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PARTNERSHIP FIRM
WHAT IS PARTNERSHIP FIRM ?
A Partnership is one of the most common forms of a business organization. A partnership firm is where two or more persons come together to form a business and divide the profits in an agreed ratio. The partnership business includes any kind of trade, occupation and profession. A partnership firm is easy to form with fewer compliances as compared to companies.
The Indian Partnership Act, 1932 governs and regulates partnership firms in India. The persons who come together to form the partnership firm are knowns as partners. The partnership firm is constituted under a contract between the partners. The contract between the partners is known as a partnership deed which regulates the relationship among the partners and also between the partners and the partnership firm.
IMPORTANCE OF REGISTERING A PARTNERSHIP FIRM
The registration of a partnership firm is optional and not compulsory under the Indian Partnership Act (only Maharashtra has made their registration compulsory). It is at the discretion of the partners and voluntary. The firm’s registration can be done at the time of its formation or incorporation or during the continuance of the partnership business
However, it is always advisable to register the partnership firm as a registered firm enjoys certain special rights and benefits as compared to the unregistered firms. The benefits that a partnership firm enjoy are:
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A partner can sue against any partner or the partnership firm for enforcing his rights arising from a contract against the partner or the firm. In the case of an unregistered partnership firm, partners cannot sue against the firm or other partners to enforce his right.
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The registered firm can file a suit against any third party for enforcing a right from a contract. In the case of an unregistered firm, it cannot file a suit against any third party to enforce a right. However, any third party can file a suit against the unregistered firm.
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The registered firm can claim set-off or other proceedings to enforce a right arising from a contract. The unregistered firm cannot claim set off in any proceedings against it.
KEY POINTS FOR REGISTRATION OF PARTNERSHIP FIRM
EASY TO REGISTER
The registration of a partnership firm is easy as compared to the other forms of business organisations.
The partnership firm can be incorporated by drafting the partnership deed and entering into the partnership agreement. Apart from the partnership deed, no other documents are required.
It need not even be registered with the Registrar of Firms. A partnership firm can be incorporated and registered at a later date as registration is voluntary and not mandatory. (Note: only Maharashtra has made registration of Partnership compulsory).
NO AUDIT OF FINANCIAL STATEMENT UPTO SPECIFIC LIMIT
Partnership firms involved in a profession with gross receipts of more than fifty lakh rupees must complete a tax audit.
Partnership firm involved in doing business must complete a tax audit if the sales turnover exceeds one crore rupees.
UNLIMITED LIABILITY OF PARTNER
The biggest disadvantage of the partnership firm is having an unlimited liability of the partners.
The partners have to bear the loss of the firm out of their personal estate. Whereas in a company or LLP, the shareholders or partners have liability limited to the extent of their shares.
The liability created by one partner of the partnership firm is to be borne by all the partners of the firm. If the firm’s assets are insufficient to pay the debt, then the partners will have to pay off the debt from their personal property to the creditors.
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NO PERPETUAL EXISTENCE
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DIFFICULT TO RAISE FUND / LOAN
Since the partnership firm does not have perpetual succession and a separate legal entity, it is difficult to raise capital.
The firm does not have many options for raising capital and growing its business as compared to a company or LLP. As there are no strict legal compliances, people have less faith in the firm.
The accounts of the firm need not be published. Thus, it is difficult to borrow funds from third parties.
The partnership firm does not have perpetual succession, as in the case of a company or LLP. This means that a partnership firm will come to an end upon the death of a partner or insolvency of all the partners except one.
It may also be dissolved if a partner gives notice of dissolution of the firm to the other partners. Thus, the partnership firm can come to an end at any time.
EASY TO CLOSE
The dissolution of the partnership firm is easy and does not involve many legal formalities.
PARTNERSHIP CAN’T HOLD PROPERTY
Partnership Firm can’t hold residential or commercial property in its own name. It can hold property in the name of Partner.
The Partnership can’t enter into transactions in its own name; it can enter into transactions in the name of partners.
HIGHER TAXATION @ 30% + CESS
Partnership are taxed @ 30 %, whereas, Private Limited Company registered under Companies Act 2013 & having turnover up to 250 Crore are taxed @ 25% Per Annum
PAYMENT OF SALARY TO PARTNER
Partnership can pay salary to partner:
On first 3 Lakh of Book profit or loss - 1,50,000 or 90% whichever is more.
On Balance - at 60%
On balance approx. 40% of net profit Partnership & LLP has to pay tax @ 30 % plus Education Cess.
Whereas, Company can pay salary to directors @ 100% of profit.
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LESS RECOGNITION FROM MARKET
Less recognized by market as compare to Private Limited.
DOCUMENTS FOR REGISTRATION OF PRIVATE LIMITED COMPANY
DOCUMENTS OF DIRECTORS/MEMBERS
(FOR MINIMUM 2 MEMBERS)
Passport size photo.
PAN Card.
Aadhar Card or Passport or Voter Id or Driving License (Any two).
Stamp Paper of requisite amount.
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DOCUMENTS OF REGISTERED OFFICE ADDRESS
Electricity or Phone Bill or Mobile Bill of office address.
Landlord NOC (Format will be provided).
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