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Partnership deed
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GST Registration
Income Tax Return for 1 financial year
Overview
What is Partnership Firm?
Partnership firm represents a business entity that is formed with a purpose of making a profit from the business. Two or more parties come together with a formal agreement (known as Partnership Deed) to own and manage the business. The risk and responsibilities are shared amongst the partners that shred the burden of an individual partner. Also, when two comes together, more capital and expertise are combined that helps to reach the business goal(s) easily.
Partnership Act, 1932 defines the structure of a Partnership firm by providing all the necessary provisions to run the same. The Act validates both registered and unregistered partnership firms in India. However, an unregistered partnership has few shortcomings that attract partners towards Partnership Firm Registration. But, one can overcome it by registration firm anytime after it is formed.
Benefits
ADVANTAGES OF PARTNERSHIP FIRM REGISTRATION
Shared Responsibilities
The word Partnership itself describes individuals coming together for some common business object. The partners share the responsibility to work and manage the business together. Responsibilities for a particular field or task can be assigned to one or more partners by indicating the same in a Partnership Deed.
Operating Flexibility
A Partnership firm is operated on the basis of the Partnership deed executed by the partners, mutually. The partners can decide how to operate the business with their mutual consent. Also, the Partnership Deed can be changed according to the requirement even after partnership deed registration is completed. There are no limitations or restrictions on the partners in regards to running the business, as long as it is covered under the signed agreement.
Pre-defined Object or Period
At the time of registering a Partnership firm, the deed enumerates the pre-defined business objectives and activities, which is the main aim to commence business. A partnership can be formed within a specified period or to complete a specific project or object. Once the same is completed, the partnership will automatically stand dissolved.
Various Financial Returns to the Partners
Partners involved with the firm get various types of returns for their capital as well as their individual efforts. The working partner also receives remuneration in addition to the interest on capital and share of profit, as may be agreed by the partners. Also, the share of profit from partnership firm is exempt for the partner receiving it.
Online Registration
Documents Required for Partnership Firm Registration
PAN Card
A self-attested copy of PAN Card of all partners
Partners Address Proof
Business Address Proof
Utility Bill (Electricity Bill) of the place of business
Rent Agreement
Rent Agreement of the registered office should be provided, if any
NOC from owner
No Objection Certificate to be obtained from the owner of registered office
Establish Partnership in 3 Easy Steps
ONLINE REGISTRATION
1. Answer Quick Questions
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3. Establishing a Partnership Firm
*Subject to Government processing time
Process to establish Partnership Firm
THE PROCESS
Day 1
Day 2 - 4
Day 5 - 7
Day 8 onwards
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Compare different business structures to choose the right entity type
| Private Limited Company | One Person Company | Limited Liability Partnership | Partnership Firm | Proprietorship Firm | |
|---|---|---|---|---|---|
| Act | Companies Act, 2013 | Companies Act, 2013 | Limited Liability Partnership Act, 2008 | Indian Partnership Act, 1932 | No specified Act |
| Registration Requirement | Mandatory | Mandatory | Mandatory | Optional | No |
| Registration under the Act is mandatory to set up business as a Private Limited Company | Registration under the Act is mandatory to set up business as One Person Company | Registration under the Act is mandatory to set up business as a Limited Liability Partnership | Both registered and unregistered partnerships are legal, but registered entity is preferred | There is no registration criteria prescribed. But, registration to establish a legal identity is recommended | |
| Number of members | 2 – 200 | Only 1 | 2 – Unlimited | 2 – 50 | Only 1 |
| Requires minimum 2 and not more than 200 shareholders | Only an individual,and an Indian resident can be the shareholder | No bar on maximum number of partners, but minimum 2 Designated Partners are required | It is formed with minimum 2 partners, but not exceeding 50 | The proprietor is the only owner of the firm | |
| Separate Legal Entity | Yes | Yes | Yes | No | No |
| Private Company is separate entity and can own assets in its name | OPC is separate entity and can own assets in its name | LLP is separate entity from partners and can own assets in its name | Partnership firm does not have any separate identity from its partners | Proprietor and business are the same and not different | |
| Liability Protection | Limited | Limited | Limited | Unlimited | Unlimited |
| Liability of members is limited to the extent of unpaid value of shares subscribed | Liability of member is limited to the extent of unpaid value of shares subscribed | Liability of partners is limited to the capital amount agreed to introduce | Partners are jointly and severally liable to pay the debts of the Partnership Firm | Proprietor’s liability is to pay-off all the debts and obligation of a firm | |
| Statutory Audit | Mandatory | Mandatory | Dependent | Not mandatory | Not mandatory |
| Auditor must be appointed within the 30 days of incorporation | Auditor must be appointed within the 30 days of incorporation | Applicable when turnover exceeds INR 40 Lakh or contribution exceeds INR 25 Lakh | Statutory audit not applicable. Tax audit may be applicable based on turnover | Statutory audit not applicable. Tax audit may be applicable based on turnover | |
| Ownership Transferability | Restricted | No | Yes | No | No |
| Shares can be transferred with the consent of other Shareholders | Shares are not transferable easily | Ownership can be changed with consent of other partners | Ownership is not transferable easily, clause of partnership deed should be referred | Firm is no different from proprietor and so ownership is not transferable | |
| Uninterrupted Existence | Yes | Yes | Yes | No | No |
| Change in members or director does not affect the existence of Private Company | Change in members or director does not affect the existence of OPC. The nominee will take place of member |
Change in Partners or Designated Partners does not affect the existence of LLP | Change in partner leads to dissolution or formation of another partnership firm | Death or insolvency of proprietor directly affects the firm | |
| Foreign Participation | Allowed | Not Allowed | Allowed | Not Allowed | Not Allowed |
| Foreign national are allowed to invest under the Automatic Route | Member, nominee and director must be an Indian resident | Foreign nationals are allowed, subject to FDI Guidelines | Foreign nationals are not allowed to be a partner | Foreign Nationals cannot commence proprietorship business | |
| Tax Rates | Moderate | Moderate | High | High | Low |
| Tax rate applicable for small companies is reduced to 22% | Tax rate applicable for small companies is reduced to 22% | With tax rate of 30% on business profit, tax benefits to partners is high | With tax rate of 30% on business profit, tax benefits to partners is high | Tax rates of individual applied to Proprietorship Firm | |
| Statutory Compliances | High | Moderate | Moderate | Less | Less |
| Apart from Annual filings, it has to comply with various provision laid down, but less compared to public company | Apart from Annual filing, compliances are less compared to Private Company | Annual filing and few event based filings are necessary | Separate ITR of partnership is filed, else there is no filing requirement | No compliances and no requirement to file a separate ITR | |
| Know More | Know More | Know More | Get Started | Know More |
Frequently Asked Questions
The formation and Registration of a Partnership Firm in India
Whether Partnership Deed registration is compulsory?
The Partnership Act provides that both registered and unregistered partnerships are valid and recognised by law. Partnership registration is not compulsory but is beneficial due to effects of non-registration. Mostly, the businesses at initial level prefer unregistered partnership till they reach stable level. The unregistered partnership can be registered at any time after its formation.
What is the minimum capital requirement to start a Partnership Firm?
Formation of Partnership Firm does not require any minimum amount. It can be started with any amount of capital contribution by the partners. The Partners can contribute in any amount agreed and in any form being tangible (cash, premise) or intangible (goodwill, intellectual property). The Partners can introduce capital in any ratio, equal or uneven.
What are the effects of non-registration of Partnership?
Due to non-registration, the firm cannot file suit against any partner or the third party. A partner also cannot sue the partnership firm for his claim. However, the third parties can sue the firm to enforce their dues or claims. Non-registration does not affect the rights of third parties. Also, the partnership can be registered any time after formation to remove the said effects.
How many persons are required to register a partnership firm? Is there any specified requirement to become partner?
It is possible to form a partnership firm with only two partners by following the process described. Further, the Partner to be introduced and appointed in the Firm must be an Indian resident and citizen. NRI and Persons of Indian Origin can only invest in a Partnership with prior approval of the Government. The individual must be competent to contract and not a minor. A minor can be introduced to a Partnership Firm only for profit.
What are the advantages of a registered partnership firm?
Only a registered partnership firm can claim a set off (i.e. mutual adjustment of debts owned by the disputant parties to one another) or other proceedings in a dispute with a third party. Hence, it is advisable for partnership firms to get it registered sooner or later. Also, only a registered partnership firm can file a suit in any court against the firm or other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act. An unregistered Partnership Firm can get registered at any point of time after its establishment.
Under which Government Authority is the application of Partnership Firm Registration submitted?
The application for Partnership Firm Registration in India is submitted with the Registrar of Firms (RoF)Â under whose jurisdiction the Place of Business of Partnership Firm falls. The application of Registration is made in required form along with submitting the Partnership Deed. At the end of the registration procedure, the Certificate of Registration is issued by respective RoF. The process and time of registration may differ for each RoF.
Which points should be considered by all the Partners while drafting Partnership Deed?
The Partners should specifically mention about the main object and activities along with major clauses related to capital contribution, profit sharing ratio of the partners, management and administration of Partnership Firm. Further, the signed Partnership Deed shall be duly stamped and notarized.
What is the amount of Stamp duty payable on Partnership Deed?
To confirm the validity of the partnership deed, the partners must pay stamp duty required as per the capital of the firm. The amount of stamp duty payable depends on the amount of capital contribution by partners. The rate of duty is prescribed under State Stamp Act and which is different for every State.
Whether the notarisation of the Partnership Deed is necessary?
Yes, notary on Partnership Deed is necessary in every case for an unregistered or registered partnership firm.
When can the partnership firm apply for PAN and TAN?
Applying for the PAN and TAN is possible after the execution of a Partnership Firm Agreement or after partnership deed registration with respected RoF. The physical copy of the PAN will be received at the registered Business Place only after being dispatched by the Income Tax Department.
How long does it take to register a Partnership Firm in India?
The registration of Partnership Firm in India can take 12 to 14 working days. However, the issuance of Registration Certificate can take place as per the regulations of the concerned state. The time period for registration of Partnership Firm is subject to Government processing time and that varies for every State.
What are the compliance requirements for Partnership Firm?
The Partnership Firm shall maintain the Books of Accounts and Financial Statement. The Income Tax Return shall be filed for the respective financial year before the due date as per the Income Tax Act.
Whether audit is required for Partnership Firm?
Partnership firms do not need to prepare audited statements for each year. However depending on the turnover and a few other criteria, a tax audit statement might be necessary.
Can a Partnership Firm be converted into a Private Limited Company or LLP?
A partnership firm can be converted to a Private Limited Company or a LLP considering its requirements. However, the procedures to convert a Partnership firm into a Company or LLP are cumbersome, expensive and time-consuming. Thus, it is wise for many entrepreneurs to consider and start a LLP or Company instead of a Partnership firm.