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.
Documents Required for Partnership Firm Registration
- The application to be registered under the Partnership Act (form number 1)
- An original copy of the Partnership Deed which should be signed by all the partners.
- An affidavit which declares the intention of each individual to be partner.
- Submit either the rental agreement or the lease agreement pertaining to the property on which you plan to operate your business.
Partnership Firm Registration Process
Careful reviewing of your request to register will take up to 4 working days. After you send in a request, your requirements will be understood and representatives will get in touch with you to discuss every detail, legal paperwork will be finalized by a lawyer and you can review the final document or make any changes t the structure or details within this time period.
Four more working days will be required to scrutinize, analyze and check every detail of the Partnership Firm Registration. Two rounds of iterations will be conducted further, without cost if deemed necessary. This easy process with a handful of documents makes it easier to set up a partnership firm registration and have it registered in no time. Partnership Firm Registration simply makes the firm eligible to bring lawsuits to court and offers similar other advantages to partners.
Advantages of Partnership Firm Registration
- Easy to Set Up
- Minimal Compliance Requirements
- Low costs
A partnership firm can be commenced even with an unregistered Partnership Deed in a maximum of 4 days. Partnership Firm Registration is advantageous as it ensures that you are eligible to file a lawsuit in court against other firms, partners etc. in order to enforce the rights, terms or conditions set in the Partnership Deed or that which is allowed by the Partnership Act.
One of the main advantages of a General Partnership is that it does not require an auditor to be appointed or even approach the registrar to file the annual accounts. Unlike an LLP, annual compliances are fewer. However, these types of firms need to file income taxes and service and sales tax but the last two depend heavily on the turnover.
Due to minimal compliance, a general partnership is easy and relatively inexpensive to operate as compared to an LLP. Since one need not hire an auditor, it is the best for home businesses looking to remain small.