How To Start A Partnership Firm?

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When registering a partnership firm in India for startups, there are some basics that need to be covered. Partnership and proprietorship are the two most popular forms of business organisations in India. This is because these two forms of organisations are relatively easy to set up ad have a number of requirements that need to be followed that are less compared to LLPs and Companies. In this article we will be looking at what is a partnership business and how to start a partnership firm.

how to start a partnership firm

What Is A Partnership Firm?

In India, we have a definite law that covers all aspects and functioning of a partnership, called The Indian Partnership Act 1932. The act also defines a partnership as “the relation between two or more persons who have agreed to share the profits from a business carried on by either all of them or any of them on behalf of/acting for all” So in such a case two or more persons come together as a unit to achieve some common objective. And the profits earned in pursuit of this objective will be shared amongst themselves. The entity is collectively called a “Partnership Firm”

A partnership firm is not a separate legal entity. But according to the act, a firm must be formed via a legal agreement between all the partners. So a contract must be entered into to form a partnership firm.

How Should Be The Agreement Between Partners Formed?

Partnership deed is an agreement between the partners in which rights, duties, profits shares and other obligations of each partner is mentioned. Partnership deed can be written or oral, although having a written contract will help you avoid any future issues.

Choose A Partnership Name

The partners are free to choose any name as they desire for their partnership firm subject to the following rules:

  1. The names must not be too identical or similar to the name of another existing firm doing similar business, so as to avoid confusion. The reason for this rule being that the reputation or goodwill of a firm may be injured, if a new firm could adopt an allied name.
  2. The name must not contain words like Crown, Emperor, Empress, Empire or words expressing or implying the sanction, approval or patronage of the Government, except when the State Government signifies its consent (in writing) to the use of such words as part of the firm name.

How To Create A Partnership Deed?

The following are the essential characteristics of a partnership deed:

  1. Name and address of the firm as well as all the partners
  2. Nature of business to be carried on
  3. Date of commencement of business
  4. Duration of partnership (whether for a fixed period/project)
  5. Capital contribution by each partner
  6. Profit sharing ratio among the partners

The above are the minimum essentials which are required in all partnership deeds.The partners may also mention any additional clauses. Some of the examples of additional clauses which may be mentioned in the partnership deed are mentioned below:

  1. Interest on the partner’s capital, partners’ loan, and interest.
  2. Salaries, commissions etc.
  3. Method of preparing accounts and arrangement for audit
  4. Division of task and responsibility, namely, the duties, powers and obligations of all the partners.
  5. The rules to be followed in case of retirement, death and admission of a partner

 

how to start a partnership firm

 

Decide Whether Or Not To Register The Partnership Firm

Indian Partnership Act, 1932 governs the partnerships. Registration of partnership firm is optional and at the discretion of the partners. Registration of partnership firm may be done at any time – before starting a business or anytime during the continuation of partnership.It is always advisable to register the firm since a registered firms enjoy special rights which aren’t available to the unregistered firms.Registration of a partnership firm may be done before starting the business or anytime during the continuance of partnership. However, where the firm intends to file a case in the court to enforce rights arising from the contract, the registration should be done before filing the case.

How To Register A Partnership Firm In India?

For your partnership deed registration an application form along with fees is to be submitted to Registrar of Firms of the State in which firm is situated. The application has to be signed by all partners or their agents. The documents that are required are:

  1. Application for registration of partnership (Form 1)
  2. Specimen of Affidavit
  3. Certified original copy of Partnership Deed
  4. Proof of principal place of business (ownership documents or rental/lease agreement)

When the registrar is satisfied with the points stated in the partnership deed, he or she shall record an entry of the statement in a register called the Register of Firms and issue a Certificate of Registration. The Register of Firms maintained at the office of the Registrar contains complete and up-to-date information about each registered firm. It should be noted that registration with the Registrar of Firms is different from registration with the Income Taxation Department. It is mandatory for all firms to apply for registration with the Income Tax Department and have a PAN Card. After obtaining a PAN Card, the partnership firm is required to open a Current Account in the name of the partnership firm and to operate all its operations through this bank account.

This is the basic procedure of how to open partnership firm. There will be more steps depending specifically your company. If you have more question, contact deAsra. deAsra is equiped to guide you through all the steps of starting a partnership firm.