What is Partnership Firm?

In India, partnership firms are formed and managed in accordance with the Indian Partnership Act, 1932. Section 4 of Partnership Act 1932 defines partnership as the relation between persons who have agreed to share profits of a business carried on by all or any of them acting for all.

Minimum Requirement:

Minimum of 2 persons are required to form a partnership and maximum of 10 persons in case of banking and 20 in case of others.

Features of Partnership:

• The relation of partners is based on the contract.
• At least 2 persons are required for the formation of partnership firm
• There must be some undertaking of business.
• The objective must be to earn profits and share among partners.
• Partner’s liability is unlimited.
• Mutual trust and confidence are the basis of partnership.
• Every partner can be a principal or agent of other partners during the course of Business.
• Consensus i.e. mutual consent is required for all important decisions.
• Restriction on transfer of share.
• No relation between contribution of capital and share of profits.
• Life span of partnership depends upon the will of partners.

Benefits of Partnership:

• Formation of partnership is easy as it does not involve too many legal formalities.
• Flexibility in the operations of the business.
• Registration of partnership form of organization is not compulsory as in the case of company.
• All major decisions are taken by mutual trust, which results in better decision making.
• Sharing of risk helps in formation of capital.
• Relation of effort and reward.
• Unlimited liability helps in more credit worthiness.
• It protects the interest of minority as mutual consent i.e. consensus is required to take all the major decisions.
• Easy to maintain secrecy as partnership firm is not under an obligation to disclose its annual accounts.
• No legal formalities for dissolution.

Limitations of Partnership:

• Unlimited liability increases the risk; this hinders the growth of business.
• Limited resources for generating capital.
• No perpetual succession i.e. sudden death or retirement of any one of the partners dissolves the partnership.
• Lack of good faith and confidence among partners causes great limitations.
• No transfer of shares.
• Burden of law of agency.
• Due to non-disclosure of accounts, there is always a lack of public confidence.

What are the Compliances required?

Three compliances are required:

• You should file Income Tax Return annually.
• You need to file your GST Return in case you are registered under GST.
• You should also deduct TDS and file TDS return if accountable for Tax Audit.

We at Nadeem Sarwari and Associates, provide the best services in India and, we deliver our service on time. We offer services to startups, like Sole Proprietorship, Partnership firms, Private Limited company, LLP, One Person Company, etc.