Partnership Firm:
- Once the procedure for Registration of the partnership firm is complete, then the partners of the said partnership firm must obtain PAN (Permanent Account Number) and TAN (Tax Deduction Account Number) from the IT Department.
- A Partnership firm is required to file the ITR (Income Tax Return) regardless of the revenue generated or loss incurred.
- In the case of a Partnership Firm, the rate of income tax charged on the whole of the total income will be 30 percent plus a surcharge on income tax.
- Further, all the Partnership Firms earning an annual turnover of over Rs. 100 lakhs are obligated to get done a tax audit.
- Online GST registrationis needed for the businesses whose annual turnover exceeds the threshold of Rs 40 lakhs (Rs 20 lakhs in the case of the North-Eastern states). However, obtaining GST registration is compulsory and mandatory for the businesses dealing in the Export-Import, E-commerce, and the Market Place Aggregator.
- After obtaining GST registration, the concerned Firm is needed to file monthly, quarterly, and annual GST returns.
- Partnership firms are also obligated to file their quarterly TDS (Tax Deducted at Source) returns that have TAN and are needed to deduct tax at source according to the prevailing TDS rules.
Lastly, obtaining the ESIC Registration, as well as the filing of ESIC Return, is mandatory for all the partnership firms.
FAQs of Partnership Firm Registration
There are two types of partnership prevalent in India, which are Partnership at Will and Particular Partnership.
No, it is not compulsory to obtain Partnership Firm Registration in India. However, it is always advisable to get registration as a registered partnership firm enjoys some exclusive rights which are not available to the unregistered partnership firms.
In India, the advantages of a partnership firm include Easy to Start; Decision Making; Raising of Funds; Sense of Ownership; Easy Management without any Disputes; Fewer Compliances; Inexpensive to Establish; Minimal Legal Responsibilities; Flexibility; Tax Advantage.
In India, the reasons to choose a partnership firm can be summarised as, Easy to Start; Decision Making; Raising of Funds; Sense of Ownership; Easy Management without any Disputes; Fewer Compliances; Inexpensive to Establish; Minimal Legal Responsibilities; Flexibility; Tax Advantage.
In India, the time period required for obtaining the Registration of a Partnership Firm varies from 14 to 16 working days.
The grounds on which a partnership firm can be termed as invalid are, when it is carrying out an illegal or unlawful activity or if the court finds the firm invalid.
In case of partnership at will, the partners can dissolve the firm by giving notice. Further, it can also be terminated based on the conditions laid down in Partnership Deed.
In India, the documents required for obtaining the registration of a partnership firm include Statement in Form 1 along with the prescribed fees; PAN Card; Passport; Driving License; Aadhar Card; Voter ID; A Notarized True Copy of the concerned Partnership Deed; Sale Deed in case one of the said partners owns the place of business.; Rental or the Lease Agreement in case the place used for the registered office is on rent.; and a copy of the Utility Bill in the form of Water Tax Receipt, Electricity Bill, Property Tax Receipt.
Yes, a PAN card is mandatory for all the individual or business who have entered into a Partnership. It is also required while filing the Income Tax Return (ITR) of the firm, or for submitting either the Partnership Deed or the Certificate of Registration,
No, a company cannot accept or take a loan from a Partnership firm even if the partners of the said firm are members or directors of the Company. The reason for such restriction is that, as per the Companies Act, 2013, a company can take loans from any person other than the Director or Member or Relative of the Director.
In India, there is no particular process for registering the name of the Partnership Firm. However, one can get the firm name registered by way of Trademark Registration.
A minimum of 2 and a maximum of persons are needed to form a partnership firm in India. However, a maximum of 10 persons are required to establish a partnership, which will serve banking purposes.
In India, no amount has been prescribed as minimum capital required for the incorporation of a Partnership Firm.
No, it not mandatory for the partners to get the partnership firm registered in India. However, getting the registration done is always advisable, as the partners of a registered partnership enjoy exclusive rights that are not available to the unregistered partnership firms. Moreover, the registration will give legal status to the said firm.
In India, the disadvantages of an unregistered partnership firm can be summarised as an unregistered firm does not have the right to claim set-off and it cannot file case against third party or partner.
Yes, a partnership firm can acquire registration under MSME Act, 2006, by filling the application form and opening a current bank account.
No, a foreigner is not eligible to become a partner in a partnership firm, as only a person who is a resident of India is eligible to become a partner.
The necessary annual compliances for a partnership firm include ITR (Income Tax Return) for both firm and partners. Further, the filling of GST Return is also mandatory for a partnership firm.
Yes, a partnership firm can easily be converted into a private limited company by satisfying all the criteria and filing form with authority.
In India, for opening a current bank account for a partnership firm, banks will need Partnership Deed and KYC Documents of Partners such as Valid ID and Address Proof as per RBI guidelines. Further, the PAN card details of the partnership firm will also be needed by the banks.
After getting the Partnership Deed Notarised, partners of the firm need to apply for PAN of the Firm. Swarit Advisors can assist you in obtaining PAN by filing an application on your behalf.
Yes, an Indian resident can make investments in a Partnership Firm. However, the feature of limited liability does not apply to this business structure, unlike LLP or Private Limited Company.
No, you would not be required to visit any government department, as the process of registering a partnership firm shall be done online. However, you would only be required to be physically present to notarize the partnership deed.
The partners need to file an application for the Partnership Firm Registration with the Registrar of Firms (ROF), who has jurisdiction over the place of business of the Partnership Firm. On the receipt of the application, the registrar of firm will examine and scrutinize the documents and thereby issues the Certificate of Registration of Partnership Firm.
No, in India, partnership firms are not required to file Annual Return. However, the filling of Income Tax Return (ITR) before the due date is mandatory for a partnership firm. Further, in the partnership Act, 1932, there is no such provision of audit, i.e., firms are not required to get their books of account audited. However, getting the tax audit done is mandatory if the annual turnover of the firm exceeds Rs. 2 Crore.
In India, a minimum of 2 persons and a maximum of 20 are required to form a partnership firm.
There is no amount prescribed as the minimum capital requirement for the registration of a partnership firm in India. All you need to open is current bank account.