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Partnership

All about Partnership Firm

Partnership is most commonly used form of business structure. In India Partnership are governed by the Indian Partnership Act, 1932. As per Section 4 of the Indian Partnership Act:-

“Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.

    Partnership



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    Some commonly used terms are

    Partners

    Persons who have entered into partnership with one another to carry on a business are individually.

    Partnership firm

    A partnership firm is not a separate legal entity distinct from its members. It is merely a collective name given to the individuals composing it.

    Firm name

    The name under which their business is carried on is called the “Firm Name”.

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    Documents requirement for partnership firm

    Voter's ID/Passport/Driving License PAN Card

    Passport-sized photographs

    Proof of registered office

    Proof of registered office.

    Advantage of forming Partnership firm

    Burden sharing.
    Effective decision making.
    Easy to start with minimal Registration Fees.
    Combined ownership and control.
    There is more contacts, skills, experience and profits.

    Disadvantages of forming Partnership firm

    The partners of the firm are personally liable for all debts and liabilities of other partners.
    There is nothing that can stop a person from personal liability that means partners are having unlimited labiality.
    For every decision in a partnership firm permission for other partner is required.

    Taxation rules in a Partnership firm

    Partnership firms generally donot pay income taxes but the profit and losses are clubbed in partners personal income tax return.

    FAQ

    • When you want to start your business involving one of your family members, then partnership might be the right option for you to choose

    • One or more Partners can be designated to manage the Partnership Firm

    Comparison

    Private Limited CompanyOne Person CompanyLimited Liability PartnershipPartnership Firm Proprietorship Firm
    Act Companies Act, 2013 Companies Act, 2013 Limited Liability Partnership Act, 2008 Indian Partnership Act, 1932 No specified Act
    Registration Requirement Mandatory Mandatory Mandatory Optional No
    Number of members 2 – 200 Only 1 2 – Unlimited 2 – 50 Only 1
    Number of Director/Partner 2 – 15 Only 1 2 – Unlimited 2 – Unlimited Only 1
    Separate Legal Entity Yes Yes Yes No No
    Liability Protection Limited Limited Limited Unlimited Unlimited
    Statutory Audit Mandatory Mandatory Dependent Not mandatory Not mandatory
    Ownership Transfer ability Yes No Yes No No
    Uninterrupted Existence Yes Yes Yes No No
    Foreign Participation Allowed Not Allowed Allowed Not Allowed Not Allowed
    Tax Rates Moderate Moderate High High Low
    Statutory Compliance High Moderate Moderate Less Less