Partnership in business arises when existing proprietary interest has got some growth and there is an intention of the proprietor to expand the existing business.
Partnership in business arises when existing proprietary interest has got some growth and there is an intention of the proprietor to expand the existing business.
Partners are a group of persons who have entered into Partnership Agreement with one another. According to Section 4 of the Indian Partnership Act, 1932, Partnership is the relation between the persons who have agreed to share the profits of a business carried on by all or any of them acting for all.’ Partners have to collectively decide a firm name under which a Partnership Business is carried out.
Partnership Deed or Agreement is actually the terms and conditions of partnership business which is mentioned in writing. A Partnership firm must have a minimum of two persons at any time during the entire life of the Partnership firm. However, maximum partners permitted are total 50.
Any individual partner cannot act as the sole owner of any of the assets of the business. Also, every partner has the right to take part in the management of the business. Liability of each partner is unlimited, joint and several.
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Advantages of the Partnership business
- Partnership firm or business can be easily formed with a minimum 2 members.
- The registration process is simple.
- For Partnership firm, it is not compulsory to publish accounts and other data so the business secrecy can be maintained.
- Decisions are taken by partners collectively and in a sound manner. A partnership firm is a personal business
Registration of Partnership
The Indian Partnership Act 1932 does not make it compulsory to register a Partnership firm. However, registration of a Partnership firm is always advisable.
The procedure of Registration: If a Partnership firm wants to register itself then it must make an application to the Registrar of firms. The form for registration is available at the Registrar’s office and Partners are required to fill in the following information:
a. The name of the firm
b. The principal place of the firm (Head Office)
c. Name of the other place where the firm has a business (Branches)
d. The date when each partner joined the firm
e. The name and addresses of the partners.
f. The duration of the firm. (In case of Partnership at will/for particular period)
After all the rest of the process if Registrar is satisfied then he will issue aCertificate of Registration.
Types of Partners
- Active or Actual Partners: A partner who takes an active interest in the working of the business.
- Sleeping or Dormant Partner: A partner who contributes capital, shares profits and contributes to the losses of business but does not take part in the working of the business
- Nominal Partner: Partner who does not bring capital nor takes an active interest in the working of the firm.
- Minor Partner: A minor cannot enter into a contract according to the Indian Contract Act, 1872 because a contract by a minor is void. However, a minor may be admitted for the benefits of an existing partnership with the consent of all partners.
- Partner in profits only: A partner who shares only the profit and not losses.
- Partner with limited liability: A partner whose liability is limited to the extent of his investment
- Secret Partner: A partner who does not want to be known as a partner to the third parties.
- Quasi Partner: A partner in Partnership firm who retired from firm but left his capital with the firm.
- Sub-Partner : A partner who agrees to share their own profit derived from the firm with a third person is known as sub-partner.
Types of a Partnership firm :
There are two types of Partnership firms, namely: General Partnership and Limited Liability Partnership.
1. General Partnership: General Partnership came into existence with the provisions of Indian Partnership Act, 1932’ and in General Partnership, every partner has equal rights.
General Partnership comprises of three types :
(a) Partnership at will: When there is no clause in Partnership Agreement regarding the time period for Partnership then it is said to be Partnership at will.
(b) Partnership for Particular Period: When a partnership business is formed for a specific and particular time period then it is known as Partnership for Particular Period.
(c)Partnership for Particular Venture: When Partnership firm is formed for particular business then such partnership is called as Partnership for Particular Venture.
2. Limited Liability Partnership: Limited Liability Partnership also known as LLP came into existence according to the provisions of ‘Limited Liability Partnership Act, 2008’.
There are two kinds of Partners in LLP :
(a) Designated Partner: Every Limited Liability Partnership have at least two Designated Partners and one partner must be resident of India.
(b) General Partner: In LLP, all other partners are General Partners.
In a general partnership firm, two or more persons run the business together and share its profits, assets and all the monetary and legal liabilities. It is a widely recognized type of partnership.
What is a General Partnership Firm?
In a general partnership firm, two or more persons run the business together and share its profits, assets and all the monetary and legal liabilities. It is a widely recognized type of partnership. It comes with unlimited personal liability in case of business debts, for all the partners. Therefore, any partner can be sued and held personally liable for the firm’s debts. All the partners actively participate in managing and controlling the affairs of the business. Each partner holds equal rights and responsibilities. They are also liable for each other’s actions.
For example, if one of the partners enters into an agreement without the knowledge or consent of the other partners, they will still be committed to the terms of the agreement.
Unlimited liability is one of the downsides of a general partnership firm. It results in the liquidation of personal assets. In case of bankruptcy, death or retirement of any of the partners, the remaining partners will have to settle on a new agreement, as the existing partnership will disintegrate on the happening of above-mentioned events because the firm is not a separate legal entity.
It is not considered as a separate tax entity too, and therefore no taxes are levied on its profits.
How to Open a General Partnership Firm?
It is at the partner’s discretion whether or not to register the firm but it’s advisable to get it registered in accordance with the Indian Partnership Act, 1932, to obtain legal benefits. The partnership deed can be oral or written, but the latter is likely to save the firm from various future issues.
The requirements to constitute a partnership firm is-
i. There must be a minimum of two partners
ii. They must enter into an agreement to form partnership either orally or in writing
iii. The object of the agreement must be to the share profits generated from the business
iv. All the partners or any one of the acting on everybody’s behalf must actively contribute to the business
How to register a partnership firm
1. An application should be made in the form of a statement accompanied by the prescribed fee and must contain-
- The firm name
- The place or principal place of business of the firm
- The names of any other places where the firm carries on business
- The date when each partner joined the firm
- Names in full and permanent addresses of the partners
- The duration of the firm
2. The statement must be signed by all the partners or by agents authorized on their behalf and sent to the registrar of the area where the firm is situated.
3. It must be also accompanied with required documents like ID and address proof of the partners as well as proof of registered address of the firm.
4. When the registrar, is satisfied that all the prerequisites have duly complied with he will make an entry of the statement and the firm will be considered as registered.
Forming a general partnership firm is easier cost-effective than setting up a corporation and requires lesser paperwork and the dissolution is simple too. Once the registration is complete, the firm will be entitled to all the legal benefits of that of a registered partnership firm.