A Partnership Firm is nothing but an organization of two or more person having mutual understanding to run business and earned profit. Partnership firms are governed by Indian Partnership Act, 1932 in India. Individual are known are partners and collectively as partnership firm.
Characteristics of Partnership Firm
Here are the characteristics of Partnership Firm business:
1. Number of Partners
2. Voluntary Registration
3. Contractual Relationship
4. Competence of Partners
5. Sharing of Profit and Loss
6. Unlimited Liability
7. Legal Status
8. Transfer of Interest
9. Principal – Agent Relationship
1. No. of Partners: There must be 2 or more partners to start a partnership business. The maximum no. is restricted to 10 while doing business of banking and 20 in all other cases.
2. Voluntary Registration: The registration of partnership is optional however it is always advisable to register the firm as there are lots of other benefits persist.
3. Contractual Relationship: There is a contractual relation among all partners. The relation is governed through a Partnership Deed containing provisions on different aspects. The deed is signed by all the partners which bind each and every one of them.
4. Competence of Partners: It has been provided under the Act that the partners entering into the Agreement must be competent they must not be minor.
5. Sharing of Profit and Loss: The profit or losses are being shared by the partners in the ratio as agreed among them and being written in Agreement.
6. Unlimited Liability: In all partnerships firm which are governed through the aforesaid Act the liability of all partners is unlimited, they all combindly liable for the losses being suffered by the firm.
7. Transfer of Interest: The interest of the partners cannot be transferred without the consent of the other partners.
8. Principal – Agent Relationship: There is a Principal Agent relationship among partners and firm. The agent act on the behalf of the firm and it is expected that he shall work in the best interest of the firm. The business may be carried out by the entire partner jointly or by any one of them acting on behalf of other partners.
What are the Advantages of Partnership Firm:
1. Easy Formation
2. Larger Resources
3. Flexibility in operation
4. Better Management
5. Sharing of Risk
1. Easy Formation: The Registration of partnerships firm is optional and do not require any formality to be done, one can start the business as per mutual understanding. Hence, it is easy to form and very economical.
2. Larger Resources: It is due to the reason that there are ample numbers of human resource, the partnership firm having larger resources for their business operations as compared to sole proprietorship firms.
3. Flexibility in operation: Yes, the partnership firm has an advantage of flexibility. They can take decision and can modify according to the dynamic environment easily.
4. Better Management: It is only because of the ownership, control and profit. The business can be well managed.
5. Sharing of Risk: As the loss is shared individually by all the partners.
6. Interest of all partners is very well protected.
What are the Disadvantages of Partnership Firm:
2. Unlimited Liability
3. Lack of Harmony :
4. Limited Capital
5. No legal status
1. Instability: This is one of the disadvantages of the partnership firm; likewise the Company is a going concern meaning by the Company cannot be dissolved with the death or retirement of any person. However, any death, insolvency may result in dissolution of the partnership firm.
2. Unlimited Liability: Each and every partner of the partnership firm has unlimited liability. Whenever there is any dispute arises which results in great loss to the firm, then the personal property of the partners can be attached in compensate the loss being suffered by any party against the firm.
3. Lack of Harmony:As we know that the partnership firm is governed only through the Agreement, there can be case arises where one partner may not agree with the opinion or decision of other partner which will ultimately results in mistrust and disharmony.
4. Limited Capital: It will be depending upon the financial state of partners, as the maximum no. is restricted only to 20 this is obvious that there will be limited capital in hand of partnership firm.
5. No legal status: the partnership firm has any legal status like other Private and Public limited companies.
How to register a Partnership firm
It is easy to form a partnership firm in India. As the firm is not required to get registered the business can be started any time without doing any legal formalities. On the other hand, if someone wants to create a partnership firm. Then an application can be filed under Section 58 of the Indian Partnership Act, 1932. The application is to be filed with the jurisdictional Registrar of Firm.
The Registrar of Firm after being satisfied will issue a certificate of registration to the firm.
What are the documents required to be filed for registration of partnership firm
Following are the documents required for registration of partnership firm
1. An application in appropriate form as required under the Act
2. Identity and address proof of the partners
3. Partnership deed
4. Proof of registered premises
5. Photos of partners.
About Author: Praveen Singh is a Founder and Managing Partner of TRIJURIS (Legal & Taxation Service Provider in Delhi). The head office of the firm is based in Delhi. The firm inter-alia engaged in providing services related to Corporate and Commercial laws advisory, Indirect taxation, Setting up industries in India as well as outside India, Legal recovery services and other regulatory matters. The firm has actively participated in assisting MSMEs in India and small businesses to scale there business and closing working with them in respect of recovery of their legitimate dues.