A partnership firm is that business which has two or more persons, that join in common, for the purpose of carrying out a business with common objective of earning profits. A legal agreement is called “Partnership Deed“, that governs the relationship between the partners as how to conduct their business and upon what terms. The registration of a partnership firm gives your business a legal framework, thereby clearly documenting the same and settling disputes between the partners.
Even though registration is not compulsory under Indian law, it is often advisable to register a partnership firm so that partners’ interests can be safeguarded and it can also gain better credibility. Registration of partnerships also benefits by creating an identity, different from its partners.
Advantages of registration of partnership firm
- Formal Legal Status: Business is conferred with formal legal existence by way of registration since law recognises.
- Harmonious Resolution of Disputes: In Partnership Deed, the roles and responsibilities of each partner and percentage of profit sharing are mentioned to avoid disputes.
- Higher Credibility: More the number of partnerships higher will be the credibility in the finance houses; thus loan facilities become easier.
- Tax Benefits: Registered companies can also possess quite a few tax advantages. They get lesser tax rates or even tax-free status in many instances.
- Partner’s Rights: It is possible to have registered firms and enjoy legal rights concerning the assets and profit flow of the business through partnership.
- Legal Formalities: It is also ensured that the process would aid in following the legal formalities as required in case of the Indian law.
Requirements for Registration
Following conditions should be satisfied for getting a partnership firm registered:
- At least two Partners: There must be a minimum number of two and maximum up to 20 persons in the partners for a partnership firm.
- Legal Capacity: All partners must have a legal capacity to contract. That means, they are above their respective ages of majorities, mentally stable.
- Mutual Consent: Partnership must be formed with mutual agreement from partners.
- Business Objective: The object of the firm must be legal and lawful and must not be in violation of the Indian laws.
- Registered Office: A firm must have a registered office in India.
Documents Required for Registration of Partnership Firm
While registering a partnership firm, you usually require the following documents.
- Partnership Deed: A written agreement which outlines the terms of the partnership, including profit-sharing ratios and the rights and responsibilities of each partner.
- PAN Card: The firm’s Permanent Account Number (PAN) issued for tax purposes.
- Proof of Business Address: A recent utility bill (electricity, telephone, or water) not older than two months as proof of the registered address.
- ID Proof of Partners: Government-issued identification such as an Aadhaar card, Passport, Voter ID, or similar for all partners.
- Partner Photographs: Passport-sized photographs of all business partners.
- Partnership Registration Certificate: If the partnership is already registered with the Registrar of Firms, this certificate is required.
- Government-Issued Registration Documents: Any registration document issued by the central or state government, for example, a GST certificate.
- Utility Bills: Recent utility bill not more than two months old to validate the address of the business premises.
- NOC from Landlord: If it is a rented location then NOC from the landlord is required.
- Authorization Letter: A letter on a firm’s letterhead which nominates one of the partners to act as the authority for registration purposes.
Procedure for Registration of Partnership Firm
- Creation of Partnership Deed: Enter into a legally binding Partnership Deed. The rights, duties, and liabilities of the partners must be clearly marked out within this document.
- PAN application: file an application in the name of the partnership firm before the Income Tax Department for allotment of PAN
- Registration of Partnership Deed : Visit your local Registrar of Firms and register your partnership deed there. All your documents will be needed that include your deed and proof of business address.
- Certificate of Registration : The Registrar of Firms, upon verification of details will provide a certificate of registration, thus giving legal existence to your partnership firm.
- Opening of a Bank Account : Upon acquiring the registration of your firm, open a bank account in the name of your firm and start doing business
Partnership Deed: Compulsory Clauses to be Carried
This forms the basis of your association. The following are the basic clauses that the Partnership Deed must carry:
- Name and Address of the Firm: Name under which the partnership trades and its registered address.
- Partners Names and Details: Full names, address and other details about the partners
- Business Purpose: Define the type of business that the partnership will engage in
- Capital: Share the amount of capital of each partner that would be invested in the business.
- Profit and Loss sharing: Proportion of profit as well as losses.
- Partnership Tenure: Decide on whether the partnership shall be at a fixed tenure of time or be indefinite
- Rights and Liability of Partners: Enumerated rights and liabilities of a partner in the conduct of the firm both rights and power.
- Mechanism for Dispute Resolution: Provide procedures under which disputes between partners be resolved, mediation and arbitration
- Exit strategy: Make a provision for exit in case any partner retires or dies
- Liability: Clearly mention quantum of liability of each and every partner-whether it’s limited or joint.
Common Myths About Partnership Registration
- Myth 1: Registration is Compulsory
Reality: Indian law does not compel the registration of a firm, but still it should be done to avoid hassle in the future and get recognition also in business.
- Myth 2: Partners Are Responsible Only for Their Share
Reality: The liability of the partners of a partnership firm is unlimited, meaning they are both jointly and severally liable for the debts of the business.
- Myth 3: Partnership Firms Pay High Taxes
Reality: Companies that are registered as a partnership firm get benefits for tax purposes with lower rates and exemption when eligible from their income level as well as the nature of the business
- Myth 4: A Partnership Firm cannot Survive if all the partners have to leave
Reality: It can definitely survive even if some partners do leave provided their Deed to Partnership permits such a departure
Taxation and Compliance
Existing laws in India the company of partnership firms have to abide by:
- Income Tax- A legal body to tax an organization like a firm of partnership. So, income will pass through the rate of the applicable income tax because their rate changes according to earning by that firm.
- GST: All Partnership firm need to get registered and compliances with GST if its Turn over is more than threshold Limit defined under GST law.
- TDS: There, every partnership firm has also required to deduct tax wherever it makes any payment of Salary to employee, payment made to Contractor or Service Providers to Contractor, Service providers.
- Annual Filing: A firm in partnership has to file an annual income tax return and fulfill all other regulatory filings under the Partnership Act.
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The advantages of registering a partnership firm include legal protection, credibility in the books of accounts, and tax advantages. We help you navigate through all of these steps to set up your firm to gain growth and stability in the challenging business world of today at JSR Taxes Mentor.
