A firm or company established between two or more partners with the goal of earning a profit is called as a Partnership Firm. It is not compulsory to register a partnership firm but there are added advantages if a partnership firm is registered. Partnership deed is the legal document which is created to form a partnership firm.
Indian Partnership Act 1932 is the governing law which regulates the partnership firms in India. As per the act “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”. The maximum number of members in a partnership is 10 for banking business and 20 for other businesses to enter into a partnership firm.
Partnership firms are not separate legal entity while the partners are. A partnership firm cannot be debtor or creditor and can not own property. The property, debit or credit of a partnership firm is actually for the partners in the eyes of law. The manner in which profits or losses are to be shared amongst partners must be explicitly mentioned in the partnership deed to avoid any confusions in the future. Every partner can carry on business on behalf of others.
A partnership firm would be dissolved if the number of partners reduces below 2 in case of death, incapacitation or resignation of a partner.