It can be defined as a business set up wherein two or more business partners own and manage the business in accordance with the terms and conditions laid out in the partnership contract/ deed. Nowadays, people prefer Limited Liability Partnership (LLP) over General Partnership as in the latter case, the partners have unlimited liability and are responsible for the debts of the business, individually.
Still, there are businesses like home-based businesses that prefer General Partnership because it offers low costs, ease of setting up and minimal compliance requirements.
In case of small business which are planning to operate on the same level, partnership firm, because of its low costs, ease of setting up and minimal compliance requirements is the best option to choose. However, in case of a large business, the option of Limited Liability Partnership (LLP) is a recommended setup to ensure lower costs yet limited liability.
Registered Partnership Deed
Generally, there is no requirement to register your Partnership deed but, in some cases, it is required to get it registered from Registrar of Firms. Registrar will issue proper ROF No. after checking all the documents.
Unregistered Partnership Firm
Here, registration is not required through registrar; through special contracts you can start a partnership firm. The major disadvantage of this format is you can’t file lawsuit/ case against any party & any business partner in the firm.
Documents depends on whether the business is on lease or owned, and if there is any necessity of license or registration in your business model. Though some basic documents always required for registering a Partnership firm:
- Latest Passport Size Photograph of All Partners
- PAN Card of All Partners
- Aadhar Card of All Partners
- Electricity Bill or Any Other Utility Bill for the Address Proof
- Rental Agreement or Sale Deed of Business Place
It is easy to establish:Partnership model is easy to establish comparatively other business models, one can start its firm within 3 to 5 days.
It demands minimal compliance:It demands minimal compliance work as there is no necessity to appoint auditor or annual filling with the registrar.
It is inexpensive:It is one of the inexpensive options to start your business. As compliance procedures are very minimal, hence its maintenance cost is also cheap.
Dissolution is easy:As compare to other business start up models, it’s easy & inexpensive to dissolve Sole Proprietorship company.
Economically viable:Foremostly this is the only alternative, which provides better tax planning option with separate legal identity feature & partner get salary/remuneration directly from firm. Therefore, it is economically feasible for small business mock-ups.
Fundraising problem:Investors & venture capitalist does not invest in this model as companies are more transparent & their financial statements are crystal clear. Even lending from banks is also a challenging task in this.
No limited liability security:Proprietor is directly responsible for any kind of business loss and there is no option to limit your liability in this model.
Limit on partners:Maximum 20 partners are permissible in this model.
- There is no minimum capital prerequisite for registering a Partnership firm. You can start with Rs. 10,000 also.
- For opening a current account in bank of a partnership firm, requires GST registration and one of the legal registrations like MSME, S&E and trade license.
For safeguarding of brand name of partnership, one needs to take trademark registration Separately.
- On basis of the turnover, audit is applicable in Partnership firm. Otherwise till limit of 1 crore no audits are required.
- This is the best model for partnership work and local sellers, small traders & MSME sector generally opt for this model initially in starting of their business.
- One can convert Partnership firm to LLP/Private limited Company. But it’s not recommended.
- We deliver end to end consultation before you accept this model of creation for your start up. How taxes impact you, etc. We will absolutely guide you on registration & licenses which are required with this option, for example, MSME & trademark prominence in registering a Proprietorship company.
- Also, we handle all the compliance work beginning from managing accounting work, GST Return filling, income tax matters and annual audits if applicable.
- We will constantly support you on all monetary needs of the organisation and assist you according to the requirement.
- Generally, it takes 3 to 15 days procedure for registering this kind of business model & further it depends all on the authorities & requirements of client.