The partnership is one of the oldest establishments in the field of small enterprises. A partnership firm is a kind of business in which a group of people known as partners comes together. It is considered as a separate legal entity. It is the most popular form of business in which there is one more person involved. In case of any profit or loss caused in the business, partners share all the profits and losses among themselves. It is immensely popular because it is easy to set up, Formation is very easy as well as compliance cost is very low.
A partnership firm is a form of business constitution for businesses that are owned, controlled and managed by the association of people for profit. A partnership firm is easy to start and is widespread amongst the small and medium-sized businesses in the unorganized sectors. Partnership firms are losing their importance fast with the introduction of LLP (Limited liability partnership) because of the variety of advantages given by LLPs (Limited liability partnerships).
The partnership became popular because when the need for growing business arises the single person firm or sole proprietor falls short of capital as well as manpower. To overcome this and to fulfill those requirements a bigger firm is established so that more individuals and more capital would be there. As a result, entrepreneurs developed the partnership whose aim was to overcome the difficulties of sole proprietorship and can upgrade the disadvantages of the sole proprietorship.
There are two types of partnership firms that are registered and unregistered partnership firms. Though it is not necessary to register a partnership firm but still it is advisable to register it as it offers some additional advantages like managerial distribution, economies of scale, flexibilities and many more. As each coin has two sides similarly it has some disadvantages too that are Unlimited liability, under this, the personal assets of the partners can be attached in order to pay off the liabilities of the firm in case of any loss. This is the only reason why people shifted to the formation of a private limited company. We must know that even after such limitations people still form partnerships to conduct business. It is the oldest and the immensely popular form of business organization.
To become a partner in the partnership firm you must be aware of all the bylaws and regulations of the firm. Below are the following that can enter into the partnership by law
An individual, A firm, A company, Nominal partner, Managing partner, Active partner, Minor, and other partners
A partnership firm is a business in which two or more individuals register and operate a business according to the objectives which are set in the partnership firm deed. All the partners in the partnership firm share the profit and loss amongst them and also collect investment, skills and other resources as stated in agreement. Once the online registration of the partnership firm is completed, the partners are required to maintain tax compliance to maintain the legal status of the partnership.
1. Raising funds
It is far easier for the partnership firm to raise funds as compared to the proprietorship firms because there are multiple partners available in the partnership firm to contribute money. When it comes to the loans banks prefer partnership firms more so it is easy for the partnership firm to take loans.
2. Simple to begin
A general partnership can begin within 2-4 business days and with the unregistered deep of partnership. However, registering it has its own advantages and limitations. One of the advantages of registering a partnership firm is that it allows you to book lawsuits in the courtroom opposing another business.
3. Easy to start
This kind of business entity is easy to start among all the business entities. The only requirement for registering the partnership firm is the need for a partnership deed. With this requirement, It can be incorporated and start on the same day. When you compare a limited liability partnership to this form of firm you would note that its registration process is of just one day as compared to 10-15 days registration process of LLP.
4. Equal rights
Each partner in the partnership firm has a right to manage and indulge with many activities going on within the company. If you are an owner you may have a higher sense of accountability. More accountability the partner feels, better will be the performance.
The process of partnership firm registration is simple. They are less strictly regulated than companies, in terms of the laws governing the formation in the way the business is run without the interference of the shareholders. A partnership firm is far more flexible in terms of management as soon as the partners agree.
6. Decision making
More partners mean more brains that can be picked for business ideas and for solving the problem of what business encounters with. All the partners in the partnership firm are involved in the decision making and can help each other out when they need to.
1. Unlimited Liability
The liability of the partnership firm is not limited to the property of a business that means partners have to sell their own property in case any loss is caused to the business. In order to remove this liability, LLP (Limited liability partnership) came into existence.
2. Limited capital
As the number of partners is less there are fewer chances of accumulating a large amount of capital. In comparison to other forms of firm partnership, the firm has less capital.
3. Trust issue
When it comes to the matter of trust, the public finds it hard to trust on partnership firms that result in complete dissolution of the firm and results to end the business of this firm.
4. Difficult to transfer share
The shares of the partnership firm can only be transferable on one condition i.e. agreement of the partners. A partner who wishes to sell his shares must get consensus before selling it. That is the reason why it has difficulty in share.
5. Risk of involved authority
In a partnership firm, active partners are allowed to take a decision on behalf of business and other partners too. There is not any guarantee that the active members will decide for the betterment of the business Instead there is a probability that they will take a decision for their personal benefits. Therefore, it has a risk of implied authority.
6. Problem of dispute
There is a possibility that partners may not agree all the time, Even though the partnership firm is formed by the agreement of the partners. Partners may agree or disagree regarding the profit and use of authority. This may create a dispute between the partners and may also create a problem in the existence of a business.
Identity proof of partners
Passport size photograph of all partners
Address proof of partners
Address proof of business premises like electricity bill, rent agreement, leased deed.
Affidavit declaring the intention to become a partner
FORM 1 (in case of registered partnership, the format will be provided by us)
An application form along with the fees id to be submitted to the registrar of firms in which state the firm is located.
Application has to be signed by all the partners
Documents should be submitted to the registrar which includes Application for registration of partnership, Specimen of Affidavit, Original copy of certified partnership deed, Address proof of business firm (ownership documents or rental agreement)
If the registrar is satisfied with the documents, he will register the firm and issue the certification of Registration.