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Most entrepreneurs are familiar with the partnership firm business structure, which involves a group of partners coming together by mutual agreement for profitability. The partners collectively own, manage, and control the firm, each contributing a portion of the shared capital.
A partnership firm is formed by two or more individuals with the primary objective of generating profit. These individuals are referred to as partners, and they share in the profits and losses of the business in proportion to their investment and ownership.
Partners often invest significant amounts of capital into the firm, and decision-making is a collective process. All partners must reach an agreement before making any business decisions.
There are two types of partnership firms: registered and non-registered. Although registering a partnership firm is not mandatory in India, it is highly recommended due to the benefits that come with registration. Registered partnership firms enjoy advantages that are not available to non-registered firms, and the registration process is straightforward and requires minimal documentation, rules, and formalities as per the Partnership Act, 1932.
A partnership deed is an agreement that outlines the rules, duties, regulations, methodology, functions, and shares of the business. It is created and signed by all partners on a Judicial Stamp Paper which costs around Rs. 2000/-. Registering the partnership deed online is mandatory to avoid partner disputes and conflicts in the future.
All registered partnership firms or members of the partnership firm must present their PAN cards as proof of identity.
All designated partners must provide a copy of their address proof such as an Aadhar card, voter ID, driving license, ration card, etc. The information provided in the address proof document should match the PAN card information.
The address proof of the registered working place must also be submitted. If the registered office place is a rented property, then the applicant must provide the rental agreement along with a utility bill such as an electricity bill, gas bill, water bill, property tax bill, etc. The applicant must also submit a No Objection Certificate (NOC) from the owner of the registered office place.
To register a partnership firm, the following steps must be taken:
A partnership company can have various types of partners, with differing roles, responsibilities, and ownership rights. The following are some typical types of partners found in a partnership company:
A partner who actively participates in the management and operations of the partnership and has unlimited liability for the debts and obligations of the partnership.
A partner who invests in the partnership but does not participate in the management or operations of the business, and has limited liability for the debts and obligations of the partnership.
An individual who invests in a partnership but does not actively participate in managing or operating the business.
An individual who lends their name to a partnership but does not contribute capital or participate in managing or operating the business.
An individual whose actions or statements make others believe they are a partner in the business, creating legal liability for them.
The specific roles and responsibilities of each partner may vary depending on the partnership agreement and the business’s nature. It is essential for all partners to have a clear understanding of their obligations and rights to avoid legal issues and disputes in the future.
Easiest Business Structure:
Partnership firms are considered one of the most accessible business structures. They can be incorporated with just a partnership deed and minimal documentation, unlike other firms requiring more formalities that take about 10-15 days to complete.
Funds Raising:
Compared to other business structures, partnership firms are favored by banks for approving credits and loans because of their multiple partners who contribute more feasibly.
Decision Making:
Decision-making in partnership firms is more straightforward as there are no rules and regulations to follow when passing a resolution. A partner can make money-related transactions on the firm’s behalf without other designated partners’ consent.
Easy Management:
All partners of a partnership firm are assigned specific roles and responsibilities based on their capabilities as laid out in the partnership deed. This helps to manage the business smoothly without any conflicts or disputes.
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