Partnership Firm

Easy form of business for partners to start with

Partnership Firm

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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  • Drafting of Partnership Deed
  • Stamp duty up to Rs.500/-
  • PAN & TAN
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Benefits of Partnership Firm

Registration Requirement

Registration Requirement

The registration of the Partnership Firm is not mandatory hence both registered and unregistered firm is lawful.

No Minimum Capital Requirement

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

Specified Assigned Duties

The business can be managed by different partners by assigning specific duties.

Easy Compliance

Easy Compliance

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/PartnersFor 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 FirmProprietorship Firm
Act ApplicableThe Partnership Act,1932No separate and specific Act is there
Maximum number of MembersPartners cannot be more than 100.Only sole Person can carry the business.
No of Persons requiredMinimum 2 persons requiredOnly one person can be the Proprietor.
Separate PAN cardThe Partnership will have its PAN cardNo separate PAN card
DissolutionUpon death pf any Partner, the business will be still continued and automatic dissolution will not take placeUpon the death of Proprietor, the business will be dissolved.
Income Tax ReturnBoth 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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Partnership Firm

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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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