A partnership firm is a type of business entity where two or more people join together to run a business and share its profits and losses.
Table of Contents
Characteristics Of a Partnership Firm
1. Number of Partners
The minimum number of partners in a partnership firm is 2 members. The maximum number of partners is 50 members. However, there is an exception to the upper limit. If a firm is a professional firm (such as Chartered Accountants, Company Secretaries, or lawyers), then there is no upper limit.
2. Governing Law
A partnership firm is governed under the Indian Partnership Act, 1932. This act describes a partnership as a relationship between persons who have agreed to share profits of the business. This act lays down the rules regarding duties & rights of partners, dissolution of firm and settlement of accounts.
3. Partners
List of persons who can be partners in the partnership firms is:-
- Individuals:- Any individual become a partner of the firm. However, the following conditions must be met:-
- Person must of 18 years or above
- A person should not be of unsound mind.
- A person must be disqualified by law. Disqualified by law means he must not be bankrupt or convicted of certain crimes.
- Companies
- Other Partnership firms.
Steps To Open Partnership Firm In India
- The person first needs to choose the name for the partnership firm. Name should be unique and not identical to any existing firm/company. Please avoid those names that sound very silly.
- The next step is to draft the partnership deed. But the question arises, what is a partnership deed? What does it contain? A Partnership deed is a written document among the partners of a partnership firm. It defines the terms, conditions, rights, duties, and obligations of all partners. The key components in the partnership deed are:-
- Name & address of partnership firm and partners
- Nature of Business
- Capital contribution of each partners
- Profit & loss sharing ratio among partners
- Duties and powers of partners.
- After the partnership deed is formed, it must be signed by all the partners of the partnership firm and then notarized by a notary public.
- After the registration, the partnership firm needs to apply for the PAN and TAN. They are issued by the Income Tax Department of India. It is mandatory for most financial transactions and required for ITR and TDS filings.
- After obtaining PAN and TAN, register your partnership firm. It is not mandatory but highly recommended. For more consulting click here.
- After this, person needs to open current account and apply for GST registration.
Conclusion
With this article, you may able to open a partnership firm. However if you more help regarding registration then click at the link here.
Frequently Asked Questions
Is registration of a partnership firm mandatory?
No, registration is not mandatory under the Indian Partnership Act, 1932, but a registered firm enjoys greater legal rights (like the ability to sue third parties). Hence, it is highly recommended.
What is the minimum number of partners required?
A minimum of 2 partners are required to form a partnership firm.
What is the maximum limit on partners?
As per the Companies Act, 2013, a partnership firm can have a maximum of 20 partners.
Is there any minimum capital requirement?
No. A partnership firm can be started with any amount of capital, even a small sum.
What is the difference between a Partnership Firm and an LLP?
Partnership Firm – Partners have unlimited liability, i.e., personal assets can be used to repay firm’s debts.
LLP (Limited Liability Partnership) – Liability of partners is limited to their contribution in the business.
How is a partnership firm taxed?
A partnership firm is taxed at a flat rate of 30% + surcharge + cess (if applicable).
Partners’ share of profit is exempt in their individual hands since the firm has already paid tax.
Can a partnership firm be converted into another business structure?
Yes. A partnership firm can be converted into:
LLP (Limited Liability Partnership)
Private Limited Company
Can a partnership firm have a corporate body (like a company) as a partner?
Yes, a company or LLP can also be a partner in a partnership firm.
Is GST mandatory for a partnership firm?
GST is mandatory only if:
Turnover exceeds ₹40 lakh (₹20 lakh for services), OR
You engage in interstate supply of goods/services.