Partnership is the relation which subsists between persons, who have agreed to combine their property, efforts or skill in some business and share the profits thereof between them.
Now the question arises, whether it is good or bad and how?
A partnership is a relation of mutual trust and faith. In order to maintain this trust, it is necessary to give 100% of own part. As its name suggest and many of you may know that partnership is the collaboration among partners to do the business with common idea. One could not be perfect in all the kind of stuffs required to do business therefore, in partnership, partners join their hands to put efforts in common business so that the business should not lack due to one’s incapability as others’ efforts and skills overcome the one’s limitation. Now, partners may join their hands by considering various factors which may be finance, skills, network, reach, experience, knowledge or even based on time.
The main purpose of partnership is to do the business more aggressively and efficiently in exchange of sharing of Profits/Losses along with associated risk. A Partnership firm has its own artificial existence where the firm gets popular on its own name rather than a particular person.
It is easier to manage than a company or LLP and in terms of business over sole proprietor ship firm, it has many benefits like
- It is free from One’s incapability.
- Business enjoys the best skills as more partners brings their more competitive skills to the business.
- Business has its own identity with its own PAN, UDYAM which makes it separate from individual partners. It does not enjoy the benefits of separate legal entity but it is also not like sole proprietorship firm, whose existence just end with the life of the owner.
- More partners do share the profits but the risk of failing also gets distributed as the possibility of profit also attracts the possibility of losses. No business gives sure shot guarantee of profits.
- With the individual efforts of partners, a partnership firm also enjoys synergy benefits as in partnership firm 1+1 = 2+ or 1+1+1 = 3+. A partnership firm may have its own rules (like bye laws), where partners decide the working of their business according to their own feasibility as the Government is not stringent to partnership firm as like to the companies or Non-Government Organizations. Government regulates the Partnership firms as much as a sole proprietorship firm.
- Does not have to file several forms time to time to the registrar or some other government entity like companies or Non-Government Organizations, which means less paperwork to be followed comparatively with more freedom to work.
Other than above, a Partnership Firm has some important aspects like
- Partners have to do contractual agreement before starting the business which is called as “Partnership Deed”, consists of rules and regulations to do the business with mutual understanding and partners have to follow the points agreed in the deed.
- A partnership firm is taxed at flat 30% income tax along with 4% cess over it. However, Partners’ remuneration is allowed to be deducted before taxing the firm which could not be more than as allowable under Income Tax Act, 1961.
- A Partnership Firm also follows Indian Partnership Act, 1932. Therefore, the partnership deed could not overlap the provisions contained in Indian Partnership Act, 1932.
- In Partnership Firm, there could be more than one person to do the business and under normal partnership firm, the number of partners could not exceed 20. Therefore, if the no. of partners exceeds 20 then it could be either LLP (Limited Liability Partnership Firm) or Company but not Partnership Firm.
- A Partnership Firm could be with limitation of existence like a Partnership Firm may decide the validity of existence of firm in advance at the time of creation of it, which may be time or even based. For example: ABC partnership firm was created to develop a building, once the building completed and partners follow the deed terms, accordingly the firm automatically ceases its existence or a partnership firm decided its validity till 5 years from its beginning only.
A Partnership Firm can reach the new heights and for that partners have to use their skills, put their efforts to give intensive strength to the firm and partners instead of focusing on personal growth, have to work in common interest of the firm which shall not be prejudicial to the firm directly or indirectly. The partnership accounts must be maintained in honest, accurate and equitable manner. Partnership accounts should present a true and fair picture of the partnership business so that harmony among the partners do not hamper.
Now, it depends on person to person and their abilities to do the business whether to go in Partnership or not. It’s totally personal choice and according to me, if someone is new in the business and does not have proper competency to do it or the work is riskier than its rewards, then (s)he should start the business
through Partnership Firm as it starts quickly, easier to maintain, less risky than sole business, less paperwork and easiest way to do the business. Further, if someone has to complete a task but could not able to do so, then (s)he may also join hands with other partners for a particular task.
Documents Required for Registration of Partnership Firm
- Partnership Deed
In spite of the fact that an association deed or Partnership Deed can be oral, for the most part, a partnership deed is composed to stay away from any future clash. Partnership deed is made on a legal stamp paper and must be marked by every one of the partners. It contains rights and obligations of the firm and the accomplices. - Documents of Partners
- PAN card of partners – As an identity proof, all the partners of a Partnership Firm are required to submit Pan Card.
- Address proof of partners – Aadhar Card, Driving License, passport or Voter ID card can be submitted by the Partners as address proof for Partnership Registration.
- Address Proof of firm
On the off chance that the enlisted office put is leased, rent agreement and one utility bill (electricity bill, water bill, property tax bill, gas receipt etc.) must be submitted. Additionally, NOC from land owner will be submitted. If the enrolled office put is possessed, Ownership papers or utility bill must be submitted specifying the name and address of the owner. Likewise, a NOC from the partner must be submitted. - Additional partnership firm registration documents required
In the event that accomplices wish to enroll the association firm, they have to submit organization deed, ID and address confirmations of the firm and also the accomplices to the Registrar of Partnerships. With it, a sworn statement is likewise required to be submitted affirming that every one of the points of interest specified indeed and reports is right. - GST Registration
For acquiring a GST Registration, a firm needs to submit Partner as well as Firm’s documents which includes PAN, AADHAR, PHOTOGRAPH, UTILITY BILL, NOC, PARTNERSHIP DEED etc. Approved signatory will sign the application either utilizing a computerized signature testament or physical signature.