Partnership firms can be started in India by a group of Indian Citizen containing at least two persons. Partnership registration can be unregistered based on a deed or registered with deed through the Registrar of Firms.
A Partnership firm can be registered under Section 58 of the Indian Partnership Act at any time, even subsequent to formation. The registration of a partnership firm is done by filing an application with the Registrar of Firm of the area in which any place of business of the Partnership Firm is situated or proposed to be situated. When the Registrar of Firms is satisfied that the provisions of Section 58 are duly complied with, a record of entry of the statement is made in the Register of Firms and Certificate of Registration is issued. The application for registration of Partnership Firm must contain the prescribed registration form for incorporation of a company, certified true copy of the Partnership deed entered into and ownership proof of the principal place of business.
What is a Partnership Firm/ Business
A partnership is an arrangement where parties, known as partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may be only governed by a contract.
There are two types of Partnership firms, registered and un-registered Partnership firm. It is not compulsory to register a Partnership firm; however, it is advisable to register a Partnership firm due to the added advantages.
Advantages and Disadvantages
A Partnership is the relation between persons who have agreed to share profits of the business carried on by all or any of them acting for all. Partnerships are a very good form of business entity for small enterprises wherein more than one person decides to contribute in a partnership and share the profits. In India, Partnerships are widely prevalent because of its ease of formation and minimal regulatory compliance. In this article, we look the types of partnership, advantages and process of registering a partnership firm.
One of the main advantages of a Partnership Firm is that there are very minimal requirements in terms of compliance. For instance, a Company requires annual filing of its financial statements with the Registrar of Companies and the part of the financial statements of the Company are made public documents. On the other hand, registered/unregistered Partnership Firms are not required to file any annual returns / the Firms financial statements with any Regulatory body. Therefore, the financial statements of a Partnership Firm are not available in the public domain. Also, the accounts of a registered / unregistered Partnership firm are not required to be audited. Whereas, the accounts of a Limited Liability Partnership are required to be audited when the turnover exceeds Rs.40 lakhs per annum or when capital contribution exceeds Rs. 25 lakhs.
Partnership firm do not provide its Partners with limited liability and do not have a perpetual existence. Also, the interest of a Partner in a Partnership firm is not easily transferable and the ownership structure is not conducive for Private Equity Investors. In addition to being tougher (almost impossible) to obtain private equity investment in a partnership firm, it is also harder for Partnership Firms to obtain loans from Banks & Financial Institutions. Banks / Financial Institutions prefer to lend to Companies than Partnership Firms as Companies are separate entities and the regulatory requirement for financial reporting of Companies, makes Companies more transparent and structured.