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What is a Partnership Firm?
A Partnership firm is a form of a business where business is managed by more than one person called as Partners and they agree to share the profit or loss on pre-determined ratio as per the Agreement.
The structure can be established with minimal cost and minimal time duration and it follows less compliance. The principle of Partnership works on “Alone we can do so little, together we can do so much”
In partnership, each and every partner can differentiate their roles and responsibilities in the Partnership Agreement.
The Partnership Firm is governed by the Partnership Act, 1932 and Partnership Agreement.
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Benefits of Partnership Firm
The registration of the Partnership Firm is not mandatory hence both registered and unregistered firm is lawful.
No Minimum Capital Requirement
The business can be started with minimal capital as there is no minimum requirement prescribed for the same. Further, thereare no annual compliance like LLP or Private Limited Company. Comparing with Proprietorship, here every partner bears the risk.
Specified Assigned Duties
The business can be managed by different partners by assigning specific duties.
The amendments to the deed can be made easily to add or remove any clauses hence here the partners can easily focus more on business rather than the compliances.
Required Documents for Partnership Firm
The documents required for the Formation of Partnership are categorized as under
|For Designated Partners/Partners||For Registered office|
|Permanent Account Number (PAN)||Business address proof(Electricity bill/Telephone bill/Gas bill/Mobile bill- not older than 2 months)|
|Photo Identity proof (Adhar card/Driving License/Election card/Passport)|
|Passport size photograph|
The Procedure of Incorporation of Partnership
- Drafting of Partnership Deed
- Execution of Deed
- Application for PAN/TAN
Immediate Post Incorporation Compliance
- Opening of bank account
- Deposit the amount of contribution
Difference Between Partnership Firm and Proprietorship Firm
|Partnership Firm||Proprietorship Firm|
|Act Applicable||The Partnership Act,1932||No separate and specific Act is there|
|Maximum number of Members||Partners cannot be more than 100.||Only sole Person can carry the business.|
|No of Persons required||Minimum 2 persons required||Only one person can be the Proprietor.|
|Separate PAN card||The Partnership will have its PAN card||No separate PAN card|
|Dissolution||Upon death pf any Partner, the business will be still continued and automatic dissolution will not take place||Upon the death of Proprietor, the business will be dissolved.|
|Income Tax Return||Both Partners and Partnership will have to file a separate Income Tax return .||Only the single Income Tax return will be filed.|
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As per Partnership Act,1932 both Registered and unregistered Partnership Firm is valid, hence it is not necessary to get the registration of the deed.
Yes, by following the process it is possible to convert the Partnership Firm into LLP or a Private Limited Company
There should be minimum 2 persons to start a Partnership Firm and maximum partners can be 100.
The stamp duty is payable on the basis of the Stamp Act applicable to each state hence while paying stamp duty , the stamp Act of state where the registered office of the Firm is situated.
If the Partnership Firm at any time cross the limit of capital contribution of Rs. 25 lakh or Turnover of Rs. 40 lakhs, then it has to get its accounts audited.
Any amount of capital as per the desire of the Partners can be kept as there is no minimum capital required to start the Partnership Firm.
The main disadvantage is that the Firm is not eligible to file a suit against any of the partners even against the third parties.
The partnership Firm has to maintain the books of accounts and also need to file the Income Tax return every year.
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