Partnership Firm

At GetMyAudit, we offer comprehensive services ranging from partnership formation to strategic planning, tax compliance, and legal support. With years of experience and expertise, our team provides personalized advice to help your partnership navigate challenges and seize opportunities. We are committed to excellence, delivering exceptional results and value to our clients. Trust us as your dedicated partner in achieving your business goals. With a proven track record of success, we build strong, trusted relationships, prioritizing your success above all else. Our client-centric approach ensures we listen to your needs, understand your goals, and tailor our services accordingly. Count on our efficiency, reliability, and forward-thinking solutions to keep your partnership competitive in today's dynamic business environment.

What is a Partnership Firm?

When two or more persons unite and pool resources to establish a business, they create a partnership firm. The main goal of partnership businesses is to make money. The Indian Partnership Act of 1932 defines the laws that apply to partnership firms in the country.Section 4 of the Partnership Act defines a partnership as “the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” Individuals who form a commercial partnership with another person are referred to as “partners,” and as a group, they form a “firm.” According to the Indian Partnership Act, the name they give their business to conduct operations is referred to as the “firm name.”Unlike its members, a partnership firm is not a separate legal entity. It is only the label given to the group of people who make it up. Thus, a firm cannot own property, hire servants, or be a debtor or a creditor, unlike a company that has a separate legal body that is independent of its members. It is not capable of suing or being sued.Terms like “firm’s property,” “employee of the firm,” “suit against the firm,” and so forth are only used in commercial contexts for the sake of convenience. However, in the eyes of the law, these terms simply refer to “property of the partners,” “employees of the partners,” and “a suit against the partners of that firm.”It is important to note that a partnership firm is an entity completely different from the partners who make it up and is assessable separately for tax purposes. But because a partnership firm lacks a distinct legal entity of its own, they are treated equally under all other rules.

Features of Partnership Firm

1. Contract or agreement

The first and most crucial condition for establishing a partnership firm is that the partners must have a contract or agreement. This agreement differentiates such a company from a family business. Unless the contract specifies otherwise, the next of kin of a deceased partner does not automatically become a partner.

2. For-profit business

The primary goal of running a partnership firm is to make a profit, and it must offer goods or services that generate income for the partners. A non-profit organization founded by two or more people will not qualify as a partnership firm. Additionally, the partners in a partnership firm should divide the earnings earned according to the terms of the contract.

3. Business operation

Each partner in a partnership firm possesses the authority to make decisions that benefit both the company and the individual partners. The Partnership Act stipulates that each partner must have the authority to decide for themselves and on behalf of the other partners.

Procedure for Registering a Partnership Firm

Step 1: Application for Registration

Partners or their agents must file an application form (Form 1) with the Registrar of Firms of the relevant state, accompanied by the prescribed fees. This form must be signed and verified by all partners. Form 1 can be obtained either from the Registrar of Firms office or downloaded from the state’s Registrar of Firms website.The completed application, containing details such as the firm’s name, principal place of business, additional business locations, date of each partner’s joining, names, and permanent addresses of all partners, and the firm’s duration, can be submitted to the Registrar of Firms via post or physical delivery.

Step 2: Selection of Name of the Partnership Firm

Partnership firms have the freedom to choose any name they desire, subject to specific conditions:The name must not closely resemble or be identical to an existing firm operating in the same industry. It should not include terms such as “emperor,” “crown,” “empress,” “empire,” or any words indicating government sanction or approval.

Step 3: Certificate of Registration

Upon satisfaction with the registration application and accompanying documents, the Registrar will proceed to register the firm in the Register of Firms and issue the Registration Certificate. This register maintains current details of all firms, accessible to anyone upon payment of specified fees.Partners or their agents must submit an application form along with the required fees to the Registrar of Firms in the relevant state. The application must be signed by all partners or their authorized representatives.

Types of Partnership Firms

1. Partnership at will

In a partnership firm, partners collectively determine the partnership’s duration during formation and may choose to extend it before the closing date, provided they decide in advance. A “partnership at will” lacks a specified duration and allows partners to decide on dissolution later, with profits treated as individual income, leading to each partner’s tax liability and joint responsibility for business debts.

2. Particular partnership

A “particular partnership,” as defined by the Indian Partnership Act, has a predetermined end date agreed upon by the parties, which can be postponed if mutually decided. This type of partnership is often formed for temporary projects such as government initiatives or film productions, and each partner is individually liable for meeting the business’s liabilities, potentially requiring them to use personal funds and assets to settle debts.

3. Limited liability partnership

The Limited Liability Partnership Act of 2008 regulates businesses structured as Limited Liability Partnerships (LLPs), which function as corporate entities unlike traditional partnerships. Partners in an LLP have limited liability based on their invested capital, and they are not legally obligated to use personal assets to settle the business’s debts.