Every business starts with a small business idea, certain partners, some investment and above of all, with the dreams of making it big one day. And after making necessary arrangements, the biggest question in picture is what should be the nature of business entity going to be? Well, there are many to choose and to pick one of them could be a challenging task. The article follow provides in depth details about how can you start your business as a partnership company registration concern and how can this be of benefit for you.
What Is a Partnership Company?
The concept of a Partnership firm is quite older in India. In actual sense, a partnership firm is a form of business which is carried on by two or more individuals known as partners and the concern so created is a Partnership firm. It is most adopted business entities especially for small businesses due to its simple procedure, its advantages and minimal regulatory compliances.
A partnership firm is governed by the provisions of Indian Partnership Act 1932 and lays all the provisions for its registration, compliance requirement, working mannerisms, inclusion & expulsion of a partner, rights and obligation of individual partners, conditions of dissolution, etc. among other provisions.
In a partnership concern, such two or more partners sign a formal agreement establishing their interests (i.e. share in profits & losses), rights and obligations in the business.
As far as the formalities related to the registration of a partnership firm are concerned, partnership firm could even be registered after its formation and there are no penalties if the same is not registered. However, non-registration of a partnership firm may limit certain exemptions and benefits available to a registered partnership firm in India.
However, a partnership firm is not included in the category of a “body corporate” as defined under clause 2(11) of the Companies Act 2013. Thus, it is not an entity distinct from its partners implying unlimited liability, cannot be sued or cannot sue someone in its own name, cannot be a debtor or creditor etc. and is just limited to a collective name given to its partners altogether for binding them in a legal relationship. Therefore, if any action is brought against the concerned firm in any court of law, the use of terms like “firm’s property”, “employee of the firm”, “suit against the firm” and so on are made for the sake of convenience, which in actual means “property/employees/ partners of such firm”.
Partnership Company Registration With Legalmart
As provided above, if you are an entrepreneur who has no idea about the legal formalities and legal processes to incorporate a partnership concern, it could be a matter of unnecessary hassle for you especially when you need to focus on other aspects of business launch too. Thus, it is essential to find someone like Legalmart, which can provide you complete information about the registration process and at the same time help you to prepare and submit documents for the successful incorporation of your business firm.
Benefits of Partnership Company Registration
As above-mentioned, a partnership firm is the most sought business entity for small businesses offering multiple benefits and lesser compliances and unnecessary hassle for a small scale business. Some of the major benefits include-
- Simple process of Registration- As compared to any other form of business entities in India, the registration of partnership firm is far easier, simple and less time-taking. It could be incorporated even after starting a business registration is not compulsory by setting a partnership deed in place defining the rights and obligations of the concerned partners in the business. On the other hand, business entities like a private company or a LLP may take around 5-10 days for finally getting the certificate of incorporation.
- Easier decision making- A partnership firm being out of the purview of the definition of a body corporate, it is comparatively easier to make and implement decisions due to the reason that the ownership as well as the management of the business is managed by same people. The partnership deed signed before registering the business gives rights and powers to the partners and if authorized by the deed, a partner can even enter transactions on behalf of the firm without taking consent from others.
- Fewer Compliances & cost-effectiveness- As compared to other forms of business like private or public company or even an LLP, a partnership firm is subject to lesser compliances such as filling returns, audits from time to time, etc. among others. Incorporating and managing the business of the firm is cost-effective as the partners do bring their own assets and cash into the business. Similarly, the process of dissolution or change in the constitution of partnership is easier and needs lesser legal formalities.
- Equal Share in Profits & Losses- This is another unique feature of the firm that sets it apart from other forms of businesses. In a partnership firm, the partners bring their own money and assets, have freedom to decide the percentage of their holding of interests respectively and have equal contribution in the profits and losses out of the business , which further helps to reduce the burden of losses on a single person as in case of a sole proprietorship business.
- Easier to raise funds for business Activities- As compared businesses like a sole proprietorship, it is easier for a partnership business to raise funds making it feasible contribution from the business partners. Also, bank institutions also prefer to sanction loans to partnership firms in comparison to a sole proprietorship business.
- Ownership & Accountability- Since the partners come together combining their area of experience and expertise, the profits and turnover are dependent on their own hard work, this gives a higher sense of ownership and accountability towards such undertaken work.
- Uniform laws- All the provisions applicable to the mannerisms of a partnership business are governed by the provisions of the Partnership Act 1932 and have uniform laws throughout their working, as compared to a company or a LLP which are governed by the Companies Act 2013.
Disadvantage Of Partnership Company Registration
- Loss of Autonomy– Though there are better business prospects and bank loan preferences in case of a partnership firm, but everybody would agree that there is greater ownership and autonomy in a sole proprietorship business in comparison to a partnership business where there are at least two partners and thus, lesser room for autonomy.
- Future Selling Complications- Further, there may be chances when there are conflicts between partners and any one of them wants to sell the business, while one or more do not wish the same. It may cause complications in selling the partnership business as a running concern.
- Lack of Stability– having constant conflicts or disagreements between partners or a situation where despite a strong clause for exit of a partner, a partner is unable to continue in the business, may shake the stability prospects of a partnership concern.
- Unlimited liability– Since, the partnership firm is not counted in the definition of a body corporate, there is no distinction between the ownership and management in a partnership firm. The partners of the firm have the unlimited liability towards the business debts i.e. in the event the business is not able to fulfil its obligations, the partners shall be liable to fulfilment their debts by making payments from their personal assets. And the partnerships firm have to bear the losses for not only theirs but are also liable for liability of the other partner of the firm.
- Abrupt Dissolution– In a partnership concern, death or insolvency of a partner may result in the abrupt dissolution of the partnership firm, which is not the case in other forms of a business.
- Lack of Public faith– Being out of the purview of the body corporate, a partnership firm could not be sued in the name of the partnership concern and lack of disclosure of the affairs, a partnership concern gets lesser public faith as compared to other legal entities in India.
- No Perpetual Succession– A partnership firm is not a body corporate and thus, doesn’t have perpetual succession which also means that the death, insolvency or any insufficiency of a business partner in a partnership firm may lead to dissolution of a business. Thus, it could end at any point of time, even if any one of them wishes to continue the business.
- Restricted amount of investments – As above-mentioned a partnership concern may only have up to 20 members at a time. And as the partners are the one who being investments and cash into the business, there is lesser scope for the resources for the business.
- Difficult to Raise Funds– A partnership concern neither have a perpetual succession and nor it could be sued in the name of the partnership firm in case of any dispute. Thus, it becomes a risky matter for banking institutions to grant funds for the business as in the event of default in the business, such person will have to sue each partner individually in the court of law.
Eligibility criteria of Partnership Company registration
- Two or more persons who are not disqualified to enter into a partnership agreement are eligible to register a partnership firm. Though, the Partnership Act, 1932 does not provide for the maximum number of partners a firm can have. However, the Companies Act provides that any association holding more than10 persons in case of banking and 20 persons in other types of business are an illegal association unless registered as a joint stock company.
- Such partners should be major as per the provisions of Indian majority Act , 1875 and should be eligible to enter a lawful contact i.e. should not be minor, lunatic and not disqualified under any applicable law.
- Such coming together of partners collectively should be for a lawful purpose, any illegal activity in pursuance of a partnership firm should render it ineligible of registration.
Documents Required for Partnership Company Registration
Following is the list of documents required to be attached with the application for registration of a partnership firm–
- Application for registration of Partnership firm duly filled in Form 1.
- Address proof of the proposed address of the Partnership firm(including any rent agreement or lease deed in case the property is rented or taken on lease).
- Identity proof of all the proposed partners of the firm.
- PAN card of the proposed firm.
- GST Registration of the firm so proposed.
- Current Bank Account of the firm.
- Any additional document may be required.
How to register a Partnership Company online
- Step 1- Acquire a digital signature certificate for at least one partner.
- Step 2- Apply for allocation of a director identification number for at least one partner for logging onto MCA portal.
- Step 3- Prepare a partnership deed specifying the share of each partner in the business, and defining his rights & obligations.
- Step 4- Prepare other documents as specified above.
- Step 5- Submit all documents including the deed for approval of the registrar on the MCA portal.
- Step 6- After verifying all documents and getting satisfied of successful completion of all requirements, the registrar will allow registration of partnership firms.
- Step 7- Registrar will issue a certificate of registration which shall evidence the legal recognition of the business.
Why you Choose Legalmart?
If you will closely analyse the advantages and disadvantages of partnership firm as a business entity, the advantages will far outweigh the possible disadvantages. Further, with proper caution and due diligence, the chances of such possible disadvantages could be nullified such as clear and detailed role of each partner in the business so that there could be lesser room for any disagreement in future. Thus, for expert advice of the preparation of documents and partnership deed, submission and getting certificate of registration for partnership firm, please refer to Legalmart, an expert and professional website for resolving all your worries in one go. Good Luck!