Partnership Firm

  • Easy to establish at least two members are required
  • Equips larger resources for the business operations
  • Has more than one pool of capital to tap in financing the business and its operations
  • A Partnership is governed by the Indian Partnership Act, 1932 and is defined as "the relation between persons who have agreed to share profits of the business carried on by all or any of them acting for all". At least two members are required to start a partnership business.

  • Banking Business - number of partners should not exceed 10.
  • Other Businesses - number of partners should not exceed 20.
  • It is not compulsory to register your partnership firm. However, if you don't get your firm registered, you will be deprived of certain legal benefits; therefore it is desirable to register. The effects of non-registration are,

  • Firm cannot take any action in a court of law against any other parties for settlement of claims.
  • In case there is any dispute among partners, it is not possible to settle the disputes through a court of law.
  • Note : Registration is voluntary in most states. However it would be best to check up the rules of your state to be sure.

    Benefits

  • Except for the time and the legal cost of crafting a partnership agreement, it is easy to establish.
  • More number of partners in the partnership firm equips larger resources for the business operations when comparing to sole proprietorship. The firm has more than one pool of capital to tap in financing the business and its operations.
  • The limited number of partners affords for flexibility in the business operations. The partners can amend any objectives or change any operations any time by mutual consent.
  • Business operations are well managed by all the partners as they take interest in the daily affairs of business because of the ownership, profit and control.
  • Every partner bears the risks individually as it is easier compared to sole proprietorship.
  • Partners can withdraw profits from the business in the name of Interest on Capital and Salary but subject to certain limits. Profits from the business flow directly to the partners personal tax returns; they are not subject to a second level of taxation.
  • Income of the Partnership firm is chargeable @ 30% flat. Surcharge is applicable @ 10% for firms having total income exceeding Rs.1 Crore. Educational Cess @ 3% is also applicable for all firms.
  • Limitations

  • Instability
  • Unlimited Liability
  • No separate legal existence
  • Restriction on transfer of interest