Partnership is one of India's most preferred forms of business organisation. When two or more persons agree to share their resources to achieve a common goal, we can call them partners. A partnership shares responsibilities, resources, profits and losses among two or more persons based on mutual agreement. When the parties agree to do business as partners, they enter into a legal contract with all the terms and conditions of the partnership.
This legal agreement or document is called the partnership deed. It contains the terms agreed upon among the partners, such as profit/loss sharing ratio, conditions for the admission of a new partner, number of working partners, capital contribution and rate of interest to be paid to the partners, the salary of the partners, the liability of partners, etc. As per the Indian Partnership Act 1932, the partners need to finalise a partnership deed and sign it before starting a business as a partnership firm. A firm can do the partnership deed registration after the formation.
Did you know?
Handoo and Handoo is the first Limited Liability Partnership (LLP) firm in India, incorporated in 2009 as the government introduced the Limited Liability Partnership Act 2008.
What Is a Partnership Deed?
Before we read the procedure of registering a partnership firm, let us understand what a partnership deed is. A firm cannot commence a partnership without a partnership deed. It is a document signed between the partners that contain all the necessary terms and conditions of the partnership. The partnership deed is the pre-requisite document for initiating the process of registration. Some of the crucial points mentioned in a partnership deed are -:
- Name of the firm
- Nature of business
- Name and address of the partners
- Capital contributed by the partners
- Profit-sharing ratio
- Salary of the partners
- Rate of interest on capital
- The procedure of admission of a new partner
- Procedures on the retirement or death of a partner.
The deed accompanies a stamp paper of a prescribed value, and the partners sign it in front of the witnesses.
Also Read: Primary Aspects of Setting up a Partnership Firm in India
Advantages of a Partnership Firm
1. Pooling of Knowledge and Resources
The partnership form of organisation helps pool the knowledge, expertise, resources and capabilities of two or more persons or partners in one place. These shared resources are then strategically aligned to work towards a common goal. In this way, the firm can maximise its strengths and minimise the deficiencies resulting in gains for the business.
2. Easy Formation and Less Burden of Compliance
Compared to other forms of organisation, like a company, a partnership firm are more suitable as it is easy to form and commence business as a partnership firm. Two people only require a partnership deed among the partners to start a partnership firm, and the partners can do the registration of the deed or firm at a later stage after formation. The registration is voluntary and is not compulsory. A partnership firm can operate as an unregistered firm.
3. Helps Build Strong Goodwill Among the Competitors in the Market
When two or more partners combine their strengths and expertise, it helps build and maintain substantial goodwill. The consumer base also increases due to the enhanced reputation of the organisation.
4. Increased Borrowing Capacity
A business as a partnership firm can borrow more funds than a business run by a person. This is because the borrowing capacity of two or more partners is combined, and therefore the partnership firm can borrow more funds than a single partner.
5. Quick and Easy Decision-Making Process
The firm's partners are also the firm's owners, and hence the decision-making powers rest with them. Therefore, the partners can make quick decisions with mutual discussions and agreement and grab a business opportunity.
How to Register a Partnership Firm?
To register a partnership firm, the organisation should submit the required documents to the Registrar of Firms of the particular state in which they want to register the firm and the prescribed fee. The registration process varies from state to state, and some state follows the offline mode while some follow the online mode through the Ministry of Corporate Affairs's official website. The step by step procedure for registering a partnership firm is as below:
1. Documentation
The first step is to gather all the necessary documents for the registration process. The primary documents for the registration of a partnership firm are
- The partnership deed or agreement
- Address proof of the place of business
- Identity proof and address proof of the partners
- No Objection Certificate from the partners.
- Photographs and copies of PAN cards of the partners.
The firm should send the documents mentioned above to the Registrar of Firms of the state where the partners register the firm. In states where an online registration facility is available, the firm can upload scanned copies of the documents on the Ministry of Corporate Affairs website. The Registrar then verifies the records before the process of registration proceeds to the next step.
Also Read: A Guide to Online LLP Registration
2. Selection of the Name of the Partnership Firm
The next step is to give a proper name to the partnership firm. The title should be unique and should not be a copy or resemble the name of an existing firm or company. The partners should mutually decide and agree on the name of the partnership firm.
3. Entry of the Firm's Name in the Register of Firms
If the Registrar verifies all the necessary documents submitted by the firm and approves the firm's name, the partnership firm is registered with this name. The Registrar of Firm enters the name in the Register, and the partnership gets the status of a registered firm. Then the Registrar grants a certificate of registration to the partnership firm. In the case of partnership firm registration online, the authorities mail the certificate to the registered email. After the registration, the rules require the firm to put the word 'Registered' after its name.
Importance and Advantages of Registering a Partnership Firm
Although, under the Indian Partnership Act 1932, it is not compulsory to register a partnership firm, registering it can have many benefits. Comparing a registered and unregistered firm can give a better insight into the advantages a registered partnership firm can enjoy.
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Points of Difference |
Registered Partnership Firm |
Unregistered Partnership Firm |
|
1. Power to file a case against the third party. |
A registered firm can file a suit against a third party for enforcing a right under a contract. |
An unregistered firm cannot file a suit against a third party because it does not have a legal identity. However, a third party can file a case against an unregistered firm. |
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2. Right of the partner to sue another partner. |
In a registered firm, a partner can sue another firm partner or the firm itself to enforce a right arising from a contract entered between them. |
A partner of an unregistered firm cannot sue another partner or the firm for enforcing his contractual rights. |
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3. Applicability of the provisions of the Indian Partnership Act 1932. |
The provisions of the said Act apply to a registered partnership firm. |
The provisions of the said Act do not apply to an unregistered firm. |
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4. Conversion into Limited Liability Partnership (LLP). |
You can easily convert a registered firm into an LLP. |
An unregistered firm must first get registered, and then it can be converted to form an LLP. |
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5. Trustworthiness and goodwill. |
A registered firm enjoys more trustworthiness as compared to an unregistered firm. The goodwill of registered firms is also better. |
The reliability of an unregistered firm is comparatively less. |
Conclusion
Thus, setting up a partnership firm and registering it is easy. There are many advantages of getting a partnership registered. You can commence your business as a partnership firm with knowledgeable and willing partners. The profit and loss sharing helps in maintaining long term stability. It also gives a competitive advantage as the strengths and resources of two or more partners can provide better results when combined. If you also have a business idea, find suitable partners with the same goals and vision and required resources and enter into a partnership to execute your idea and earn profits.
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