When a group of individuals known as partner, decide to set up the business and form a relationship to share the profits of the business carried on by all or any one of them acting for all, they form a partnership amongst them which is governed and regulated by agreement formed between them. The partnership is the most popular form of organization to carry business in India.
As per section 4 of the Indian Partnership Act, 1932:
“Partnership is a relation amongst the partners who have agreed to share the profit of business carried on by all or any one of them acting for all”.
WHAT IS PARTNERSHIP FIRM?
A group of people comes together to form setup and to provide services and products through it. These firms are governed by the Indian Partnership Act, 1932. Rights and Duties of partners with each other as well with third parties are governed by this Act. In nutshell partnership firms are:
Partnership firms are the result of an agreement formed between partners.
ELIGIBILITY TO ENTER INTO PARTNERSHIP
The following can enter into a partnership and becomes a partner:
TYPES OF PARTNERSHIP
There are two types of partnership:
1. Partnership at will: It’s a form of partnership that can be dissolved by any partner during any time, i.e., it has no agreement and no clause about expiration or tenure of partnership
2. Fixed-term Partnership: Opposite of partnership at will, as the name suggests, this is a partnership with a fixed term. Partners may agree on duration in an agreement. After the expiry of such duration, such partnership comes to an end.
3. Particular Partnership: Certain partnerships are formed to carry out a particular business or venture. The scope of business to be carried out is defined in an agreement. Such partnership stand dissolved as and when such activity or venture is completed
4. General Partnership: When a partnership is created to carry out business in general with no particular scope, it is termed as a general partnership.
TYPES OF PARTNERS
Persons who have entered into a partnership with each other to carry on the business are known as “Partners”.
Partner is both an agent and principle for himself as well as for other partners of a partnership firm. He can bind others by his act and he can be bound by the acts of other partners.
Minimum Partners: A minimum of two people are mandatory to enter into a partnership.
Maximum Partners: Indian Partnership Act is silent for the maximum number of partners. Though as per Companies Act 1956, maximum number can be:
And as per companies act, 2013, maximum number shall not exceed 100.
Following are types of partner as per the extent of their liabilities in partnership:
1. ACTIVE PARTNER: These partners become the partner by an agreement and they take active participation in the day-to-day activity and business of the firm. Active partners must give public notice when willing to retire.
2. DORMANT OR SLEEPING PARTNER: This partner doesn’t actively participate in the daily functioning of partnership. He is though bound by the actions of all the partners. He needs not to give public notice for his retirement. Capital Contribution and profit-sharing are similar to those of other partners.
3. NOMINAL PARTNER: These partners only lend their name to the firm as a partner. They don’t contribute to capital nor have any share in profit.
4. PARTNER IN PROFIT: These partners will share profits only. They are not liable for any loss.
5. MINOR PARTNER: A Minor cannot enter into a contract thus accordingly he can’t be a partner; however he can be admitted to the benefits of partnership firm with the consent of all the partners.
KEY POINTS TO THE PARTNERSHIP FIRM
Essential elements that are the key necessity of any partnership firm are:
STEPS FOR REGISTRATION OF PARTNERSHIP FIRM
Forming a partnership firm is easy and less complicated as compared to Companies. It even needs a minimum of compliances to be obligated. Following simple steps should be followed to register a partnership firm:
a. SELECT A NAME:
Select any name as per the discretion of partners. However the selected name:
b. PREPARE AN AGREEMENT
The next step is to create a partnership deed. The terms and conditions to be noted in an agreement are as per the discretion of partners, also it is on the partner to get it down orally or written. However written deed is advisable in case of future conflict arise.
Written agreements should consist of the following:
Partnership deed so created should be made on stamp paper with necessary stamp duty paid as per the Indian Stamp Act.
c. SUBMIT AN APPLICATION TO REGISTRAR
Registration of a partnership is a very simple process. It’s not complicated like Company registration. An application form along with specified fee has to be paid with necessary documents to be submitted to the registrar:
d. CERTIFICATE OF REGISTRATION
If the registrar verifies an application after scrutinizing an application and all the documents, he will register the firm and issue a Certificate of Registration.
IS REGISTRATION MANDATORY?
Unlike the company, registration of a partnership firm is not compulsory. It’s as per the discretion of partners to whether get it registered or not. However, a registered firm can enjoy certain benefits over unregistered firm such as:
Can the name of the partnership firm be changed later?
Yes, a name can be changed by sending a new application form along with a
Prescribed fee, duly signed and verified by all partners
What are the effects of the un-registered partnership firm?
No partner can file any suit against firm or other partners for the enforcement of the right & unregistered firm or its partner cannot claim a set-off.
Who can inspect registers and documents of a partnership firm?
All the Registers and documents along with notices statement and intimation filed shall be kept at the registered office and should be made available for inspection by any person on payment of a prescribed fee.
What is the legal status of a partnership firm?
Unlike companies, a firm is not a separate legal entity. It has no legal identity separate from its partners.