Are you looking to start a partnership firm? Great decision indeed!
Let us know more about partnership firms, the benefits they can bring along and about the partnership firm registration process. Here we go!
What is a partnership firm?
In India, a partnership firm can be formed by two or more individuals by an oral or written agreement. These firms are governed by the provisions mentioned in the Indian Partnership Act of 1932. Section 4 of this Act defines partnership as the relation between two or more individuals. Vide this relationship; they agree to share the profits of a business run by all or any of the partners.
The registration of a partnership firm is optional. The partners, at their discretion, may or may not decide to register their firm. However, it is recommended to register a partnership firm. There are certain benefits a registered firm can enjoy. Here, we will look at some of the benefits of partnership firm registration.
What are the benefits of partnership firm registration?
1. Lower compliance burden
The annual compliance burden of registered partnership firms is lower as compared to LLPs. There is no need for a partnership firm to appoint an auditor. If the firm is going through the process of registration, it is not necessary to file annual accounts with the RoC. Moreover, a partnership firm is not required to file sales tax, service tax, and taxes depending on turnover.
2. Dispute resolution is easier
A registered firm can bring other parties to the court in case of legal disputes arising out of any business matter. Also, the resolution of any partnership related dispute can be resolved in the appropriate Court of Law, if the firm is registered. The Partners of an unregistered Partnership Firm cannot enforce any rights mentioned in the Partnership Act. To avoid future disputes, you should take care to draft a proper partnership deed format.
4. Ability to claim set-off
Partnership firm registration provides the partners the ability to set-off claims, in case any third-party suit is filed against the firm. As per the Partnership Act, 1932, a partnership firm cannot claim set-off against the third party, if the firm is not a registered one.
5. Higher Credibility:
A partnership firm that has completed the partnership firm registration process enjoys higher credibility as compared to an unregistered firm. For this simple reason, registered firms are preferred by investors and authorities over unregistered firms.
What is the procedure of partnership firm registration?
The registration of a partnership firm is done with the local Registrar of Firm (RoF). Therefore, the registration procedure may differ from one state to another. Here, we will discuss a general procedure followed by the RoF across the states-
1. Drafting of the Partnership Deed:
The first step is to draft a partnership deed format as per the provisions mentioned in the Indian Partnership Act of 1932. The terms & conditions for operating the business of the proposed Firm should be incorporated in the Deed. However, the clauses/terms incorporated should be in strict adherence to the Partnership Act. You should take the help of professionals while drafting your partnership deed format.
2. Execution of Partnership Deed:
Once the partnership deed format is finalized, the Deed needs to be executed. It should be duly signed by all the partners in the places specified. The witnesses also need to sign the Deed, along with a mention of their respective residential addresses.
Next, stamp duty should be paid as prescribed by the Stamp Act of the concerned State. The Deed needs to be executed either on non-judicial stamp paper or by franking. Franking is the payment of stamp duty via banking channels and is equivalent to stamp paper. After the payment is made, the deed needs to be notarized.
3. Application for PAN:
As mandated in the Income Tax Act of 1961, a PAN card is the tax identity for any business that generates income. Therefore, a partnership firm operating in India must have a business pan card in its name. Most States in India mandates the partnership firms to have PAN while applying for partnership firm registration. If you do not have a PAN card in the name of the Firm, you can apply for the same with a copy of your partnership deed. With this PAN, you will be able to open a current account in the name of your firm.
4. Registration of Partnership Deed:
As stated above, the Registrar of Firms (RoF) of the concerned jurisdiction is the authority that oversees the partnership firm registration process. The application should include information such as the name of the firm, the name & address of each of the partners, duration of business, place of business, and so on. Certain specified documents related to the business must accompany the application.