What is a partnership firm and How to Register a Partnership Firm?

 How to make a partnership firm?

One of the most significant types of company organisation is a partnership. In a partnership firm, two or more people join forces to start a business and distribute the earnings equitably. Any type of trade, activity, or profession is included in the partnership business. Compared to corporations, a partnership company is simpler to establish and requires less compliances.

In India, partnership businesses are governed and regulated under the Indian Partnership Act, 1932. Partners are the people who join forces to create a partnership company. A partnership agreement between the partners creates the partnership firm. The agreement between the partners, known as a partnership deed, governs their interactions with one another as well as with the partnership business.

Partnership Firm Benefits:

 Simple to Incorporate:

Compared to other business organisation types, the incorporation of a partnership firm is simple. By creating the partnership deed and signing the partnership agreement, the partnership business may be formed. There are no more documents necessary outside the partnership deed. Even the Registrar of Firms does not need it to be registered. Since registration is optional rather than required, a partnership firm may subsequently become incorporated and registered.

Reduced Compliance

Compared to a business or an LLP, the partnership firm is subject to far less compliance requirements. A Digital Signature Certificate (DSC) or Director Identification Number (DIN), which are necessary for the company directors or designated partners of an LLP, are not needed of the partners. Any modifications to the company may simply be made by the partners. They are subject to legal limitations on what they can accomplish. In comparison to a corporation or LLP, it is more affordable and the registration process is more efficient. It is simple and does not require many legal formalities to dissolve a partnership business.

Quick judgement

Because there is no distinction between ownership and management in a partnership business, decision-making moves quickly. All decisions are made jointly by the partners and are instantly operative. The partners can engage in a variety of activities and tasks on the firm's behalf. Even without the approval of the other partners, they may carry out certain transactions on behalf of the partnership company.

Distribution of Gains and Losses

Equally divided amongst the partners are the firm's gains and losses. They even have the freedom to choose how much money the partnership business makes and loses. They feel a feeling of ownership and accountability because their labour directly affects the firm's profitability and turnover. Any losses incurred by the company will be shared equally or in accordance with the partnership agreement ratio, which lessens the impact of losses on any one partner or individual. They are each responsible for the company's operations individually and collectively.

Procedure for Registering a Partnership Firm

Step 1: Application for Registration

An application form has to be filed to the Registrar of Firms of the State in which the firm is situated along with prescribed fees. The registration application has to be signed and verified by all the partners or their agents. 

The application can be sent to the Registrar of Firms through post or by physical delivery, which contains the following details:

• The name of the firm.

• The principal place of business of the firm.

• The location of any other places where the firm carries on business. 

• The date of joining of each partner.

• The names and permanent addresses of all the partners.

• The duration of the firm. 

Step 2: Selection of Name of the Partnership Firm

Any name can be given to a partnership firm. But certain conditions need to be followed while selecting the name::

• The name should not be too similar or identical to an existing firm doing the same business.

• The name should not contain words like emperor, crown, empress, empire or any other words which show sanction or approval of the government.

Step 3: Certificate of Registration

If the Registrar is satisfied with the registration application and the documents, he will register the firm in the Register of Firms and issue the Registration Certificate. The Register of Firms contains up-to-date information on all firms, and anybody can view it upon payment of certain fees.

An application form along with fees is to be submitted to the Registrar of Firms of the State in which the firm is situated. The application has to be signed by all partners or their agents.

Documents for Registration of Partnership

The documents required to be submitted to Registrar for registration of a Partnership Firm are:

• Application for registration of partnership (Form 1)

• Certified original copy of Partnership Deed.

• Specimen of an affidavit certifying all the details mentioned in the partnership deed and documents are correct.

• PAN Card and address proof of the partners.

• Proof of principal place of business of the firm (ownership documents or rental/lease agreement).

If the registrar is satisfied with the documents, he will register the firm in the Register of Firms and issue a Certificate of Registration.

Register of Firms contains up-to-date information on all firms and can be viewed by anybody upon payment of certain fees.

Name Given to the Partnership Firm

Any name can be given to a partnership firm as long as you fulfil the following conditions:

• The name shouldn’t be too similar or identical to an existing firm doing the same business,

• The name shouldn’t contain words like emperor, crown, empress, empire or any other words which show sanction or approval of the government.

Partnership Deed

A partnership deed is an agreement between the partners in which rights, duties, profits shares and other obligations of each partner is mentioned. A partnership deed can be written or oral, although it is always advisable to write a partnership deed to avoid any conflicts in the future.

Details Required in a Partnership Deed

General details

• Name and address of the firm and all the partners.

• Nature of business.

• Date of starting of business Capital to be contributed by each partner.

• Capital to be contributed by each partner.

• Profit/loss sharing ratio among the partners.

Specific details

Apart from these, certain specific clauses may also be mentioned to avoid any conflict at a later stage:

• Interest on capital invested, drawings by partners or any loans provided by partners to the firm.

• Salaries, commissions or any other amount to be payable to partners.

• Rights of each partner, including additional rights to be enjoyed by the active partners.

• Duties and obligations of all partners.

• Adjustments or processes to be followed on account of retirement or death of a partner or dissolution of the firm.

• Other clauses as partners may decide by mutual discussion.

Timelines for Partnership Firm Registration

The partnership firm registration process takes approximately 10 days, subject to departmental approval and reverts from the respective department.

Checklist for Partnership Firm Registration

• Drafting of Partnership Deed.

• Minimum two members as partners.

• Maximum of equal to or less than twenty partners.

• Selection of appropriate name.

• Principal Place of business.

• PAN card and bank account of the firm.

FAQs on Partnership Firm Registration

How much time does it take to register a partnership firm?

The registration of a Partnership Firm in India can take up to 12 to 14 working days. However, the time taken to issue a certificate of incorporation may vary as per the regulations of the concerned state. The registration of a Partnership Firm is subject to government processing time which varies for each State.

Are there any grounds on which my partnership can be invalid?

Often, if the partnership agreement is not registered, the court may deem a partnership invalid. If the object of the business is illegal, the court may consider the partnership invalid and dissolve the partnership.

If all partners wish to end the partnership, how can they do so?

If the partners of a firm wish to end the partnership, they can do so by dissolving the partnership by notice, if it is a partnership of will. A partnership can be dissolved in accordance with the terms laid out in the Partnership Deed, or they can do so by creating a separate agreement.

Can my certificate of registration be cancelled?

In a certain sense, a partnership certification of incorporation can be revoked, this often termed as dissolution. A dissolution can be brought upon automatically when all partners or all partners except one partner are declared insolvent or if the firm is carrying unlawful activities, i.e. like trading in drugs or other illegal products, corporate malpractice or making business engagements with countries that may harm the interest of India.

What is the scope of liability when it comes to partnerships?

Every partner is jointly liable with all the other partners and also individually, for all acts/activities of the firm, during the course of business while he/she is a partner. This means that if a loss or injury is caused to any third party or a penalty is levied during the course of business all partners will be held liable even if the injury or loss was caused by one of the partners.