A partnership firm is a business structure where two or more individuals come together to collaborate on a business venture. It offers several benefits that make it an attractive choice for entrepreneurs. A Partnership Firm refers to an entity formed by two or more people who mutually agree to divide profits / loss in a predetermined ratio. In India, the primary law governing partnership registration is the Indian Partnership Registration Act of 1932. The partnership deed is a legal document used to establish the Partnership Firm Registration. According to law, a partnership is an agreement between individuals who have consented to divide profits earned from the business operation performed within the partnership firm. A partnership firm can have a maximum of 50 members. It is crucial to note that members of a Hindu Undivided Family or a Burmese Buddhist member cannot be part of a partnership firm. Read more about Partnership Firm Rule and Regulation at The Partnership Act, 1932
A partnership firm is a business structure where two or more individuals come together to collaborate on a business venture. It offers several benefits that make it an attractive choice for entrepreneurs.
Number of Partners: A partnership can have a minimum of two members and a maximum of 50.
Voluntary Registration: While registration is not mandatory, it offers additional benefits and legal protection.
Contractual Agreement: Partnerships operate based on a partnership deed, a legally binding contract that outlines various aspects of the partnership.
Competent Partners: All partners must be competent adults; minors cannot become partners.
Profit and Loss Sharing: Profits and losses are distributed as defined in the partnership deed.
Unlimited Liability: Partners have joint and several liability for the firm’s debts.
Interest Transfer: Partners cannot transfer their interest without approval from other partners.
Principal-Agent Relationship: Partners act as agents and are expected to act in the firm’s best interest.
Active Partner: Actively manages the business and represents other partners.
Dormant Partner: Not actively involved in management but shares profits and losses.
Principal Partner: Not actively involved or an equity owner but liable for business actions.
Profit-Share Partner: Entitled to profits but not liable for losses.
Sub-Partner: Shares profits with a third party, without rights or liabilities.
Prospective Partner: Accepted as a partner with no prior liability.
Previous Partner: Leaves the partnership but remains accountable for past actions.
Partner by Holding Out: Represents themselves as a partner, liable to those who trusted the representation.
Minimal Compliance: Fewer legal and regulatory obligations compared to other business structures.
Simple Formation: Quick and straightforward registration process.
Cost-Effective: Lower initial costs, ideal for startups.
Criteria | Partnership Firm | Company |
|---|---|---|
| Legal Status | Unincorporated | Incorporated |
| Number of Owners | Two or more | One or more |
| Liability | Partners have unlimited liability | Shareholders have limited liability |
| Management | Managed by partners | Managed by directors appointed by shareholders |
| Ownership | Joint ownership by partners | Individual ownership of shares by shareholders |
| Raising Capital | Limited options | Can issue shares and raise capital from the public |
| Legal Compliance | Governed by Partnership Act, 1932 with fewer formalities | Governed by Companies Act, 2013 with more formalities |
| Taxation | Partners pay tax on their share of partnership income | Company taxed as a separate legal entity, shareholders taxed on dividends |
| Continuity | Partnership dissolves on the death or resignation of a partner | Company has continuity of existence |
| Transferability of Ownership | Ownership cannot be transferred without the consent of partners | Shares can be freely bought and sold |
| Reporting | No mandatory reporting requirements | Must maintain books, file annual returns, and financial statements |
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