What is a Partnership Firm Registration?
As opposed to the Limited Liability Partnership and Private Limited Company, a General Partnership Firm Registration consists of a minimum of two people who agree to manage a business based on the terms and conditions set in a Partnership Deed. While Partnership Firm Registration form of business structure is losing popularity due to the advent of LLPs, it should be noted that setting up a General Partnership is not only easy but coupled with its low cost and fewer annual compliances as compared to an LLP makes it ideal for businesses that are unlikely to face debt or similar financial crisis. Home-businesses for example, should choose a General Partnership Firm Registration since the cheaper costs and minimal compliance will be best suitable for this.
However, it should be noted that in a General Partnership Firm Registration, partners have unlimited liability and I case of debt, they will have to sell their personal possession to cover the cost. In an LLP, partners can not only ensure the safety of their personal assets but are also protected from the misdeeds or mistakes of another partner. Furthermore, it can operate even if unregistered, even though Partnership Firm Registration can ensure a lot of advantages for the business itself.
As opposed to LLPs and private limited companies, this structure is very famous among those looking to start business right away and do not foresee any debt accumulating in the near future which might be harmful for their business.
Understanding of Partnership Firm Registration
As explained above, a partnership firm is simply a company that consists of a minimum of two individuals that agree on a Partnership Firm Registration Deed which sets out the rules and regulations for the smooth running of a business structure. Liabilities are shared among the partners and profits are allocated according to the ratio decided beforehand in the agreement.
It is important to note that in a partnership firm, the partners are also the owners and thus cannot be separate from the firm. This means that in case of legal issue or financial trouble, the partners are responsible for the firm and may have to sell their possessions in order to cover the debt. To set up a Partnership Firm Registration, the business structure must have at least two partners. A banking business can have a maximum of 10 partners, while other businesses can have a maximum of 20 partners. Profits and losses are divided on the discretion of the agreement that all partners sign beforehand; this distribution may or may not be equal.
These firms are most suitable for businesses that are small since the low costs make it an attractive option. All General Partnership Firm Registration are regulated by Section 4 of the Partnership Act of 1932 - however, since Partnership Firm Registration is losing its popularity to LLPs, large businesses seldom adopt this structure.
Interestingly enough, Partnership Firm Registration is optional but in case businesses choose not to register, one partner cannot raise a lawsuit against the other partner or even the business. In case the partnership wishes to raise a lawsuit against someone, the firm should be first registered since no legal action can be taken until then. Due to these reasons, large businesses are advised to register to avoid such complications. So from a purely legal point of view, it’s recommended that you the Partnership Firm Registration.
Now let’s focus on the Partnership Firm Registration deed which contains the names, addresses, partnership name and, amount of capital invested by each partner. It also includes the date at which the partnership commenced, kind of partnership, profit allocations and further rules and regulations that the partners deemed necessary to be included beforehand. Removal or inclusion of future partners and other such details are also made a part of the partnership deed.