A Partnership Firm is a corporate structure in which two or more parties enter into a formal agreement (Known as a Partnership Deed) with each other to manage or operate a business with the object of sharing its profit.
The law which governs Partnerships in India is the Partnership Act of 1932.
As per section 4 of the Partnership Act,1932, Partnership is defined as: “Partnership” is the relationship between two or more persons who have entered into an agreement with each other to carry on a business and share its profits carried on by everyone or any one of them acting for everyone.
Persons who have entered into a Partnership are individually called Partners and collectively it is known as a “Partnership Firm” and the name by which their business is carried out is called “Firm Name”.
According to the above article, there are basic elements that together constitute a Partnership Firm namely,
|Definition||A written legal agreement between two or more entities to run and manage a business.|
|Ownership||Minimum 2 partners Maximum 20 partners|
|Governance||Under Partnership Act, 1932|
|Statutory Audit||Not required|
|Annual return filing||It is mandatory for partnership firm to file income tax return regardless of the income or loss.|
|Promoter Liability||Unlimited Liability i.e., every partner is accountable personally for the losses of the partnership firm.|
|Profit distribution||Profit must be split among the partners in accordance with the provisions of the partnership deed.|
|Company name||Should be unique|
|Registered with||The Registrar Of Firms|
|For Registered office premises:|
MSME(Micro, small and medium enterprises) registration or Udyog Aadhar registration can be obtained by any kind of business entity;Investment and annual turnover is used for deciding the classification of MSME’s.
|Classification||Investment and annual turnover|
|Micro||< Rs.1 Crore & < Rs. 5 Crore|
|Small||< Rs. 10 Crore & < Rs. 50 Crore|
|Medium||< Rs. 50 Crore & < Rs. 250 Crore|
Manufacturing, wholesale, service industries, and retail trade are covered and are eligible to apply for MSME registration except for the motorcycles and motor vehicles wholesale and retail trade.
Registration of MSMEs is completely online and the Udyam Registration portal ( udyamregistration.gov.in ) is the official portal for registering MSME’s.
Partnership firm needs to file their return in Form ITR 5. This form can be filed online with the help of the DSC ( Digital Signature Certificate ) of the designated partners on the Income Tax website.
The procedure to file Income Tax Return is completely Online. This involves the following stages:
The procedure to be followed for conversion is described below:
Apply for registration and submit the application to the Registrar of firms. The application should contain the name and address of the proposed firm along with the name and address of each partner, their respective joining dates, and the establishment year of the firm.
Reserve a name for the partnership firm: Choosing a name for the partnership firm holds a special significance in a partnership firm registration. There are a few things to keep in mind while selecting a name such as a name should be unique and original and it should not have a conflict of interest with any existing firm.
Create a partnership deed covering all the matters that entail the mutual rights, obligations, and liabilities of the partners in the management and conduct of the firm’s affairs. General details that are required in a partnership deed are
Take a printout of the partnership deed on a stamp paper and it should be duly signed by all the partners and notarized.
Concerned department will issue the physical copy of the partnership firm PAN card within a few days.
GST registration is mandatory for each partnership firm whose turnover crosses 40 lakhs every year. However, registration may be required in some cases even if the firm’s turnover does not cross the predefined turnover. For example, for any e-commerce firm, it is essential to have a GST certificate.
To take advantage of the input tax credit, any company that buys, sells, or provides goods and services must register under the Goods and services tax(GST).
Registration for GST can be done online from the website. To take advantage of the input tax credit, any company, firm, or individual that buys, sells, or provides services must register under the Goods and Services Tax (GST).
GST registration can be done online at www.gst.gov.in, from there a Temporary Registration Number(TRN) is generated for the application.
After the application is submitted, an Application Reference Number(ARN) is generated from where the status of the application progress can be tracked. Once the request is approved by the tax officer, then the Certificate of Registration is issued online.
No, it is not necessary, however drafting a partnership deed is always recommended because it aids in taxation and other legal matters.
A partnership firm can be formed by a minimum of 2 members by signing a formal agreement also known as a partnership deed, to manage and operate the business and share its profits and losses.
Yes, It is mandatory for partnership firms to file income tax return regardless of the income or loss.
Yes, but for this the firm should be registered as a partnership firm and the partners should remain the same even in LLP as well. Under Companies Act, 2013, the Ministry of Corporate Affairs has allowed this conversion.
GST registration is mandatory for each partnership firm whose turnover crosses 40 lakhs every year.To take advantage of the input tax credit, any company that buys, sells, or provides goods and services must register under the Goods and Services Tax(GST).
The documents must be uploaded on the GST portal online. However, in some cases, you may be required to submit the documents offline to your jurisdiction office.
The Partnership Act does not restrict a non-citizen from becoming a partner in Indian firm provided they have the necessary permissions and clearances from the competent authority in this regard.
Yes, the maximum number of partners that a partnership firm can have is 20. If it crosses this limit then it has to be converted into a company.
Yes, the firm and all of its partners are accountable for any wrongful act or fraud that causes loss or injury to the third party.
By simply indicating the property in the book of accounts any property can be treated as the firm’s property. All the partners would be joint owners of the partnership property which may increase or decrease by profit while operating the business. Any property that belongs to an individual partner does not automatically become firm’s property simply by being used for the partnership’s purposes.