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PARTNERSHIP FIRM
What is the Meaning of Partnership?
“Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into a partnership with another partner are collectively called “a firm”, and independently called, “partners” and the name under which their business is carried on is called the “firm-name”.
Minimum requirements of a partnership firm
- There must be at least two persons i.e. two partners
- There must be an agreement arising between two or more persons to do business
- The agreement must be to share profits/ losses of the business
- The business must be carried on by all of them or by anyone of them acting for all
Procedure of Formation
As per the Partnership Act 1932, it is not obligatory to register a partnership firm. The firm does not have a separate legal identity and registration will not change this fact. However, registration is the definite proof of the existence of the firm and its legality.
Non-registration of a firm has some legal consequences for the partners and the firm itself. So it is always worthwhile to draw up a written partnership deed and register the firm with the Registrar of Firms. The consequences of not doing so are as follows:
According to the India Partnership Act 1932, there is no time limit for the registration of a firm. The firm can be registered on the date when it is incorporated or any such other date after so. The required fees and fines must be paid. The procedure for such registration can be summarized as follows:
Application in the prescribed form (Form A) is to be made to the Registrar of Firms. This facility is even available online. The application to be submitted must contain certain basic details about the firm such as:
- Name of the Partnership Firm
- Name and address of all partners
- Address of place of business (Both main and branch offices)
- Duration of the partnership
- Date of joining of partners
- Date of commencement of business
The duly signed copy of the Partnership Deed containing all the terms and conditions must be filed with the registrar
Pay the necessary fees and stamp duties
After the approval of an application by the registrar, the firm will be entered into the records and a certificate of incorporation/ registration will be issued which gives the firm legal recognition.
PROS & CONS
Procedure of Formation
A partnership provides a business structure that’s easy to maintain with very little paperwork, however, some municipalities and states do have some additional requirements.
Decision making in a partnership firm could be faster as there is no concept of the passing of resolutions. The partners in a partnership firm enjoy a wide range of powers and in most cases can undertake any transaction on behalf of the partnership firm without the consent of other partners.
Every partner owns and manages the activities of their firm. Their tasks might be varied in nature but people in a partnership firm are united for a common cause. Ownership creates a higher sense of accountability, which paves the way for a diligent workforce.
Partners can divide work among themselves, depending on their skills, and talents. This helps the firm to grow quickly.
Procedure of Formation
When the firm suffers a loss, then every partner associated has to bear them. Furthermore, the liability that one partner creates happens to be one for the other partner as well. To quell this liability, LLP came into existence.
When it comes to the numbers of members that are allowed in such a firm, the number is limited to 20. To that end, the LLP makes for a much better option in this regard.
While it is commendable that this form of business entity tries to take a lot more opinions into account, the lack of a central figure when it comes to operations can make the entire endeavor a bit directionless. Furthermore, there can also be a discrepancy as to how much power is given to the partner(s). There are times when one partner has more power than the other and this can turn things ugly as well.
When it comes to matters of trust, you should know that a partnership firm does not require any sort of registration. To that end, there is no need to have the structure of this firm. Now, for something even appears to be directionless, it is quite hard to gather the trust from anyone, let alone the public.
When there is a certain case of “death” of one of the partners of the firm, it results in the complete dissolution of the firm. This sudden tendency to end the business of this firm with no protection against dissolution, LLP has become a more desirable option as the death of the partner does not lead to any such disruptions to operations.
It is difficult to transfer the interest/ share of one partner to an outsider unless all other existing partners unanimously agree.
A firm need not place its books to public scrutiny. It need not get its accounts audited. The firm is not subjected to elaborate accounting and auditing rules and regulations from the government.
Procedure of Formation
Requirements for Conversion:
The Partnership firm should be registered with the Registrar of Firms
Should have a minimum of 2 Partners
Partnership deed must have the conversion clause
All partners of the partnership firm shall become shareholders of the company in the same proportion in which their capital accounts stood in the books of the firm on the date of the conversion.
Consent of the majority of members by calling a general meeting for conversion should be obtained.
Documents Required
Aadhaar Card
Pan Card
Voter ID
Bank Statement
Electricity Bill
NOC
Passport Size Photo
Business Description
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Rohit Aggarwal
Anurag Kashyap
