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A partnership firm, a traditional business registration, involves two or more individuals collaborating to run a business and share its profits or losses. It's a straightforward option for MSMEs where partners decide to start a business together, sharing its gains or losses. Established in India in 1932, under the Partnership Act, this entity requires minimal compliances. Initially, it was the primary form of registration available for partners. In 2010, the LLP Act introduced Limited Liability Partnership for two or more persons seeking limited liability.

What are the criteria’s to be followed in registering a partnership firm

How a name of the firm should be selected?

Your firm's name must stand out and be distinct from existing businesses in the same field. Avoid using names resembling government departments, famous figures, or terms requiring government approval.

How a deed/agreement between partners made?

A partnership deed outlines each partner's investment, rights, obligations, and profit shares. It can be verbal or written, yet a written deed helps prevent future conflicts.

Is it mandatory to register partnership?

Partnerships in India can be registered or unregistered. According to the Indian Partnership Act, the only requirement to start a partnership business is to have a Partnership Deed. While there are no fines for being unregistered, registered partnerships offer more advantages despite allowing registration even after formation.

Few of the limitations of an unregistered partnership are:

  • In an unregistered partnership, a partner cannot sue the firm or another partner for contract breaches. Similarly, the firm can't take legal action against a third party for contract breaches.

What details and documents required to be provided for partnership deed?

  • The Firm's Name Primary business activities planned.
  • Address of the firm's registered office.
  • Details of partners: Names and addresses.
  • Total capital and individual contributions.
  • Profit/loss sharing ratio among partners.
  • Interest on extra funds from/taken by partners.
  • Salary for active partners.
  • PAN and Aadhar copies of partners.
  • Electricity bill copy and rental agreement, if rented.

FAQ on Partnership Firm Registration

  • How many persons are required to form a partnership?
    Two or more persons can form a partnership.
  • What is the basic requirement to be a partner?
    Partnership in India is restricted to Indian residents and citizens only. Non-resident Indians (NRIs) and foreigners cannot become partners in a firm.
  • What is the advantage of registering a partnership firm?
    Unregistered firms or partners are unable to file lawsuits against third parties in court.
  • Is it possible to transfer a partnership?
    Transferring a partner's shares to a third party isn't allowed; shares can only be allocated among existing partners or new partners as decided by the existing partners.
  • Partnership is a Separate legal entity like company and LLP?
    Partnerships aren't considered distinct legal entities; instead, partners have unlimited liability.
  • Is Auditing of Firm is mandatory?
    No, auditing a partnership firm isn't necessary unless it exceeds the turnover limit required for a tax audit.
  • Is it possible to convert a firm into any type of entity like LLP or Private limited?
    Yes, it's possible to convert a firm into a Limited Liability Partnership (LLP) or a Private Limited Company by adhering to the procedures outlined in the respective act.
  • How is it possible to End a partnership deed?
    If partners decide to close the firm, they can do so by providing notice. If the partnership allows dissolution at will, it can be closed based on the terms specified in the partnership deed.

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