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Starting a business can be a daunting task, but when you have a partner to share the workload, it becomes a lot easier. A partnership firm is a type of business structure where two or more people come together to run a business and share the profits or losses. In a partnership firm, each partner contributes to the business in some way and has a say in decision-making.
If you are planning to start a business with a partner, it is essential to register your partnership firm. In this article, we will discuss everything you need to know about partnership firm registration, including its pros and cons, steps to register, and FAQs.
Before we dive into the details of partnership firm registration, let’s take a look at its pros and cons.
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A minimum of two partners is required to start a Partnership Firm. The maximum number of partners allowed for a partnership firm in India is twenty partners. However, no foreigner is allowed as partners in the partnership firm.
You should select the name of the partnership firm that is unique & which reflects the main business activity. Ensure that the proposed name is not the same or similar to any existing business or trademark registered or applied.
There is no minimum or maximum capital prescribed under the Partnership Act 1932. You can keep the capital of the firm as per the business requirements. The stamp duty on the deed depends on the capital and the state.
Address at which the firm carries on its usual business or maintains its books of account is known as its Principal Place of Business. The latest proof of the place of business along with a NOC from the premises owner is required.
For general partnerships, there is no need for an auditor to be appointed or, if the company is still in the process of registration or is still unregistered, annual accounts filing with the registrar is not necessary either. Annual compliances are also lower when compared to an LLP.
A general partnership can be formed within 2-4 business days, with an unregistered deed of partnership. However, registering for the event offers its own set of benefits.
A general partnership is substantially less expensive to start than an LLP. It will still be cost effective in the long term because the compliance needs are minor.
The first step in partnership firm registration is to choose a unique name for your firm. The name should not be the same as an existing partnership firm or company, and it should not violate any trademarks or copyrights.
The next step is to prepare a partnership deed, which outlines the terms and conditions of the partnership. The partnership deed should include the following details:
Partnership firms need to obtain a PAN (Permanent Account Number) card from the Income Tax Department. The PAN card is used for tax purposes and is required for opening a bank account and obtaining other necessary licenses.
If the partnership firm’s annual turnover is more than Rs. 20 lakhs, it is mandatory to register for GST (Goods and Services Tax). GST registration is done online, and the partnership firm will receive a GSTIN (Goods and Services Tax Identification Number) after successful registration.
Depending on the nature of the business, the partnership firm may need to obtain other necessary licenses and permits, such as a trade license, shop and establishment license, or a professional tax registration.
Once you have completed all the above steps, you can register your partnership firm with the Registrar of Firms in your state. To register your partnership firm, you need to submit the following documents:
After submitting the documents, the Registrar of Firms will verify the documents and issue a Certificate of Registration. The partnership firm is now legally registered, and you can start your business operations.
| Features | Private Limited Company | OPC | LLP | Partnership | Sole Proprietorship |
|---|---|---|---|---|---|
|
Applicable Law |
Companies Act, 2013 |
Companies Act, 2013 |
LLP Act, 2008 |
Partnership Act 1932 |
No Law Applicable |
|
Number of members |
2 - 200 |
1 |
2 - Unlimited |
2 - 20 |
1 |
|
Number of Directors /DP |
2 - 15 |
1-15 |
2 - Unlimited |
1-20 |
1 |
|
Formation |
Through ROC |
Through ROC |
Through ROC |
Agreement |
Easy |
|
Tax Benefits |
The income tax rate for companies engaged in manufacturing activities is only 15%, while for all other newly set up companies it is 22% |
The income tax rate for companies engaged in manufacturing activities is only 15%, while for all other newly set up companies it is 22% |
LLP Income Tax Rate is 30% on its profits |
Partnership firms are taxed at 30% on its profits |
For a small business with low turnover, there is the benefit of individual tax slabs. |
|
Statutory Compliance |
High |
High |
Low |
Low |
Minimum |
|
Foreign Investment (FDI) |
Foreign Direct Investment in case of a Private Limited Company is available under the automatic route. |
FDI is not allowed in One Person Company |
FDI in LLP Is permitted at par with the companies |
FDI not Allowed |
FDI not Allowed |
|
Separate Legal Entity |
A Company is a separate legal entity separate from its promoters |
An OPC is a separate legal entity separate from its promoters |
An LLP is a separate legal entity separate from its promoters |
A Partnership is a legal entity but not different from partners |
The proprietor and the proprietorship business is the same thing |
|
Limited Liability |
Liability Limited - Shareholders of a Company are bound to pay only up to the capital they have subscribed to the company. |
Liability Limited - In OPC, unlike a proprietorship, the shareholder cannot be asked to pay beyond his subscribed capital |
Liability Limited - The partners of an LLP can be called upon to pay only up to the amount of capital they subscribed to. |
Liability Not Limited - There is no protection of limited liability, even the personal properties of partners are at risk for losses of business |
Liability Not Limited - The proprietor is the whole sole of the business, and his liability to the debts or losses of proprietorship is unlimited. |
|
Ownership Transferability |
The shareholding of a Pvt Ltd Company is easily transferable |
OPC Shares can be transferred to new shareholder along with the nominee |
In LLP contribution/share of a partner can be transferred with the consent of all other partners. |
Not Possible, every admission or removal of a partner amounts to the new firm. |
Not Applicable |
|
Perpetual Existence |
A Company exists beyond the life of its owners /shareholders. After the death, the shares transmits to legal heirs |
OPC Continues to exist even after the death of its only shareholder, as it passes to the nominee. |
The LLP also have perpetual existence and exists beyond the life of the designated partner |
No perpetual existence, with the death of a partner, the partnership ends. |
No perpetual existence, with the death of the proprietor, it ends. |
|
|
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A partnership firm is a business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in a partnership deed that may or may not be registered.
No, partnership firm registration is not mandatory, but it is highly recommended to register your partnership firm to enjoy certain legal and tax benefits.
The partners in a partnership firm are the owners, and thus are not a separate entity from the firm. Any legal issues or debt incurred by the firm is the responsibility of its owners, the partners.
The registration of a partnership firm in India can take up to 10 to 12 working days. However, the time taken to issue a certificate of incorporation may vary as per the regulations of the concerned state. The registration of a partnership firm is subject to government processing time which varies for each state.
Minimum of 2 persons and maximum of 20 is required for the formation of a partnership firm.
The individuals who are residing in India can only become partners or members in a partnership firm. Foreign individuals who want to form their business in India can choose private limited companies.
There is no minimum capital requirement for the registration of a partnership firm in India.
Every partner is jointly and severally accountable for any acts/activities of the firm committed throughout the course of business while he or she is a partner. This means that if a third party is injured or a penalty is imposed during the course of business, all partners will be held accountable, even if one of the partners caused the injury or loss.
Yes, a partnership firm can be converted into a private limited company by following the necessary legal procedures.
In a partnership firm, partners have unlimited liability, while in an LLP, partners have limited liability. LLPs also have a separate legal entity and are taxed differently than partnership firms.
