Partnership firm registration is required when two or more parties sign a formal agreement to manage and operate a business and share both the profits and losses.
Registering a Partnership is the right choice for small enterprises as the formation is straightforward and there are minimal regulatory compliances.
The Partnership Act has been in existence in India since 1932, making partnerships one of the oldest types of business entities in India. A partnership firm can even be registered after it is formed. There are as such no penalties for non Registration of a Partnership firm. But unregistered Partnership firms are denied certain rights under section 69 of the Partnership Act that majorly deals with the effects of non Registration of Partnership firms.
The application for the Partnership registration form must include the prescribed documents like the Identity proof, address proof, a real copy of the Partnership deed entered into and the proof of the Principal place of business.
Any of the following documents can be submitted as identity proof and address proofs.
Proof of Business premise can be established by submitting the following documents:
Depending on the extent of the liability while Partnership firm registration, we can derive the different classes of partners.
Partnership Firms can be classified into two types registered and unregistered Partnership firms. The Indian Partnership Act states that the only criterion to commence the business as a Partnership firm is a finalization and the partnership deed's execution between the Partners.
Under this act, the Partnership firms don't need to be registered. As an outcome of this lot of partnership businesses exist as unregistered partnership firms.
There are no penalties for the nonregistration of the partnership firms. Also, a partnership firm can be registered even after formation. But the unregistered partnership firms have been denied certain rights in Section 69 of the Partnership Act, which deals majorly with the effects of the non-registration of the partnership firm.
Here are the reasons why an individual should opt for a registered partnership firm:
A registered firm partner cannot file suit in any court against the firm or other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act.
No suit to enforce a right arising from an agreement can be instituted in any court by or on behalf of a firm against any third party unless the firm is registered under the Partnership Act.
An unregistered firm or any of its partners cannot claim set-off or other proceedings in a dispute with a third party.
Therefore, it is better to register a Partnership sooner or later.
Partnership firm registration has more advantages than disadvantages. Here, we have mentioned the advantages of Registering a Partnership firm.
Partnership firms are more comfortable to set up, and the only requirement in most cases is a Partnership deed.
In a Partnership firm, decision-making is faster as there is no concept such as passing the resolution.
The Partners of Partnership firms in India enjoy a range of powers as they can undertake any business on behalf of the Partner's consent.
A Partnership firm can quickly raise funds as compared to a Proprietorship firm.
Even the banks find Partnerships more favorable while sanctioning credit facilities in comparison to a Proprietorship firm.
As every Partner is the owner, the partners have the liberty to manage and control the firm's activities. The tasks might be varied, but people in a Partnership firm are together for a common cause.
Ownership creates a higher sense of accountability and belongingness, which helps in creating a diligent workforce.
|Cost||A partnership firm is registered through IndiaFilings starting from Rs.5899||LLP can be registered online starting at just Rs.7899 through IndiaFilings|
|Authority||A partnership firm is registered under Section 58 of the Indian Partnership Act.||LLPs in India are registered under the Ministry of Corporate Affairs, Central Government.|
|Limited Liability Protection||In a Partnership, the partners jointly venture to share the profits and losses.||In an LLP, the Partner is not responsible for any negligence or misconduct of another partner. LLPs also provides liability protection to the owners from the debts of the LLPs.|
|Number of Partners||Partnerships must have two minimum of two partners to be registered. If the number of partners reduces below mandatory two due to death or incapacitation, the firm will stand dissolved.||Similar is the case with the LLPs. At least two members are required to get registered. If the number of Partners reduces below 2, the Partner would still find a new partner without dissolving the LLP.|
Registering Partnership firms do have certain drawbacks as compared to the newly introduced Limited Liability Partnerships. As the Partnership firms do not provide Limited Liability Protection for the Partners.
In the recent past, LLPs have become a prime choice for small and medium-sized business firms.
Let us take a look at the process of converting a Partnership firm into an LLP.
To commence the Partnership conversion into an LLP, Digital Signature Certificate and DPIN OR Director Identification Number (DIN) must first be obtained for all the Partners.
Following documents are required along with Form 17 :
Once the mentioned documents are submitted to the Registrar after the verification, a certificate of Registration for LLP is issued.
The LLP must then inform the concerned Registrar of firms about converting a Partnership into an LLP within 15 days from the date of conversion through the prescribed forms.
The Licenses, approvals, permits, or registrations will not be directly transferred into an LLP. Also, suppose there are any properties registered under the Partnership firm before the conversion. In that case, the LLP must approach the concerned authorities and initiate the laid down procedure for the transfer of assets.
Hence, before converting a Partnership firm into an LLP, the Partner must clarify all the aspects.
After the conversion into an LLP, the Partnership stands dissolved, and the name of the Partnership firm is removed from the register of the Registrar of Firms. The Partnership firm is considered wholly transferred into an LLP, and the conversion does not affect any existing contracts, employments, agreement, etc.
The Partners will now enjoy Limited Liability Protection for all transactions conducted after the conversion of Partnership into an LLP. The Partners will continue to be personally liable for all the business operated as a Partnership before conversion.
Post conversion into an LLP, the newly formed LLP must include a statement that it was converted from a Partnership into an LLP in all official correspondence for not less than 12 months from the date of conversion.
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The Reserve Bank of India has laid out Know Your Customer (KYC) norms for opening of current account in the name of a partnership firms and all Banks have procedure to open partnership current account in business name based on partnership deed. Partnership deed is required to open a current account or business account for a partnership firms.
In a Partnership firm, a minimum of 2 members are required and a maximum of 20 partners are allowed.
An individual who is an Indian citizen and a resident of India can partner in a Partnership firm. Nonresident Indians and Individuals belonging to Indian Origin can invest in a Partnership only with the approval of the Government.
For the partners, it is necessary to submit a PAN card along with the identity and address proof. It is recommended to draft a Partnership Deed which is to be signed by all the Partners.
A Partnership firm can be started with any amount of capital. There is no minimum requirement as such.
It is very advisable to register a Partnership firm as a Registered Partnership Firm can file a suit in any court against any of the Partners or firm for the enforcement of any right arising from the contract referred by the Partnership Act.
Also, only a Registered Partnership Firm can claim set-off or other proceedings in a dispute with a party.
The Partnership firm and the partners are the same in the eyes of the law. In Partnership firms, the liability of the Partners is also unlimited and all the Partners are said to be jointly and severally liable for the liabilities of the firm. Hence, No Partnership firm doesn't have separate legal existence of its own.
A Partnership Firm must file the returns of Income irrespective of the number of profits or losses made by the Partners.
There are restrictions on the Transfer of ownership interest in a Partnership Firm. A Partner cannot transfer his or her interest in the firm to any person without the consent of all other partners.
A Partnership deed is an agreement between the Partner that highlights the terms and the rules of the Partnership among the Partners.
The Partnership deed lays down all the Terms and Condition of the Partnerships. As it regulates the rights and duties of each partner. A Partnership deed is a very crucial document.
There are restrictions on the transfer of the Partnership Firm. A Partner cannot transfer his / her interest in the firm to anyone without the consent of all other partners.
In the case of Partnerships, it is not necessary to prepare audited financial statements each year. However, a tax audit may be necessary based on turnover and other criteria.
Yes, there's a specified procedure for converting a Partnership firm into a Company or LLP. However, the procedure is very cumbersome and time-consuming. It will be wise if an entrepreneur considers starting an LLP or a Company instead of a Partnership firm.
To open a bank account for a Partnership firm a registered Partnership deed along with an identity proof and address proof of the Partner is to be provided.
An associate from IndiaFilings will understand your business requirements and help you start a Partnership firm by drafting the Partnership deed.
Based on the requirement we also help the partnership firms to become Registered Partnership Firms.
Last updated: Feb 27, 2021