Partnership Firm
partnership is a relationship between individuals who have agreed to share the profits of a business carried on by all or any one of them acting for all as stated in Section 4 of the Indian Partnership Act. Therefore, a partnership consists of three essential elements.
- A partnership must be a result of an agreement between two or more individuals.
- The agreement must be built to share the profits obtained from the business.
- The business must be run by all or any of them representing the rest.
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Essential Elements of a Partnership
Types of Partnership
Partnership at will
A partnership by will is a partnership where there is no provision made by contract between the partners for the duration of their partnership, or the determination of their partnership.
Particular Partnership
A particular partnership is when a person becomes a partner with another individual in a particular business enterprise or for a particular business venture or undertaking, such as the construction of a road, laying a railway line, etc. This sort of a partnership shall come to an end on the completion of the task for which it was initially formed.
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Documents Required For Partnership Firm Registration
Types of Partners
Active/ Actual/ Ostensible Partner
When a partner of a partnership firm,
- has become a partner by an agreement.
- actively participates in the conduct of the partnership.
Sleeping or Dormant Partner
A Sleeping or a Dormant Partner is a partner
- who is a partner by agreement;
- who does not actively take part in the conduct of the business.
Nominal Partner
A nominal partner is an individual who lends his name to the partnership form. When this is done without having any real interest in the business, the person is a nominal partner. This kind of a partner is not entitled to share the profits of the firm
Partner in Profits only
This is a partner who is entitled to have a share of the profits without being liable to the losses. This kind of a partner is liable to third parties only for acts of the gain.
Sub-Partner
A Sub-partner is a partner in a partnership firm who agrees to share his profits in a partnership firm with an outsider to the firm. A sub-partner does not hold any right against the firm nor is liable to any debts caused by the firm.
Incoming partners
This is a partner who is admitted as a partner into an already existing firm with the consent from all the other existing partners. Such a partner is not liable for any acts of the form taken before his entry as a partner to the firm.
Outgoing Partner
An outgoing partner is a partner who leaves the firm in which the rest of the partners continue to carry on the business. Such a partner remains liable to third parties for all the actions taken by the firm until a public notice concerning his retirement is given.
Partnership Firm Registration FAQ's
Registration of partnership in India is legally formalizing a partnership firm by filing an application with the Registrar of Firms under the Indian Partnership Act, 1932. The registration process involves providing details about the partnership firm, such as its name, location, partners’ details, and the terms and conditions of the partnership agreement.
Registration of a partner to a partnership firm is not compulsory in India. However, if a new partner joins the partnership firm, the partnership deed should be amended, and a supplementary agreement should be executed. While registration of partners is not required, the partnership firm must be registered with the Registrar of Firms under the Indian Partnership Act, 1932.
Under the Indian Partnership Act, the following Individual/entities are eligible to become partners in a partnership firm:
It is very advisable to register a Partnership firm as a Registered Partnership Firm can file a suit in any court against any of the Partners or firm for the enforcement of any right arising from the contract referred by the Partnership Act. Also, only a Registered Partnership Firm can claim set-off or other proceedings in a dispute with a party.
The Partnership firm and the partners are the same in the eyes of the law. In Partnership firms, the liability of the Partners is also unlimited and all the Partners are said to be jointly and severally liable for the liabilities of the firm. Hence, No Partnership firm doesn’t have separate legal existence of its own.
A Partnership Firm must file the returns of Income irrespective of the number of profits or losses made by the Partners.