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.
A Partnership is easy to form as no cumbersome legal formalities are involved. Its registration is also not essential. However, if the firm is not registered, it will be deprived of certain legal benefits. The Registrar of Firms is responsible for registering partnership firms.
A Partnership firm is not required to file its annual accounts with the Registrar each year unlike a Limited Liability Partnership or Company. Limited Liability Partnership's and Company's are required to file their annual accounts with Registrar of Companies each year.
Since the name of a Partnership firm is not registered, a Partnership firm can choose to have any name - as long as it does not infringe on a registered trademark. However, since the name is not registered, any other person can also use the same business name unless trademark registration is obtained.
Bank account can be opened in the name of a Partnership firm. To open bank account, the partnership deed copy and KYC documents of the Partner must be submitted along with any other document as required by the Bank.
In a Partnership firm, the partnership deed will determine the ownership of the firm, profit sharing ratio, rights and responsibilities of each of the Partner. A partnership deed can be registered with the Registrar.
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