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The relation established between two or more persons who have given their consent to share the profits of the business carried by all or any one of them acting for all is called partnership firm. In a partnership, Partners become the ultimate joint owners of the firm and the decisions taken by them are primarily governed by partnership deed. All the properties of the partnership firm belongs to their partners.
When co-owners start a business to share profits, they will be considered as partnership.
The document containing an agreement creating partnership that may be expressed orally or written or implied is known as partnership deed. However, partner’s intention to make it written so that a future dispute can be resolved on the basis of such agreement. Deed usually contains provisions relating to name of the firm, principal place of business, name and address of the partners, duration of the firm, supply of capital, profit-sharing ratio, interest of capital and interest of drawings, partner’s salary, valuation of goodwill on admission , death or retirement of the partner, management etc.
Partnership firm is very easy to form. No legal formalities are required to start a partnership form of business. Even Registration is not compulsory for partnership firm.
In partnership firm, there is large pool of financial resources because the firm receives capital contributions from majority of their partners. Borrowings can also be raised easily by partnership firm because banks also consider a partnership firm more beneficial while providing credit facilities instead of proprietorship business.
All partners in a partnership firm shares risk in their profit sharing ratio. Thus, there is a dilution of risk among the partners in a partnership concern.
In partnership firm, there is a division of work among the partners according to their skills & knowledge. This division of work brings specialization & efficiency.
In partnership firm, liability of all the partners are unlimited. If business assets are not sufficient to pay off debts then partners may have to sell their personal property.
Another important shortcoming of having a partnership firm is that no partner can transfer his/her share in favor of another person. Partner has to take consent of all partners before transferring any shares. It may be complicated to transfer the shares. As per section 45(3) of the income tax act 1961, if any partner transfers his/her assets to partnership firm then that transfer is taxable.
In partnership firm, Firm’s existence gets effected by death, insolvency or incapacity of any one partner. Even any partner can demand for dissolution at any time.
Contract signed by 1 partner is binding on all partners. Dishonest partner may enter into a contract for their personal benefit. All partners may suffer loss due to the act of any partner.
Details of the allotment of shares of the company need to be properly mentioned and maintained in the register of allotment.
There is no provision in the partnership act for compulsory registration of the partnership firm. A non-registered firm suffers certain disabilities that may be created, and for overcoming such disabilities, it is better that a partnership firm registers properly. Section 69 of the partnership Act, 1932 deals with such disabilities, and all firms must register to avoid such disabilities.
The partner of a non-registered firm cannot sue the firm or any person representing the other firm. He can do so if the firm is registered and the suing is possible if his name has been recorded in the register of the firm as a partner.
An unregistered firm cannot sue a third party for enforcing the right arising from a contract if the third party firm is registered, and the suing person’s name appears in the register as partner.
The right of set-off cannot be affected if the claim of set-off does not exceed Rs 100 in terms of value.
An unregistered firm or any partner thereof cannot set off a claim instituted against the firm by a third party to enforce a right arising from the contract.
DOCUMENTS REQUIRED IN PARTNERSHIP FIRM
AADHAR CARD OF ALL THE PARTNERS
RENT AGREEMENT OF THE REGISTERED OFFICE
50 Is the maximum numbers of partners which the partnership firm can have.
There is no minimum and maximum capital requirement for entering into a partnership firm.
Minor cannot be a partner in a partnership firm.
*(Exclusive of Government fees & taxes)
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