Partnership – An Overview
In the world, there are many different types of organizations that have used partnership firms to conduct their business. The usefulness of this structure has been established going back to the 1800s. This type of business structure emerged significantly with the development of corporations with the goal of forging a bond or relationship between two or more parties.
The distinguishing characteristics of a partnership enable two or more people to operate the company and share earnings. One partner may conduct business in a partnership autonomously, or all partners may operate jointly for the benefit of the company.
According to the Partnership Act of 1932, a traditional partnership is established based on a written contract. All regulations must be followed when creating this type of corporate structure. Typically, new and developing enterprises choose this type of corporate formation. Therefore, it is crucial to take into account all of the variables when registering a partnership corporation.
Important organizations all throughout the world take advantage of the partnership’s core principles. As one of the world’s most renowned organizations, Hewlett Packard was founded as a cooperation endeavor.
Therefore, registering a partnership firm would be advantageous for each partner.
It’s crucial to comprehend what a partnership is before beginning the registration process for partnership firms. In layman’s terms, a partnership is a collaboration between two or more persons who have the same goal in mind: to run a business. According to section 4 of the Indian Partnership Act of 1932, a partnership is a relationship between two or more people who agree to split business earnings, either by one partner acting on behalf of everyone else or for everyone else to carry out their own responsibilities.
Partners are the people who have entered into this relationship or agreement, and the partnership firm’s business entity is known as the partnership entity.
A partnership cannot be formed through some sort of mutual understanding between the participants; rather, it must be registered legally.
For the benefit of the corporate entity, each partner must perform their respective duties. Due to the partnership, there may or may not be an agent-principal relationship.
Types of Partnership Firm
Considering on basis of Creation
A partnership may be created intentionally or accidentally. Creation-based partnerships are further categorized into:
1. Partnership created by Will
In this case, there isn’t a formal partnership contract or agreement between the partners. This partnership is only created by the parties’ mutual consent.
The cooperation is for an indefinite amount of time. The Indian Partnership Act’s Section 7 addresses partnerships created by wills.
2. Specific or Particular Partnership
In this case, the partners may have a specific agreement or contract. However, this collaboration is limited to a single task or undertaking. A joint venture (JV) agreement between two or more parties would be a typical illustration.
A JV is formed between the partners with a specific profit goal in mind. As a result, partnerships of some kind can be formed by creation under the partnership business registration process.
According to Registration
Through the registration procedure, many partnerships can be created. The following types of partnerships may be formed based on registration through the partnership firm registration process:
1. Unauthorized Partnership
Unregistered partnerships are thought to be those that lack any legal documentation relating to the registration of partnership firms. Having a contract would help an unregistered partnership avoid problems even though the partners have mutual consent to act on behalf of the partnership.
2. Official Partnership
The Indian Partnership Act, 1932’s regulations govern this type of partnership firm registration. Typically, people who want to start a partnership firm will use this type of partnership.
A formal or informal arrangement involving two or more people is called a partnership. Therefore, the terms and circumstances of the agreement govern the respective liabilities and obligations of this type of partnership.
Two or More Persons
A typical partnership must consist of two people or more. A partnership cannot be created if there is just one person. The fundamental benefit of this is that no one person is required to contribute to the partnership. It is required of more than two people to contribute to the collaboration. Therefore, a partner might use the following benefit to lessen their own burdens while registering a partnership firm.
Profits will include any money made by the company. Profits would also include the equity gains that the company accumulates over time. The business partners always split a portion of the profits. Additionally, this would be covered by the collaboration agreement.
The simplicity of doing business
The convenience of conducting business is one of the primary justifications for registering a partnership firm. This is because of the way that the partnership’s business structure is created. The partnership deed outlines the obligations and rights of each member in a partnership business.
A partnership business has less regulatory requirements than other types of business formations. A partnership must, however, submit the necessary MCA and Registrar compliances as well as their respective tax reports.
A partnership agreement
The partnership deed resembles a shareholders’ agreement in several ways. The rights and obligations of the partners in a partnership are spelled out in this deed. Details of each partner’s contribution would be preserved in the deed. In addition, it will note the profit-sharing ratio that the participants of the partnership firm have maintained. The partnership deed can be used to resolve any disputes that may arise inside the partnership. One of the key benefits of registering a partnership firm is this.
Easy to Raise Money
It is simple to obtain funding from major banks and NBFCs under the collaboration. Therefore, it is advantageous for a person to proceed with the partnership business registration process due to the aforementioned factors.
Must have for Partnership Deed
It is necessary and required to draft the partnership deed when a person applies to register a partnership firm. The partnership agreement primarily outlines the rights and obligations of the partners. In addition to this, the partnership deed would help the partnership deal with a certain type of disagreement.
Essential components of a partnership deed include the following:
Details relating to Partners
Any information pertaining to the partners must be provided in this section of the partnership deed in order to comply with the Partnership Firm registration process. This section would contain private and delicate information. Here, information about the partners’ names, addresses, and jobs would be supplied.
Business ventures conducted by the Partnership
The partnership’s activities should be noted in this section. The partnership agreement must specify, for instance, if the partnership engages in legal activity.
Contribution to Capital Made by Individual Partners
Under the deed, the contributions made by the individual partners would be noted. An agreement between the partners is present during the registration process for partnership firms. The amount of share capital contributed for the creation of the partnership would be included in this agreement. It is necessary to specify the individual capital contribution ratio.
Ratios of the Partners’ Profit- and Loss-Sharing
The deed must also state the partners’ individual profit- and loss-sharing percentages. Ratios must be used for this format.
Expenses for Capital
This section of the partnership deed would mention interest that has accrued on capital.
Information about the Partners’ Equity Drawings
Under this heading, all details pertaining to any designs created by the partnership firm’s partners would be provided. The amount of profits drawn by the partner would be specified in the drawings. Under this heading, any kind of equity draws would also be covered.
Partner personal assets or any loans taken out for the partnership may be used as contributions. Information regarding any loans that the partner may have obtained for the partnership should be included under this heading.
Salaries and any other details about compensation
Any information pertaining to salary and bonuses must be included in this area. Mentioning such information is required.
Each partner is responsible for the partnership on a joint and several basis. The Indian Partnership Act, 1932 has sections that reference a partnership’s joint obligations and responsibilities.
Information in the Event of an Emergency
The partnership agreement will outline what happens next in the event of an emergency or unforeseen circumstance, such as a partner’s death. Therefore, drafting the partnership deed is required. The appropriate time to begin drafting a deed is right away once partnership business registration is complete.
Selection of aprropriate Name
There are a few things to keep in mind when registering the name of the partnership business. The name of the partnership business must first and foremost not conflict with the company’s moral principles. In addition, the name must not violate any sections of Indian law governing trademarks and copyrights. The names shouldn’t contain the words “emperor,” “empresses,” or “crown.”These phrases would need the respective government’s approval and authorization in some way.
Application for Registration of a Partnership Firm
The applicants (partners) must submit an application in Form 1 in the second phase. The application must be submitted to the appropriate authority after being made.The registrar where the business is incorporated will have authority. Therefore, the application must be submitted in Karnataka, for instance, if the partnership was incorporated in Bangalore..
The Partnership’s Draft Deed
The partners must draft the partnership document after the aforementioned procedure is completed. The reciprocal rights and obligations of the partnership will be stated in the partnership agreement, as was already discussed. It is therefore essential that this be written as quickly as feasible. It is preferable to have a written deed because it will prevent any potential future disputes in the partnership.
All documents must be presented with the partnership deed.
The registrar will examine the application after obtaining the required paperwork. The certificate of incorporation of the partnership will be issued if there are no problems or objections.
Opening a Partnership Bank Account
A partner must open a bank account on the partnership’s behalf. The partnership may conduct business transactions with this account.
Post Incorporation Compliances for the Partnership
Following the completion of the registration process for a partnership firm, the following post compliances are necessary for the partnership:
- The Income Tax Department’s PAN and TAN numbers.
- If the annual revenue exceeds Rs. 40 lakhs, registration for the Goods and Services Tax (GST) is required.
- Partnership businesses may submit a Tax Deducted at Source form (TDS).
- Registration for Income Tax: The Partnership is required to file such Returns.
- Any partnership firm with an annual revenue of more than 10 lakhs must file taxes because the tax rate charged to such a firm is 30 percent.
- Any partnership with a 1 Crore yearly revenue must obtain annual audit compliance.
- All partnership firms are obliged to register with the Employees State Insurance Corporation.
- Form 1: Firm Affidavit for Partnership Application for Partnership
- A copy of the land paperwork from the partnership deed, if the property is owned
- Utility Bills: Electricity and Water Bills Identity Proof of Partners: PAN Card, Aadhaar Card, Voter ID, and Passport.