Partnership firms are one of the most common forms of business organisations in India. They are easy to set up and have minimal compliance requirements. A partnership firm is formed when two or more people come together to carry on a business to earn profits. The Indian Partnership Act, 1932 governs the registration and operation of partnership firms in India. In this blog post, we will discuss the process of partnership registration in India and the benefits of registering your partnership firm.
What is a Partnership Registration?
A partnership firm registration is when two or more partners running a business or a firm together register the partnership firm with the Registrar of Firms. To register a partnership firm, the partners must submit an application to the Registrar of Firms in the state where the firm operates. The registration of a partnership firm is optional, so the partners can choose to register the firm at the time of its formation or later during its operation.
The partners must have a common intention to form a partnership, select a name for the firm and execute a partnership deed. However, the partners cannot be part of a Hindu Undivided Family or a married couple.
Benefits of a Partnership Firm Registration:
1. Shared losses and profits:
In a partnership, a partner’s liability is limited to their share of the ownership of the firm. This makes a low-risk situation for all the partners involved as their assets are safe in case of a financial loss.
A partnership firm has better credibility amongst its customers, suppliers and financial institutions. This helps a partnership firm to get loans easily from banks compared to a single-owner proprietorship.
3. Easy to integrate:
Compared to other forms of business organisations, incorporating a partnership firm is relatively easy. To incorporate a partnership firm, all that is required is drafting the partnership deed and entering into the partnership agreement.
Unlike other forms of business organisations, no other documents are required for incorporation. Additionally, registration with the Registrar of Firms is voluntary and not mandatory. Therefore, a partnership firm can be incorporated and registered at a later date.
4. Less Compliance:
A partnership firm has fewer compliances to follow than a company or LLP. The partners can avoid getting a Digital Signature Certificate (DSC) or a Director Identification Number (DIN), which are mandatory for the company directors or designated partners of an LLP.
The partners can also make changes in the business without much hassle. It is cheaper to register and maintain a partnership firm compared to a company or LLP. The partnership firm can be dissolved easily with minimal legal formalities.
Process for Partnership Firm Registration:
The procedure for the partnership firm registration is as follows:
1. Choose a partnership name:
You should select the name of your partnership firm in such a way that it does not look like the name or colour-able imitation of another firm that already publicly exists. You can check the validity of your firm’s name at the Ministry of Corporate Affairs website.
2. Create a Partnership Deed:
The partnership deed is a necessary document for partnership registration as it provides information about:
- Name and address of all the partners and the firm.
- Contact details of all the partners.
- Kind of business you are involved in.
- Duration of partnership.
- The ratio of sharing of profit/loss.
- Rules in case the firm goes under solvency.
- Capital share of each partner.
3. Apply for a PAN card in the name of the Partnership Firm:
To pay taxes, a firm needs a Permanent Account Number (PAN) from the Income Tax Department. This number can be obtained by opening a current account in the firm’s name. The Act’s registration status does not affect this requirement.
4. File an application for Registration:
A firm needs to fill out a form with details such as the firm’s name, the type of business it conducts, the location of the business, the names and locations of all the partners, and the date when the business started. This form is then submitted to the registrar in the area where the firm’s main office is situated.
5. Document Submission:
To register a partnership, the Registrar needs the following documents along with the registration application:
- Form 1 for partnership registration
- A verified original copy of the partnership agreement
- A sample of a sworn statement
- Partnership firm’s PAN Card
- Documents that prove the address of the partnership firm, such as ownership deed, lease and rent contracts, etc.
- PAN Cards and address proofs of all the partners
6. Pay the Stamp Duty and Fees:
The documents must be submitted to the Registrar along with stamp duty and a registration fee. These charges are different in different states. Paying all the dues is necessary for completing the registration process.
7. Legalise the Deed:
For legalising the deed, all the partners must be provided with a physical copy of it on stamp paper. It should be signed by all the partners in the presence of the notary. This signed copy needs to be presented during the registration process to the Registrar. The value of the stamp on the stamp paper varies from state to state.
8. Certification from the Registrar:
The firm will get a registration certificate from the registrar after verifying the documents. The firm will be officially registered in the Register of Firms from the date of this entry. The partnership firm must use ‘(Registered)’ after its name from then on.
Some Indian states now allow partnership firms to register online. The online registration process requires the firm to fill out an application form with the same details as before. The firm will get an acknowledgement number after submitting the form, which it can use to login on to the website and upload the scanned copies of all the documents. The registrar will check the documents and send the certificate through email.
Documents Required for Partnership Registration:
To apply for a partnership firm, the following documents are needed:
- A completed application form with photos of the partners
- Proofs of Identity of all partners (Aadhaar Card, Voter ID Card, Passport, or Driving License)
- Proof of address of all partners such as address proof documents of partners, including Aadhaar card, voter ID card, passport, or driving license.
- Proof of Partnership Address: Documents such as utility bills (electricity, water, etc.), rental agreement, or ownership proof of the partnership’s registered office address.
- Certificate of partnership registration
- Any other document issued by the state or central government, such as GST Registration.
- Any additional document required by the relevant authority
Different Types of Partnership Firms:
The different types of partnerships firms are:
- Active partner
- Passive/Dormant/Sleeping partners
- Limited Liability Partnership
- Nominal Partner
- General Partnership
- Partnership Registration Status Basis
- Partner by holding out or estoppel
- Partner in profits only
Frequently Asked Questions (FAQs):
1. What is the fee for registering a partnership firm in India?
The registration fee for a partnership firm is around Rs. 3000. It depends on the nature of your business and also from one authority to another.
2. Is it important to make a partnership deed?
Yes, it is always advised to make a partnership deed as it helps in the taxation process and any other legal processes.
3. What amount of Income Tax is levied on partnership firms?
The Income Tax that is levied on partnership firms is flat 30%.
4. How many partners are needed to form a partnership firm?
You can form a partnership firm just with at least one partner.
The certificate of registration of a partnership firm is received after how many days? The complete registration process requires 12-14 working days.
5. Do partnership firms have to file income tax returns?
Yes, It is compulsory for a partnership firm to file income tax returns without taking into account their profits and losses.
6. Can a new partner be added to a firm after the registration?
Yes, but the terms of adding another partner need to be mentioned in the deed.