Partnership is another important form of business organization other than sole proprietorship and company form of business structures. There are circumstances where it would not be necessary for an entrepreneur to provide the necessary capital and resources. Furthermore, the nature of the business is such that it requires supervision and control, division of work and sharing of risks. However, the number of members available to share the risk as well as profits is not very large in the case of the company is. Furthermore, the size of the business undertaken to adopt the company form of the organization is not large enough. This is when the business can be taken into a partnership form by the entrepreneur. So, let's understand what is a partnership business and how is a partnership firm registration.
What is a partnership?
A partnership is a form of business unit where two or more individuals come together to provide the expected resources and share profits in an agreed ratio. The Indian Partnership Act, 1932 defines "partnership" as
"Relationships between individuals who have agreed to share the profits of the business done for all or any of them acting for all."
Thus, individuals who agree to form a partnership form of a business entity are called individually partners. In addition, individuals forming partnerships are collectively known as "firms".
As per the Companies Act, 2013, the minimum number of persons required as a business partnership is 2. Whereas in case of partnership firm the maximum number of members should not exceed 100.
This is contrary to the Companies Act 1956, wherein the maximum limit of members is set as 10 in case of partnership and banking and other businesses.
Goals of partnership firm
Formed on the basis of an agreement
A partnership firm comes into existence on the basis of an agreement between two or more partners who agree to start a business. The terms and conditions governing such a partnership are known as partnership documents.
Survival of a business activity
A partnership form of business activity can only be formed on the basis of the existence of business activity. Business can be anything and may include any trade, industry or profession.
Profit and loss partnership between partners
The partners are entitled to share the profits as well as bear any losses during the course of the business.
The existence of an agency relationship
All partners or one partner acting on behalf of the other may carry on the business of partnership. This means that each partner is a leader in himself who can act on his own. In addition, he can also act on behalf of other partners by acting as his agent.
Unlimited liability of partners
Each partner is personally liable for all losses incurred during business. That is to say, their personal assets can be used to pay off the outstanding debts of the partnership firm.
Each partner is entitled to participate in the day to day operations of the business. However, it is not mandatory for every partner to participate in the day-to-day tasks of the business. But, partners running the business are required to seek the consent of other partners to make the expected decisions.
Limit on transferability of share
A partner cannot transfer his share to another person. However, he can do so on the consent of other partners.
No compulsory registration
It is not mandatory to register the entity's partnership form. However, partners may choose to register the firm with the Registrar of Firms.
Duration of partnership firm
A partnership firm can continue as long as the partners wish to do so. However, by law, a partnership can terminate if either partner dies, retires, or goes bankrupt. However, the remaining partners can continue to do business under the same name after sorting the payable shares of the outgoing partner.
How to choose a partnership firm name?
Partners who become part of a partnership business unit will choose any name for their business. However it is subject to the following rules. As per section 58 (3) of Indian Partnership Act, 1932:
A partnership firm must not have the following words in its name. These include crown, emperor, empire, empress, royal, king, queen, royal or other words indicating approval or approval by the government.
The name should not be similar to any of the names of existing firms engaged in similar businesses. The idea behind such a rule is to avoid injuring the reputation or goodwill of the existing firm if the new firm adopts a similar business name.
What is a partnership deed and how is it prepared?
A partnership deed is basically a document that shows the rights and responsibilities of all partners.
Features of partnership:
Some of the features of the partnership are:
Contract or Formation - A firm with multiple owners must have a legal agreement between all partners. Therefore, to establish a partnership firm it is mandatory to have a partnership contract.
Unlimited Liability - All Partners