A Partnership refers to a business structure that attracts minimal risk & has better legal stability. A partnership firm is formed by two or more people with the help of a partnership deed. The said agreement lays down the legalities of the business and the profit ratio of the partners. Such entities are easy to form owing to the presence of minimal compliances. The Indian Partnership Act, 1932 regulates the partnership-based entities in India. The involved parties responsible for the formation of a partnership firm are regarded as partners.

What are the key Advantages of Partnership Firm?

Partnership firm is one of the most popular business structures in India and it offers the following benefits:

Easy to Incorporate

The incorporation of a partnership firm is relatively easy and seamless as compared to another form of business. The incorporation of a partnership firm begins with drafting a legal contract, known as a partnership deed. Keep in mind that the partnership deed is the only fundamental document required for incorporating a partnership firm.

Attracts LESS Compliances

The partnership firm has to stay in line with minimal compliances as compared to business structures like LLP. The absence of directors in a partnership firm mitigates the requirement of securing the DSC, i.e. Digital Signature Certificate or Director Identification Number. Reconstitution of the partnership firm via partnership deed is seemingly easier than other business structures. Also, these firms attract minimal operation-based compliances. The dissolution of such firms can be done without addressing heaps of compliances.

Allows partners to make quick decision 

The absence of a large management structure allows partnership firms to make swift decisions. Since the majority of the decision making is in the hand of the serving partners, there is no need of appointing additional officials to serve such a purpose.  

Profits and Loss Ratio is at the partners’ discretion

Partners have the right to decide on the Profit and loss ratio as per mutually agreed terms. This leaves no disparity or vagueness among the serving partners, thereby ensuring the improved stability of the firms.

In view of this, the individual partner is not required to address the entire loss. The presence of the associate partner can help them compensate for the loss on the agreed terms.

Importance of Incorporating a Partnership Firm

Unregistered partnership firms are more prone to dissolution and have weaker legal stability. On the other hand, registered firms do not attract such risks and offer more benefits to the serving partners.

A partner of the partnership firm is vested with the right to sue to associate partner for misconduct or unlawful activities. It is needless to mention that partners of unregistered firms lack such rights, even if the conflict of interest is with the third party

Step-by-Step procedure of registering a Partnership firm in India

A Detailed Checklist for the Registration of Partnership Firm

• Drafting of Partnership Deed
• Availability of at least two partners, the upper limit has been maxed out at 20 as per the prevailing Act.
• Selection of a legit name for a proposed firm
• Principal Place of business
• Permanent Account Name, i.e. PAN & bank account of the Firm

Following is the detailed procedure of legalizing a partnership firm in India:

Step 1: Application for Registration

An application form must be filed to the ROFs of the respective state in which the Firm is situated and the standard fees. The registration form should enclose the signature of the proposed partners.

Usually, an applicant can send the application form to the ROFs via registered post. Refer to the below checklist before dispatching the application to the said authority. The checklist encloses the mandatory details that should be enclosed in the application form.

• Proposed Firm’s name
• The principal Place of business
• Address of the ancillary unit, if any
• The date of joining of each partner
• The names & addresses of the proposed partners
• Year of the establishment of the Firm

Step 2: Choose the legalized name of the Firm

Keep the following points in mind for selecting a suitable name for the proposed Firm;  

• The name should not create a conflict of interest with any third parties or the existing Firm.
• The name should be distinctive and original.
• The name must stay in line with prevailing Act like Trademark Act and Emblem and Name Act, 1950.

Step 3: Certificate of Registration

If the Registrar finds no error in the submitted form & documents, he will grant the registration certificate & register the proposed firms in the Register of Firms.

The register of firms encloses all the details of the registered Firm and is accessible to business owners, i.e. partners, after the submission of the standard fees

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