Start a Partnership in India with minimum investment.

Register a Partnership Firm

Apart from sole proprietorship or company forms of business structures, partnership is an important type of business organization.

In certain circumstances, it may not be possible for an entrepreneur to raise the necessary capital or resources on his own. A business’s nature means that it needs increased supervision, control, division of labor, and sharing of risk.

However, there are fewer members who can share in the profits and risk than a company. A company-like organization is also not feasible due to the small size of the business.

Entrepreneurs can then form a partnership. Let’s now learn more about partnership forms of business and how to register a partnership firm.

What is Partnership?

A partnership is a type of business entity in which two or more people come together to share the resources and profits in a set ratio. Indian Partnership Act (1932) defines partnership as “Partnership”.

“The relationship between the persons who have agreed that they will share the profits of a business carried out by all or any one of them acting for the whole.”

Individually, partners are those who agree to form a partnership business entity. The partners are also collectively called “firm”

The Companies Act 2013, 2013 states that a minimum of two persons is required to form a partnership. The maximum number of partners in a partnership firm is 100.

This is in contrast to the Companies Act 1956 which set the maximum number of members at 10 for partnerships and 20 for banks and other businesses.

Characteristics of a Partnership Firm

  1. Formed on the Basis of an Agreement

A partnership firm is formed when two or more partners agree to take on the business. A document called the “The Agreement” outlines the terms and conditions of such a partnership.Partnership Deed.

  1. Existence of a Business Activity

Only a business activity is required to form a partnership. Any type of business activity can be formed, including any industry, trade or profession.

  1. Participation of Profit and Loss between the Partners

Partners are entitled to share in the profits and bear any losses that may arise during the business’s course.

  1. Existence of an Agency Relation

Partnership business can be undertaken by all partners, or any individual partner acting for others. Each partner can act as a principal and is therefore able to act on behalf of others. He can also act as an agent for other partners.

  1. Unlimited Liability for the Partners

Each Partner is responsible for any losses that arise in the business. This means that their personal assets may be used to repay the partners’ outstanding debts.

  1. Combined Management

Each partner has the right to participate in the day-to-day operations of the company. It is not required that each partner participate in the day-to-day business operations. Partners running the business must consent to other partners before making any necessary decisions.

  1. Limitation on Transferability

Partner cannot transfer his share of the profits to another person. However, he can do so with the consent of his partners.

  1. No Compulsory Registration

However, it is not required to register a partnership form of entity. The partners have the option to register the company with the Registrar for Firms.

  1. Duration of the Partnership Firm

The partnership firm may be continued for as long as the partners desire. The law allows the partnership to end at any time if one of the partners dies, retires, or becomes insolvent. After settling the share due to the outgoing partner, the remaining partners may continue business under the same name.

Start a Partnership in India with minimum investment.
Start a Partnership in India with minimum investment.

How to Choose a Partnership Firm Name

Partners who form a partnership entity may choose any name they like for their business. However, this is subject to the following rules. According to section 58(3) Indian Partnership Act, 1932

  • The following words should not be used in the name of a partnership firm: These words include Crown, Emperor Empire, Empresse, Empress, Crown, Kaiser, Empire, Empress or Imperial.
  • Names of existing businesses should not be identical to each other. This rule is intended to protect the reputation and goodwill of existing firms if the new firm uses a similar name.

What is a Partnership Deed? How do you make it?

The Partnership Deed is basically a document which outlines the rights and responsibilities for all partners in the business entity. The Partnership Deed is legally binding and serves as a guide for the partners in their day-to-day business activities.

It helps to avoid any disagreement or discrepancy regarding the roles of each partner as well as the benefits they receive. These are the key components of the partnership deed:

  • Name, principal address, and brief description of the business venture undertaken by the partners.
  • Important financial information, such as:
  • Capital invested
  • Profit and loss sharing
  • Salary due
  • Method of distributing income to each partner.
  • The method of accounting that is used to calculate cash flow, profit or loss, assets and liabilities of the company. It also sets the fiscal year that will be used in all accounting statements. This statement will also be used to determine how these statements will be shared with other shareholders.
  • Each partner’s responsibilities, powers, and liability. The Deed might also include the names of the partners who will act as managing partners and be responsible for the management of the day-today business.
  • Information regarding the necessary steps to take in case of death or withdrawal of a partner.
  • Information about how to change the rights of partners in the event of their expulsion.
  • In the event of the business being terminated, there is a method of dissolving the partnership.
  • Information about the arbitration process.

Partnership Firm Registration, India 

The Indian Partnership Act (1932) allows for partnerships between business entities. This Act does not require the registration of partnership firms. It is up to the partners to decide whether or not they want to register this type of business entity. If the partners decide not to register the partnership company, they will not be eligible for the benefits that are available to registered partnership companies.

Section 58 of 1932’s Indian Partnership Act outlines the requirements for Partnership Registration. These provisions are as follows.

  1. Application for Registration

You can apply for Form No. 1. The Registrar must also receive the required fee and a copy of the partnership deed. This application must be filed with the Registrar of Firms of each area where the business is located. The application should include:

  • Name of the firm and nature of its business
  • Place of business or principal location
  • Names of other locations where business is conducted
  • Date of joining each partner
  • The full names and addresses for the partners
  • The duration of the firm

Additionally, all partners and agents authorized to sign such an application must sign it. It must also be submitted to the Registrar within one year of the date of creation of the partnership company.

  1. Verification of the Application for Registration

Each partner who signs such an application must verify it in accordance with the Act.

  1. Attach documents to the Application for Registration

The Registrar must receive the following documents and the prescribed fee. These documents include:

  • Registering Application Form No. 1
  • Affidavit properly filed
  • Original, certified copy of Partnership Deed. The Partnership Deed must be signed by both partners on the same stamp paper as the Indian Stamp Act. Or, the Deed must appear on a stamp paper that’s applicable in the state in which it is implemented.
  • Rent or Lease Agreement, or evidence of ownership at the place of business
  1. Registering Fee

Section 71 of the Act allows the State government to set fees and other documents to register.

  1. Name a Partnership Firm

When choosing the name of the partnership company, you should take into account the rules in the previous section. The firm must be registered using brackets and the word “Registered” after its name.

If a partner is unhappy with the order of the Registrar regarding the firm name, he can appeal to the State Government authorized to do so. The appeal must be filed within 30 days of receiving such an order, and the fee paid.

This appeal will be decided by the authorized officer upon receipt.

  1. Entry of Statement in a Register

The Registrar then enters the Statement in a register known as the register of forms, and files it according to section 59. After the Registrar has verified that the registration application is in compliance with all applicable provisions, this is done. The date that the Statement was filed and recorded by the Registrar is taken to be the date of registration.

  1. Get a PAN card

Important to remember that registration with the Registrar of Firms does not mean registration with the Income Tax Department. All firms must apply for registration at the Income Tax Department to obtain a PAN card.

8.Open a Bank Account

The partnership firm must open a current bank account in its name after receiving the PAN Card. This allows the company to perform all operations through its current account.

Procedure to Register a Partnership Firm

Step 1: Apply for registration

A registration application must be submitted to the Registrar for Firms in the State where the firm is located along with the prescribed fees. All partners and their agents must sign the registration application.

You can send the application to the Registrar of Firms by post or physical delivery. It contains the following details.

  • Name of the company.
  • The principal business location of the firm.
  • Any other locations where the firm conducts business.
  • Each partner’s date of joining.
  • Names and permanent addresses for all partners.
  • The length of the company.

Step 2: Selecting the name of the partnership firm

A partnership company can have any name. When choosing a name, there are certain requirements:

  • Names should not be identical or too similar to existing firms doing the same type of business.
  • Names should not include words such as emperor, crown or empress or any other words that show approval or sanction of the government.

Step 3: The Certificate of Registration

The Registrar will issue the Registration Certificate if the application and documents are approved. After paying certain fees, anyone can access the Register of Firms to view current information about all firms.

The application form and fees must be submitted to the Registrar for Firms in the State where the firm is located. All partners and their agents must sign the application.

Documents required for registration of partnership

These documents must be submitted to the Registrar in order to register a Partnership firm:

  • Form 1: Application for registration of partnership
  • Original certified copy of Partnership Deed.
  • Specimens of an affidavit attesting that all details in the documents and partnership deed are correct.
  • PAN Card and proof of address for the partners
  • Documentation proving the principal business location of the company (ownership documents, rental/lease agreement)

Once the registrar is satisfied, he will register your firm in the Register of Firms.

The Register of Firms provides up-to-date information about all firms. It can be viewed by anyone upon payment of certain fees.

Name given to the Partnership Firm

A partnership firm can accept any name provided that you meet the following conditions:

  • Names should not be identical or too similar to existing firms doing the same business.
  • Names should not contain words such as emperor, crown or empress or any other words that show approval or sanction of the government

Partnership Deed

A partnership agreement includes the rights, duties, shares, and other obligations of each partner. Although a partnership deed may be written or verbally, it is best to have one in writing to avoid future conflicts.

  • Information required in a Partnership Deed
  • General information
  • Name and address of the firm, as well as all partners.
  • The nature of business.
  • Each partner must contribute capital at the time of the business’s start.
  • Each partner must contribute capital.
  • Participation ratio between the partners.
  • Particular details
  • These clauses can be referred to in order to avoid conflict later on.

The interest on capital invested, any drawings made by partners, or any loans given by partners to the company.

  • Salary, commissions and any other amount that can be paid to partners.
  • Each partner has rights, with additional rights for active partners.
  • All partners have their responsibilities and obligations.
  • There are adjustments or processes that must be followed in the event of the death or retirement of a partner, or the dissolution of a firm.
  • You may also agree to other clauses with your partners.
  • Deadlines for Registration of Partnership Firms
  • The registration of a partnership firm takes around 10 days. This is subject to department approval and reverts from each department.

Checklist to Register a Partnership Firm

  • Drafting a Partnership Deed
  • At least two partners are required
  • Maximum of 20 partners.
  • Select the right name
  • Principal place of business.
  • PAN card and bank account for the company.
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