Legal Guide

All you need to know about Partnership Firm

by ezyLegal Editor · 4 min read

All you need to know about Partnership Firm

Starting a business is often a tedious task, having a partner or a team helps ease the burden of establishing a business. A partnership firm is a business where two or more people agree to be in a business as partners or co owners. The partners divide different roles and responsibilities among themselves to ensure smooth business operations.

WHAT IS A PARTNERSHIP FIRM?

A partnership Firm is governed and regulated by the Indian Partnership Act, 1932, the act defines partnership as a profit sharing relation between two or more partners. The duties and responsibilities of the partners along with profit sharing are defined in an agreement or deed known as Partnership Agreement. The partnership is a contractual relation between the partners based on mutual understanding and course of conduct.

TYPES OF PARTNERSHIPS IN INDIA

There are mainly three types of Partnerships which are as follows-

  1. General Partnership

In a general partnership, all the partners hold equal rights and participate in decision making and management of the firm. The general partner puts his capital, skills and labor to achieve the firm’s financial goals.  In a general Partnership, a partner has unlimited liability and has the right to take decisions regarding the management and operations of the firm. 

  1. Partnership at will

Section 7 of the Indian Partnership Act, 1932 defines partnership at will as when there is no provision made between the partners for the duration of their partnership, or for the determination of their partnership. There are two essential conditions for Partnership at will, which are as follows-

  • There is no fixed period for the partnership to exist
  • There is no determination of the partnership.
  1. Particular partnership 

A Particular Partnership is formed to manage and run a particular business or venture. When the particular purpose is served the partnership can be dissolved. However, the partners can continue with the said partnership by making an agreement. If there is no agreement the particular partnership is dissolved.

Features of  Partnership Firm –

  • Contract for Partnership

Partnership is a contractual relation between two or more partners. The contract becomes an essential component of the Partnership as the partners mutually agree on terms to set up a partnership firm. This mutual agreement is validated through a contract. The agreement can be oral or in written, it helps resolve disputes and protects the interests of the partners.

  • Partners 

The Partnership is an association of people, thus making partners an important element of the partnership. As per the Companies Act, 2013 the partnership firm can have a maximum number of 20 partners. The partners are involved in management of the firm.

  • Profit sharing

Profit motive is the main reason a partnership firm is formed, each partner is entitled to a certain amount of profits. The Profits are distributed in an equal ratio or as agreed upon in the Partnership agreement. The profit sharing ratio is different for each firm and depends on multiple factors like terms, losses incurred and investment.

  • Carrying on of a business

Partnership firms have a profit motive. The firm includes any business like trade, occupation except charitable work. All the partners have equal rights to decide the functioning of the firm.

REGISTRATION PROCEDURE FOR PARTNERSHIP FIRM

  • The company name defines the brand. The first step of registration is to select a company name. The applicant has to check for availability of name and reserve the name of the firm on the RUN website. Applicants have to select an appropriate name and make sure that the company name does not exist already.
  • The applicant has to file an application for registration along with the prescribed fees and documents at the office of Registrar of Firms. The application has to be signed by the partners or by agents of the partners.
  • The Registrar of Firms will verify the application. On receiving the approval the Registrar will register the firm and issue the Registration Certificate to the Partnership Firm.

Advantages of a Partnership Firm

  • Decision making 

Each partner has to fulfill certain duties and responsibilities as per the Partnership agreement. The partners participate actively in the decision making activities of the firm, every partner brings a different perspective along with a set of skills, experience and knowledge to the firm.

  • Ease of Formation 

It is easy to set up a Partnership firm as it has fewer legal and compliance obligations. The partnership firm requires a partnership deed to establish its operation. Financially, a partnership can be started with zero paid up capital as there is no minimum capital required for incorporating a partnership firm.

  • Ownership Rights

The Partnership Agreement lays down the roles, responsibilities and profit sharing provisions of the firm. Each partner has to play his part in running the firm. The agreement demarcates the powers, rights and responsibilities of each partner. It ensures the protection of rights and prevents disputes.

RIGHTS OF PARTNERS

  • Right to Participate in conduct of Business

Every Partner has the Right to participate and conduct the business. The partnership deed can allow few partners to participate in the business and curtail the right of other partners.

  • Right to share profits

The profit sharing ratio is equally distributed among all the partners. Each partner is entitled to receive his share of profit.

  • Right to be consulted

The Partners manage the partnership firm; they take important decisions regarding the firm. During decision making every partner has to be consulted as each partner has the right to express their opinion regarding the issue.

  • Right to inspect books of accounts

This right is available to all the Active and Dormant Partners of the Partnership Firm. Each partner can access and inspect the books of accounts of the business.

NEED HELP WITH REGISTRATION OF PARTNERSHIP FIRM?

ezyLegal can help you register and incorporate your Firm and provide you with the right legal guidance. You can schedule your Consultation with an ezyLegal Lawyer and know the detailed process and advantages of registering your Firm.

You are now ready to register a partnership firm, but have some doubts? Consult a lawyer to know how to register a partnership firm.

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