A Partnership is governed by the Indian Partnership Act, 1932 and is defined as 'the relation between persons who have agreed to share profits of the business carried on by all or any of them acting for all.
This definition gives three minimum requirements to constitute a partnership, viz.
A General Partnership is a business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in the Partnership Deed. This structure is thought to have lost its relevance since the introduction of the Limited Liability Partnership (LLP) because its partners have unlimited liability, which means they are personally liable for the debts of the business. However, low costs, ease of setting up and minimal compliance requirements make it a sensible option for some, such as home businesses that are unlikely to take on any debt. Registration is optional for General Partnerships.
PROCEDURE TO FORM A PARTNERSHIP
Choose a partnership name- The partners are free to choose any name as they desire for their partnership firm subject to the following rules:
Create a partnership deed- The document in which the respective rights and obligations of the members of a partnership is written is called the Partnership Deed. A partnership deed agreement may be written or oral. However, practically an 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:
The above are the minimum essentials which are required in all partnership deeds.
Consider whether additional clauses are needed. The partners may also mention any additional clauses. Some of the examples of additional clauses which may be mentioned in the partnership deed are mentioned below:
Do the partnership deed in the appropriate form- The deed so created by the partners should be on a stamp paper in accordance with the Indian Stamp Act. 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.
Decide whether or not to register the partnership firm- 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 the case where the partnership deed is not registered, the partners may not be able to enjoy the benefits which a registered partnership firm enjoys.
Register-The procedure for registration of a partnership firm in India is fairly simple. An application and the prescribed fees are required to be submitted to the Registrar of Firms of the State in which the firm is situated. The following documents are also required to be submitted along with the application:
Sign the application-The application or statement must be signed by all the partners, or by their agents especially authorized in this behalf.
Expect the registration process to proceed formally- When the registrar is satisfied with the points stated in the partnership deed, he or she shall record an entry of the statement in a register called the Register of Firms and issue a Certificate of Registration. The Register of Firms maintained at the office of the Registrar contains complete and up-to-date information about each registered firm.
Be registered for tax- It should be noted that registration with the Registrar of Firms is different from registration with the Income Taxation Department. 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 is required to open a Current Account in the name of the partnership firm and to operate all its operations through this bank account.