The Partnership Act, 1932 ( may be called the Indian Partnership Act, 1932).
It came into force w.e.f. 01.10.1932 extends to the whole of India except the State of Jammu and Kashmir (J&K).
What is Partnership:
As per Section 4 of The Partnership Act, 1932: "Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
Components of Partnership:
Persons who have agreed to enter into a partnership are called individually, "partners" and collectively "a firm", and the name under which their business is carried on is called the "firm name".
Registration of Partnership firm:
Reason to set-up:
They are relatively easy to set-up
The no. of statutory compliance required to be done is relatively less.
Choosing the Partnership Firm Name
Create a Partnership Deed A partnership deed agreement may be written or oral. However, the practically oral agreement does not have any value for tax purposes and therefore the partnership agreement should be written.
The following are the essential characteristics of a partnership deed:-
Name and Address of the firm as well as all the partners
Nature of business to be carried on
Date of Commencement of business
Duration of Partnership (whether for a fixed period/project)
Capital contribution by each partner
Profit sharing ratio among the partners
Some additional clauses mentioned below:-
Interest on Partner’s Capital, Partners’ Loan, and Interest, if any, to be charged on drawings.
Salaries, Commissions etc, if any, payable to partners
Method of preparing accounts and arrangement for audit
Division of task and responsibility i.e. the duties, powers, and obligations of all the partners.
Rules to be followed in case of retirement, death, and admission of a partner
The Partnership Deed created by the partners should be on a stamp paper in accordance with the Indian Stamp Act and each partner should have a copy of the partnership deed.
A Copy of the Partnership Deed should also be filed with the Registrar of Firms in case the firm is being registered.
How to Register Partnership deed in India
Partnerships in India are governed by the Indian Partnership Act, 1932. As per the Partnership Act, Registration of Partnership Firms is optional and is entirely at the discretion of the partners. The Partners may or may not register their Partnership Agreement.
However, in case the partnership deed is not registered, they may not be able to enjoy the benefits which a registered partnership firm enjoys.
Registration of 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.
The procedure for Registration of Partnership Firms :
1. An application with the prescribed fees is required to be submitted to the Registrar of Firms (ROF) of the State in which the firm is situated.
2. The following documents are also required to be submitted along with the application:-
i. Application for Registration of Partnership.
ii. Duly filled specimen of Affidavit
iii. Certified True Copy of the Partnership Deed
iv. Ownership proof of the principal place of business or rental/lease agreement thereof.
The application or statement must be signed by all the partners, or by their agents. When the registrar is satisfied with the points stated in the partnership deed, he shall record an entry of the statement in Register of Firms and issue a Certificate of Registration.
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 would be required to open a Current Account in the name of the Partnership Firm and operate all its operations through this Bank Account.
Retirement of a Partner:
(1) A partner may retire –
(a) with the consent of all the other partners,
(b) in accordance with an express agreement by the partners, or
(c) where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire.
Some Key Points:
A Partnership firm is not required to file its annual accounts with the Registrar of firm each year unlike a LLP or Company.
The Profits of a Partnership firm are taxed at 30% + Cess.
Any Indian Citizen residing in India can be a Partner in a Partnership Firm including minors (to the Benefits of Partnership).
The share in a Partnership can be transferred to another person after obtaining the permission of all the Partners in a Partnership. The transferability of a Partnership is cumbersome. Partnership can be converted into a LLP or a Private Limited Company.
Partnership firm and the Partners are not considered separate legal entities, neither does the Partnership have perpetual existence.
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