• Sahaayy Team

All About Partnership Firm

All About Partnership Firm:

In this article, let’s understand about Partnership Firm which is one of the most important forms of a business organization.

What is a Partnership firm?

A Partnership firm is a business entity created by persons who have agreed to share profits or losses of the business.

Who are partners?

Persons coming together, to start the Partnership Firm are known as Partners.

Benefits of Partnership Firm

  • Easy to start and form a partnership firm business since partners only need to execute a partnership agreement and apply for PAN

  • Complete control over the firm and its management since partners are the owners

  • Roles and responsibilities, salary, profit sharing ration are outline upfront for informed decision making

  • Minimal cost to form a partnership firm

  • Less regulatory compliance requirement and simplified tax filling

Important Elements:

1. Partnership Deed

A partnership is the result of an agreement between two or more persons. It should be noted that this sort of a deal can arise only from a contract and not from status. This is why a partnership is distinguishable from a Hindu Undivided Family carrying on the family business. The reason is that this kind of alliance is a creation only out of a mutual agreement. Thus, the nature of a partnership is voluntary and contractual.

2. Sharing

Sharing the Proportion of Profits in between should be mentioned in the Agreement. Further Capital sharing of the Partners should also be defined in the Agreement.

3. Capital

Capital is the initial amount contributed by the partners, or owners, or promoters of the business, which is mentioned in the Partnership Agreement. In Proprietorship, it is known as Proprietor’s Capital and in the Partnership, it is known as Partner’s Capital.

Frequently Asked Questions:

How many persons are required to form a Partnership Firm?

A minimum of two Persons is required to start a Partnership firm. A maximum number of 20 Partners are allowed in a Partnership firm.

Who can be a Partner of the Partnership Firm?

The Partner must be an Indian citizen and a Resident of India. Non-Resident Indians and Persons of Indian Origin can only invest in a Proprietorship with prior approval of the Government of India.

Is there any minimum capital requirement to form a Partnership Firm?

There is no limit on the minimum capital for starting a Partnership firm. Therefore, a Partnership firm can be started with any amount of minimum capital. Further, there is also no restriction on the minimum amount to be contributed by each partner.

Does Partnership Firm have separate Legal Status than the Partners?

No, a Partnership firm has no separate legal existence of its own i.e., the Partnership firm and the partners are one and the same in the eyes of law. The liability of the Partners is also unlimited, and the partners are said to be jointly and severally liable for the liabilities of the firm. This means that if the assets and property of the firm are insufficient to meet the debts of the firm, the creditors can recover their loans from the personal property of the individual partners.

Can other people invest in the Partnership Firm?

Indian Nationals and Indian Residents are allowed to invest in a Partnership firm without any approval. Usually, those who invest in the Partnership firm become a Partner of the firm, and in the absence of any agreement to the contrary, all partners will have a right to participate in the activities of the business.

Are Partnership rights transferrable?

There are restrictions on the transfer of ownership interest in a Partnership firm. A Partner cannot transfer his/her interest in the firm to any person (except to the existing partners) without the unanimous consent of all other partners.

What are the Annual Compliance requirements?

Partnership firms will have to file their annual tax return with the Income Tax Department. Other tax filings like GST filing or any other applicable filing may be necessary from time to time, based on the business activity performed. However, Annual Report or Accounts need not be filed with the Ministry of Corporate Affairs, which is required for Limited Liability Partnerships and Companies.

Is Audit compulsory for Partnership firm?

It is not necessary for Partnerships to prepare audited financial statements each year. However, a tax audit may be necessary based on turnover and other criteria.

Is Partnership Firm convertible into Company or Limited Liability Partnership?

Yes, it is convertible by following respective legal formalities under necessary laws.

Is the partnership deed required to be notarized?

It's best if it's registered before the magistrate. Notarization and registration lend legality to the deed without which the partnership will just be an agreement without enforceability.

What if I don't register the partnership firm with Registrar of Firms and just execute a partnership agreement?

Unregistered partnership firms have certain rights denied in Section 69 of the Partnership Act,1932. Some of the disadvantages of an unregistered firm are as follows:

1. A partner of an unregistered firm cannot file a suit in any court against the firm or other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act.

2. No suit to enforce a right arising from an agreement can be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered.

3. An unregistered firm or any of its partners cannot claim set-off or other proceedings in a dispute with a third party.

Therefore, it is advisable to register any partnership firm sooner or later.

Documents required for registration of the partnership firm:

1) Certified True Copy of Partnership Deed (Certified by C.A. or Advocate)

2) Certified True Copy of Marathi Translation of Partnership Deed (Certified by C.A. or Advocate)

3) Blank Stamp Paper of Rs. 10/- in the name of Partner or firm

4) Authority letter signed by all partners if documents are submitted by C.A. or Advocate

5) Covering letter with Rs.5/- Court Fee Stamp

Steps to form a partnership firm:

1) Identify partners, select the name of partnership firm & Decide on capital contribution and Profit Sharing Ratio between the partners

2) Preparation of Partnership Deed and execute the same before an advocate or Chartered Accountant.

3) Application to Registrar of Firms online through Form 'A'

(Use this link to apply in Maharashtra -

4) Upload and print documents that are listed above.

4) Simultaneously, apply for necessary registrations such as PAN, TAN & Udhyam registration, etc. and start the business.

Happy Reading! Let us know in case of any queries.


CA Sukanya Kulkarni Joshi

#womeninbusiness #womenentrepreneur #soleproprietor #howtostartbusiness #entrepreneureship #sahaayy #womensupportingwomen #godigital

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