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Overview

Persons who have entered into partnership with one another to carry on a business are individually called “Partners” which is called as “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name”. A partnership firm is where two or more persons come together to form a business and divide the profits in an agreed ratio. The partnership business includes any kind of trade, occupation and profession.
 
                                         
 
Definition of Partnership: The Indian Partnership Act, 1932, governs partnership Firms in India. As per Section 4 of the Indian Partnership Act: “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”

Steps to register Partnership Firm

With the increasing use of the technology, the government entities can do functions like: registration and compliances online. In India, although a number of states still follow an offline procedure, there are few states who have adopted the online registration process, which requires the application to be filed with the Register of Firms (ROF).
 
Follow these simple steps to register for a Partnership Firm under the Act.
 
Step 1: Choose Name for a Partnership
 
A firm should select a name that does not :
 
➤ The name should not be too similar or identical to an existing firm doing the same business.
➤ The name should not contain words like emperor, crown, empress, empire or any other words, which show sanction
     or approval of the government.
 
Step 2: Draft a Partnership Deed
 
The partnership deed is the most important document for the registration of the company as it provides the registrar with all the following necessary information:
 
➤ Name and address of company and all partners
➤ Contact details of partners
➤ Nature of the business
➤ Duration of the partnership
➤ Profit/Loss sharing ratio
➤ Rules regarding the solvency of the firm
➤ Information of capital to be contributed by each partner
 
In Addition, the Deed should also contain information about the remuneration payable to partners in excess of the profit shares, responsibilities of partners, audit procedures, etc.
 
Step 3: Apply for a PAN Card in the Partnership Name
 
A firm, irrespective of registration under the Partnership Act, has to apply for a Permanent Account Number to the Income Tax Department. This can be applied on the basis of a current account in the name of the firm. The PAN is a requirement to fulfil the obligation of paying taxes.
 
Step 4: File a Registration Application
 
The registration application requires a firm to provide information regarding the name of the firm, the nature of the business it will carry, address of the business, names and addresses of all the partners, date of commencement of business.
 
Step 5: Submit the Documents
 
Along with the registration application, the following documents are to be submitted to the Registrar as a part of the registration process:
 
➤ Application for registration of partnership (Form 1)
➤ A certified original copy of partnership deed
➤ Specimen of Affidavit
➤ PAN Card in the name of partnership firm
➤ Proof of address of the partnership firm, ownership deed, lease and rent agreements, etc. are common acceptable documents
➤ PAN Cards and address proofs of all the partners.
 
Step 6: Payment of the Fees & Stamp duties
 
Registration fee as well the stamp duty needs to be paid at the time of the submission of the documents with the Registrar. The fees vary across states. If the dues are not paid, then the registration will not get completed.
 
Step 7: Finalize the Deed
 
To legalize the deed, it should be provided to each partner in a written form on a stamp paper. All the partners in front of the notary should duly sign one stamp paper deed. The value of the stamp varies from state-to-state. The signed copy is there after submitted to the Registrar during the registration process.
 
Step 8: Certification from the Registrar
 
The registrar, after thorough examination of the documents, will issue a registration certificate.
 
After this, the firm will be on the record of the Register of Firms. On the date of this entry, the firm shall be deemed to be registered. The partnership firm is required to add ‘(Registered)’ after its name from the date of registration

Documents required for registration

The documents required to be submitted to the Registrar for registration of a Partnership Firm are:
 
➤ Application for registration of partnership (Form 1)
➤ Certified original copy of Partnership Deed.
➤ Specimen of an affidavit certifying all the details mentioned in the partnership deed and documents are correct.
➤ PAN Card and address proof of the partners.
➤ Proof of principal place of business of the firm (ownership documents or rental/lease agreement).
 
If the registrar gets satisfied with the documents presented, then he will register the firm in the Register of Firms and issue a certificate of Registration, otherwise the Firm will not get registered.
 
Register of Firms contains up-to-date information on all firms and can be viewed by anybody upon payment of certain fees.

Partnership Deed

A partnership deed is an agreement between the partners, which specifies the rights, duties, profits shares and other obligations of each partner, is mentioned. It can be written or oral, although it is always advisable to write a partnership deed so that if any conflicts arises in future can be tackled easily.
 
Details Required in a Partnership Deed
 
General details
 
➤ Name and address of the firm and all the partners.
➤ Nature of business.
➤ Date of starting of business Capital to be contributed by each partner.
➤ Capital to be contributed by each partner.
➤ Profit/loss sharing ratio among the partners.
 
Specific details
 
Apart from these, there are certain specific clauses, which are also required to be mentioned to avoid any conflict at a later stage:
 
➤ Interest on capital invested, drawings by partners or any loans provided by partners to the firm.
➤ Salaries, commissions or any other amount to be payable to partners.
➤ Rights of each partner, including additional rights to be enjoyed by the active partners.
➤ Duties and obligations of all partners.
➤ Adjustments or processes to be followed on account of retirement or death of a partner or dissolution of the firm.
➤ Other clauses as partners may decide by mutual discussion.

Types of Partners in Partnership Firm

The following can be possible types of a partner in any partnership firm: 
 
⎆  Active or Working Partner
⎆  Dormant or Sleeping Partners
⎆  General Partnership
⎆  Limited Liability Partnership (LLP)
⎆  Nominal Partner
⎆  Partner by estoppel or holding out
⎆  Partner in profits only

Checklist

✓   Selection of appropriate name for business.
✓   Principal Place of business.
✓   Minimum two members as partners.
✓   Maximum of equal to or less than twenty partners.
✓   Drafting of Partnership Deed.
✓   PAN card and bank account of the firm.

Advantage and Disadvantages of Partnership Firm

Advantages of Partnership:
The formation & compliance are simple and easy, making it possible for everyone to set up their business as a Partnership Firm. 
 
1. Easy to Form: Like sole proprietorship, partnership form of organisation can be formed without much legal formalities. 
2. Business Risk is Shared: Any loss sustained by the firm will be borne by all the partners.
3. Reward and Work: In partnership form of business organisation, there is an direct relation between reward and work. This enables the partners to put more labour to earn more and more profits. 
4. Easy to Disolve: Dissolution of the partnership is simple and easy. Partnership can be dissolved on the death, lunacy or insolvency of a partner.

Read more..

Disadvantages of Partnership:
Partnership firms growth and approach is limited, If the investors, venture capitalists, and others approach, then the firms hold back. Its functioning is not transparent.
 
1. Lack of Public Trust: As the partnership concern is not subject to any regulation and no legal formation and functioning, the people have less faith in such organisation
2. Liability even after Retirement: In partnership form of business organisation, the retiring partner continues to be liable for all acts done when he was a partner. 
3. Instability of Continuation: Partnership may come to an abrupt end on the death or insolvency of the partner. It may also be closed if a single partner expresses his desire to dissolve the partnership.

Read more..

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FAQs

Partnership firm registration can take up to 1 to 2 weeks. However, the time taken to issue a certificate of incorporation may vary as per the regulations of the concerned state.

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