Creating a business takes time and effort, having a partner or team can help ease this burden. Usually, partnership firms are businesses where two or more partners or co-owners agree to be in the company as partners. For smooth business operations, the partners divide tasks and responsibilities between themselves.
THE WORK OF A PARTNERSHIP FIRM
A partnership firm falls under the Indian Partnership Act, 1932. The act defines a partnership as a profit-sharing relationship between two or more partners. A Partnership Agreement outlines the responsibilities and duties of partners along with the profit sharing. Partnership is a contractual relationship between two parties based on understanding and conduct.
PARTNERSHIP TYPES IN INDIA
Partnerships can be divided into three types:
1. Partners in general partnership
As a general partnership, all partners have equal rights and participate in decision-making and management. Capital, skills, and labor are put into achieving the firm’s financial goals by the general partner. A general partnership has unlimited liability for its partners Manages and operates the firm with the authority to make decisions.
2. Free partnership
A partnership at will is defined in Section 7 of the Indian Partnership Act, 1932 as one that has no fixed duration or determination. Partnership at will must meet the following two essential conditions:
- A partnership doesn’t have a set duration
- It is not determined whether the partnership will proceed.
3. Partnership in particular
A In particular partnership, a company is managed and operated by a particular person. Upon fulfilling the particular purpose, a partnership can be dissolved. The partners can, however, agree to continue the partnership. It is dissolved if there is no agreement between the partners.
An Overview of Partnership Firms –
Partnering means forming a contractual relationship with another person or group. Partners mutually agree on terms to establish a partnership firm, which makes the contract indispensable. It is validated by a contract between the two parties. A partnership agreement can be oral or written. It aids in resolving disputes and protects the partners’ interests.
Since the Partnership is a people organization, partners play a crucial role in it. In accordance with the Companies Act, 2013, partnership firms can have no more than 20 partners. Managing the firm is a shared responsibility between the partners.
A profit-sharing agreement
The main reason for forming a partnership firm is profit. Each partner is entitled to a certain amount of profits. The profits are distributed based on an equal share or as agreed in the Partnership agreement. A profit sharing ratio differs from company to company depending on the terms, losses incurred and investment.
Firms in partnership have a profit motive. Any business, including trades and occupations, except charitable work, is a firm. Each partner has an equal say in how the firm is run.
PARTNERSHIP FIRM REGISTRATION PROCEDURE
- Company names define brands. Company registration begins with choosing a name. A firm’s name must be reserved on the RUN website by checking for availability of the name. Companies must select an appropriate name and make sure the name does not already exist.
- Application for registration must be filed at the Office of the Registrar of Firms with the prescribed fees and documents. An application must be signed by partners or by their agents.
- A verification of the application will take place by the Registrar of Firms. When the Registrar receives approval, the Registration Certificate will be issued to the Partnership Firm.
A Partnership Firm’s Advantages
A decision-making process
According to the Partnership agreement, each partner has certain responsibilities and duties. Partners participate actively in the firm’s decision making; each brings a unique perspective, skills, knowledge, and experience.
As Partnership firms have fewer legal and compliance obligations, they are easy to set up. A partnership deed is required for the establishment of the partnership firm. Incorporate a partnership firm with no minimum capital requirement, and the partnership can begin with zero paid up capital.
A right to ownership
As part of the Partnership Agreement, the roles, responsibilities, and profit sharing arrangements of the firm are defined. In order for the firm to run smoothly, each partner must play a part. A contract Defines the partners’ responsibilities and rights. It ensures the protection of rights and prevents disputes.
Participation in the conduct of business
The right to participate and conduct the business belongs to every partner. Depending on the partnership deed, a few partners can participate in a business and others can lose rights.
Profit sharing rights
Partners share profits equally. A partner’s share of profits is equal to his or her share of the partnership.
In a partnership, the partners make all important decisions regarding the firm. A decision must be taken after consulting all partners, since everyone has the right to express their opinion.
Bookkeeping inspection rights
All Active and Dormant Partners of the Partnership Firm are entitled to this right. Inspecting the business’s books of accounts is permitted for each partner.