How to Set Up a Partnership Firm in India

A partnership firm is a business entity governed by the Indian Partnership Act 1932, which was enacted in India in 1932. To form a partnership firm, a minimum of two partners is required. 

Unlike a company registered under the Companies Act 2013, a partnership does not need to appoint a director. In this blog post, we shall explain to our readers how to set up a partnership firm in India. 

What is a Partnership Firm?

A partnership firm is a business structure in which two or more individuals come together and become partners, mutually agreeing to share the profits and losses arising from their joint venture, as per the partnership deed and the terms and conditions framed thereunder as well as the Indian Partnership Act 1932. 

In such a business model, each partner participates in management and assumes unlimited personal liability for the firm’s debts. This model is not a separate legal entity from its owners and stands in contrast to a company, which enjoys a distinct and separate legal identity.

Features of Partnership Firm

The features of a partnership firm include, but are not limited to, the following :-

• It is formed upon an agreement, that could be written or oral, between two or more individuals. A single individual can never form a partnership.
• A partnership can only be formed to conduct a lawful business for the purpose of profit-making as well as profit-sharing.
• In this type of business entity, the profits and losses are divided as per the partnership deed. However, a partnership deed isn’t a legally mandatory requirement. So, if such a deed isn’t in place, then the profits and losses are divided equally among all the partners.
• It isn’t a separate legal entity from its owners unlike a company.
• Each partner in a partnership acts as an owner as well as an agent to the firm and other partners as per the legal principle of mutual agency. This means that they can bind the firm and be bound by others’ actions within the scope of the business. 
• The life of a firm is often limited, unlike a company which enjoys the benefit of perpetual succession. In the event of a partner’s demise or their declaration of insolvency or bankruptcy, the firm stands dissolved unless the agreement specifies otherwise, i.e., it allows the remaining partners to continue the business like before.
• Individuals can form a partnership for a specific project or a fixed duration of time. Once the duration/project gets completed, the partnership gets dissolved.
• Registering a partnership isn’t a legal requirement. It is an optional step that individuals may choose to opt out of. However, registration is highly recommended due to the legal rights that come with it, such as the ability to sue third parties or partners.

Checklist for Registering a Partnership

Check out this list to know all the essential requirements for registering a partnership :-

• Drafting a written partnership agreement/deed (recommended.)
• Ensuring a minimum of two members agree to be partners of the firm.
• Selecting a unique and appropriate name for the firm.
• Choosing the principal place of business.
• Once the firm’s been registered, having a business PAN card and bank account is essential.

Process of Registering a Partnership Firm

The following are the steps that individuals need to follow to complete the process of partnership firm registration successfully. :-

Step 1 :- Choose a Unique Name

Before selecting any name and using it to build a firm, you must ensure that the name does not match the name of an existing firm. For this, you can visit the website of MCA, fill in the name in the MCA company search tool and check if the name is unique or not. 

It is important that you avoid half-similar names as well. For example: if Adidas is already available then don’t use a word similar to this name such as Abidaas. Doing so will affect the credibility of the firm.

Step 2 :- Draft a Partnership Deed

The partnership deed is the foundation of the partnership. Create a deed that mentions the details of partners, profit/loss sharing ratio, capital contribution, commission/salaries, rights, duties and obligations. 

It is important to note that having a partnership deed isn’t a mandatory requirement by the law. However, it is still recommended to have this document in place to avoid any confusion or future disputes. 

In case of absence of the deed, the provisions of the Partnership Act, 1932 automatically apply (by default), regardless of the ‘mutual understanding’ the partners may have had. 

Step 3 :- Execute the Partnership Deed

After drafting the deed format, it must be executed in the firm with the signs of partners and witnesses. Along with this, the stamp duty must be paid as prescribed in the Stamp Act.

Step 4: Prepare Documents and Submit Registration Application

Now, it is essential to prepare documents that are required for partnership firm setup such as a copy of the partnership deed, PAN card and address proof of partners, GST registration certificate and others. 

Then, apply for partnership registration along with the documents to the Registrar of Firms operating under the concerned state government. 

Step 5 :- Get Approval for Registration Certificate

The RoF will then verify the authenticity of the application and all the documents attached to it. Upon granting approval to the application, it will finally issue the certificate of registration in the firm name. The certificate then gets sent to the email ID that was shared at the time of application. 

Conclusion

A partnership firm is governed by the partnership deed and the Indian Partnership Act 1932. To form it, a minimum of two partners is required. Need assistance in partnership firm registration? Connect with our company registration consultants at Registrationkraft for assistance in collecting all the necessary documents and filing the application with the Registrar of Firms (RoF).

Frequently Asked Questions (FAQs)

Q1. Is it mandatory to register a partnership?

No, it is not mandatory to register it. However, it’s highly recommended as it allows the firm to exercise certain rights like the ability to file a suit against third parties/partners and enforce contractual claims.

Q2. Does a partnership firm offer limited liability protection?

No, it doesn’t offer limited liability protection. In a partnership, the partners share unlimited liability. This means that each partner is personally liable for all business debts.

Q3. Is a partnership deed mandatory to form a partnership?

No, having a partnership deed in place is legally mandatory to form a partnership. It is an optional step but is recommended as it helps to prevent confusion and future disputes between partners.

Q4. How is a partnership different from a company?

The main difference between them is that a partnership established under the Indian Partnership Act 1932 is not a separate legal entity from its owners while a company established under the Companies Act 2013 is a separate legal entity from its owners.

Q5. Can a partnership be formed for a specific duration or a specific purpose?

Yes, a partnership can be formed for a specific duration or a specific purpose. Once the duration ends or purpose gets served, this business entity then automatically gets dissolved.