What is a Partnership Firm?
The term partnership can be defined as an arrangement where parties or individuals known as business partners enter into an agreement and agree to cooperate on the grounds of their mutual interest to attain a common objective. A partnership might result in issuing and holding some equity. Contracts can also govern it.
What is a partnership agreement?
A written agreement between the partners known as the partnership agreement is vital as partners might directly benefit from it because it states specific terms and policies of the relationship between them. Earlier, a partnership business used to work according to the norms set in a Partnership Deed. Today this structure is considered irrelevant since the introduction of Limited Liability Partnership. According to the Limited Liability Partnership, the partners enjoy limited liability, which indicates that they are liable to the debts of the business to a certain extent, nothing more. Don't use plagiarised sources.Get your custom essay just from $11/page
How does Partnership Firm work?
A partnership firm is a framework of the business where two or more parties manage as well as operate a company according to the terms and conditions set out in a partnership deed that might or might not be registered. In such undertakings, the members involved are entitled to share the liabilities and the gains of the firm in a predetermined ratio.
Who can enter into a Partnership?
A partnership firm is the best option for small businesses. They do not have any such objectives to convert their business to a significantly large scale operation. Registration is not mandatory for general partnerships. The partners in such a firm are owners and, therefore, not a separate entity for the business. The partners are responsible for any kind of legal issue or debt incurred by the firm.
How many people are needed to form a Partnership?
A partnership firm must have at least a minimum of 2 partners, up to a maximum of 20. A firm engaged in banking business can have up to a maximum of 10 partners. The Profits and losses are divided among the partners equally or in any proportion that they may agreed upon.
What is the taxation involved?
According to 2017, partnership firms are directly responsible for paying income tax at the rate of 30% of total income. The firm is also liable to pay a surcharge on the amount of income tax of 12% in case the amount of total income is more than Rs 1 crore. It has to be paid in addition to the income tax. Firms can also file for income tax return in form ITR 5. Like other income tax forms, ITR 5 is an attachment-less form. It does not demand any submission of any document or statement along with the partnership firm tax return. The taxpayer must have all the records related to the business and present it before the authorities when filing for income tax return.
Why should I go for Partnership business?
- Simple to begin- Partnerships are simple to start as they require no mandatory registration of the deed. It can commence within 2-4 days, although registration has its own sets of benefits.
- Economical- A general partnership business is much cheaper to begin compared to LLP. In the long run, it will still prove to be inexpensive as the requirements are quite minimal.
- Sense of ownership- The activities of the firm are owned and managed by every partner who gives them a sense of ownership.
What are the disadvantages of a Partnership firm?
- Instability- The partnership form of organization might come to a sudden end when there is an abrupt demise of a particular partner, or it may also close if an individual partner decides to dissolve the firm.
- Restricted enterprise- The partners in the partnership firm is bound to overprotective and over-cautious as the unlimited liability covers the personal fortunes of the individual partners. Therefore, this restricts enterprise. The responsibility of partners might be considered excessive for most purposes.
- Liability after retirement- The retiring partner remains liable after retirement for all the acts done when he/she was a partner.
How do i register a partnership firm?
In the case of a partnership firm, registration is not necessary. But in any instance, if a partner wants to sue another partner or the firm itself, then registration is required. If the partnership firm intends to settle any matter in the court, then it needs to be registered. It is therefore recommended for more substantial businesses to register the partnership deed.
What are the documents needed for registration?
There are certain documents required for the registration of a deed. They are:
- A registered business name
- The original copy of the partnership deed
- Affidavit declaring the intention of each member to become partners.
- Rent or lease agreement of the property where the business will be conducted
- Appropriate licenses
- Comprehensive financial records
- Relevant registration certificates
- Bank account in the name of the business
- Taxation registrations
Partnerships are a common form of business throughout the world. Besides being comfortable, it also has specific growth opportunities if done in the right manner. To know more about Partnership business and registration, call Kanakkupillai today.
References
https://www.indiafilings.com/learn/partnership-firm/