A partnership is a form of business where two or more people share ownership, as well as the responsibility for managing the company and the income or losses the business generates. The Partnership firms are easy to form and have less legal compliances. The partnership firms can be registered or unregistered and it is regulated under Indian Partnership Act, 1932. The Partnership Deed is the most essential document which decides the overall working and dissolution process. It is very important to draft the deed with full expertise so that conflicts do not arise between the partners in future.
The Act does not bind the partners to get the firm registered but comes with some drawbacks for the partners such as they cannot file or institute any cases against the partners and third parties. Therefore it is recommended to get the partnership firms registered. The State Department deals with the registration process and every state has different platforms and guidelines to submit the documents.
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Advantages of Registration of Partnership Firm
Document Required for Partnership Firm Registration
Procedure of Registration of Partnership Firm
More Insights on Partnership Firm Registration
Minimum and maximum partners
The partnership act does not prescribe the criteria of minimum and maximum partners. But as per the Companies (Miscellaneous) Rules, 2014 the minimum number of partners should be at least 2 and maximum number of members in a partnership firm is 50. The. The maximum number of members for a firm carrying banking business is 20.
Partnership with no capital
Legally no minimum capital prescribed. So, to start a Partnership firm, you need to plan the future expenses and raise capital accordingly. However, any amount capital could be introduced in the form of Partners Contribution and the same shall be mentioned in the Partnership deed, as executed between the Partners.
Partnership Firms Tax Rate
Partnership firms are liable to pay income tax at the rate of 30% of total income. In addition to the income tax, a partnership firm is also liable to pay income tax surcharge on the amount of income tax at the rate of 12%, when total income exceeds Rs.1 crores. In addition to the income tax and surcharge, a partnership firm must pay education cess and secondary higher education cess.
Disadvantages of not registering Partnership Firm
- The firm or other co-partners can not file case against any third party: If the firm registration is not done, then the firm or any other person on its behalf cannot file a suit against a third party for breach of contract which the firm has entered into. Further, the person filing the suit on behalf of the firm should be in the register of the firm as a partner.
- No relief to partners for set-off of claim: Without firm registration, any action brought against the firm by a third party having a value of more than Rs. 100 cannot be set-off by the firm or any of its partners. Pursuance of other proceedings to enforce rights arising from the contract cannot be done either.
- Third party can sue the firm: Even if the firm registration is not done a third party can bring legal action against the firm.
Get your partnership firm registered at ₹ 2,000/-
Difference between LLP and Partnership Firm
|Basis||Limited Liability Partnership||Partnership Firm|
|Registration Requirement||It is mandatory to get the entity registered under LLP Act, 2008||It can be registered as well as unregistered|
|Number of members||Partners can be unlimited||2 -50 partners|
|Number of Director||2 designated partners||NA|
|Naming of Entity||The name should be unique and no trademark should exist on the name. The name should end with LLP.||There are no naming guidelines.|
|Capital Requirement||No minimum capital requirement||No minimum capital requirement|
|Liability of Entities||Limited Liability||Unlimited Liability|
|Foreign Investment||LLP is eligible to accept Foreign Direct Investment in accordance with the RBI norms.||Not Allowed|
|Statutory Audit||Audit is compulsory if the contribution more than Rs. 25 lakhs or turnover exceeds Rs. 40 Lakhs||It is not required but tax audit is applicable on the basis of turnover as prescribed under IT Act.|
|Compliance Level||LLP has to file annual returns and statements every year.||The compliances are very less and have to just file ITR of the partnership firm.|
|Tax Rate||Tax Applicable : 30%||Tax Applicable : 30%|
|Know More||Get Started|
FAQ's on Registration of Partnership Firm
There is no Mandatory capital requirement for Partnership firm, one can start partnership firm with any minimum capital requirement.
The registration of Partnership Firm in India can take up to 12 to 14 working days. However, the time taken to issue a certificate of incorporation may vary as per the regulations of the concerned state. The registration of Partnership Firm is subject to Government processing time which varies for each State.
The stamp duty depends upon the capital contributed by the partners. There are different stamping provisions in different states.
Partner is liable to pay off the partnership firms debt to the extent partnership firm liabilities exceeds its assets. Partners will contribute in liabilities mentioned in partnership deed accordingly. Partners of Partnership firm have unlimited liability.
The Partnership Firm shall maintain the Books of Accounts and Financial Statement on yearly basis and comply with GST norms if GST Registration has been taken. The Income Tax Return shall be filed for the respective financial year before the due date as per the Income Tax Act.
LLP is a separate legal entity and can hold assets in its name. The status of Partnership Firm does not have separate identity from its Partners. The liability of Partners is limited to the extent of their contribution in LLP. Further, one Partner is not affected or not held liable for the actions of another Partner.
Yes, partnership deed can be oral but it contains one disadvantage with that, you cannot use oral deed as evidence in court of law. Generally a partnership deed should be in written form to avoid any future conflict.
Yes, notary is compulsory on Partnership Deed for an unregistered or registered partnership firm.
Partnership firms do not need to get their statements audited for each year. However, depending on the turnover and a few other criteria, tax audit statement might be necessary.
We have analysed a brief description and difference between LLP and Partnership firms. You can read the same and get in touch with our experts for detailed analysis.