Partnership in Business - How to Register Partnership Firm?

Partnership-in-business

Partnership in business is nothing but when two or more person they want to start new business such business they formed is known as partnership business. Short coming of sole Proprietor have created an option for partnership.  It removes shortage likes limited capital investment, marginal skill and unlimited liability.

    What is partnership firm?

    Partnership form or partnership in business are governed by Indian Partnership Act 1932 as per this act partners are eligible and they can start business by themselves only. The important aspect of partnership in business is shearing of profit and loss.

    As per section 4 of Indian Partnership act, partnership in business is the relationship between two or more person who have agreed to shear profit and loss of the business which is running by all or any of them.

    The person who entered in to partnership with one another are called individually ‘partners’ and collectively ‘Firm’. The name given to that firm is known as ‘firm name’.

    Like company, the partnership firm is not legal entity; it is group of individual partners. The relationship between each partner is not due to status but due to the contract made between them.

    From the above discussion we can say minimum two partners are required to form a partnership firm and it is formed for shearing of profits of business. All the partners may carry business together as active partners. While there can be one or more active partners and the other partners can be dormant partners.

    Type of Partner in Partnership Firm

    1. Working partner or active partners:

    The active or managing partners are those who actually or actively take part in day to day activities of the business and also actively take initiation in management of the business. They not only contribute capital but also shear profit and loss in the business. The role of the active partner is very important in the firm. They act as agent, manager, controller and advisor for smooth functioning of the business. They can also withdrawal invested capital for work or service from the firm. As they are actively participate in the firm, before taking the decision of retirement they should have to give public notice in order to declare him to free from all his liabilities. If he fails to do so he held to be liable for all activities done by other partner of the firm after his retirement.

    2. Sleeping partner or dormant partner:

    These are the partner who doesn’t take part in day to day activity of the business. They are also known as dormant partner. Sleeping partners invest capital in the firm but they do not dedicate their time to firm. The sleeping partners don’t participate in the management of the business. They have unlimited liability and shear profit and loss in the firm. They cannot withdrawal capital from the firm.

    3. Secret partner:

    These are the partners whose association to firm is unknown to general public. The membership of such partners is kept secret to the public. They can participate in the working of the business. They also secretly participate in the management of the form. Since they contribute capital to firm and they shear profit and loss of the firm, they have unlimited liability.

    4. Nominal Partner:

    Nominal partners are those partners who allow the use of their name by a firm but they do not contribute to the capital. Such partner may be celebrity or business tycoon who have brand name in the market. They do not have any significant interest in the activity of the firm. The firm utilizes the strength of their name, in order to raise the credit and to sale the product of nominal partner. The name of the nominal partner itself an asset to the firm. Such partners neither contribute capital to firm nor take part in management of the business. Generally they does not share profit and loss of the business and they have unlimited liability.

    5. Partners by estoppel :

    A person is considered to be a partner by estoppel if through his own initiative, conduct or behavior he gives an impression to other that he is a partner of that firm. Though in real, he is not partner of the firm but through his action and behavior he depict as partner by estoppel. They display by their word as a partner. Though they doesn’t contribute capital and doesn’t participate in the management of the firm, they have unlimited liability towards the loans and advance obtained by the firm. They also don’t share profit and loss of the firm.

    6. Limited partner:

    Limited partners are those partners whose liability remains up to the amount contributed towards the firm. In other word liability of limited partner is as much as they have invested capital in the firm.

    7. Partner by holding out:

    A person who is not a partner of the firm but knowingly allows himself to be represented as a partner in the firm. Such representation must hold out in the form of conduct, his word or in his action. Secondly the other person must have proved that he has knowledge of such representation or action. They do not contribute capital and doesn’t shear profit and loss. They also do not involve in management activity of the firm but due to their representation they get unlimited liability.

    8. Sub-partner:

    Sub partners are those partners who relate someone in their shear. They also distribute some part of their shear to sub partner. Sub partners are not directly related to firm but they are link to the partner of that firm. Such sub partner does not have any liability towards the firm and do not represent himself as a partner of that firm.

    9. Partner in profit:

    This partners who shears only profit of the firm and they doesn’t have any liability such partners are known as partners in profit.

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    Partnership Firm Documents:

    Documents required for formation of partnership firm weather it is required or not is listed below –

    1. Partnership deed
    2. PAN Card of each partner
    3. Address proof of all the partners
    4. Documents of Firm like address proof of firm lease agreement of firm
    5. Firms PAN Card
    6. Additional documents in case of registration of firm like affidavit which clarify that all given detail are correct and genuine.
    7. Current Bank account
    8. GST registration

    Type of partnership in business:

    A) On the basis of Duration:

    1. Partnership at will
    2. Particular partner

    B) On the basis of Liability:

    1. General Partnership
    2. Limited Partnership

    Partnership at will:

    Such type of partnership in business exists at the will of the partner. It depends up on the decision of the partners that how long they are willing to carry out the business activity. Here the decision of the partners determines lot. It can continue as long as the partners wants and it is dissolved when any partner gives notice of withdrawal from partnership to the firm. In simple word it comes to an end when one partner or more than one partner wants to withdrawal from partnership then this type of partnership automatically gets terminated.

    Particular Partner:

    This type of partnership in business is formed for the accomplishment of specific objective or a particular project. Such partnership in business comes in to existence only when there is a specific objective need to be completed. Ex. In a construction business the firm got the project for construction of society. In order to complete project of society certain partnership is formed between more than one people. When the project completed this partnership gets dissolved. Duration of the partnership is only up to the completion of the project.

    The partnership get dissolved automatically when the purpose for which it was formed is fulfilled or when the time duration is expired.

    General Partnership in business:

    In this partnership in business, the liability of the partner is unlimited and joint. The partners enjoy the right of participation in the management of the firm. All the partners have right to take decision to carry out business activities. The registration of the firm is optional; the decision for registration is depends up on the partners. The existence of the firm gets affected by the death of the partner, lunacy, insolvency or retirement of the partners. Then there is chance of windup of the firm.

    Limited Partnership in business:

    In limited partnership, the liability of at least one partner is unlimited whereas rest partners may have limited liability. Such type of partnership does not get affected with the death, lunacy or insolvency of limited partners. The limited partners are neither enjoy the right of management nor bind the firm or other partner of the firm. The registration of such partnership is compulsory.

    Registration of Partnership firm:

    Registration of partnership firm means entering the name of firm along with relevant prescribed particular or documents in the registrar office and kept with the registrar of firm.

    Partnership-in-business-registration-of-firm

    Section 58 of Indian Partnership Act 1932 gives detail guidelines about registration of partnership firm. As per this section following are the provisions –

    1. Application for registration:

    For registration of firm the firm should have to send application in the form of Form No 1 along with the prescribed documents, fee and true copy of partnership deed. Submit all these documents and Form No 1 to registrar office. For registration of firm the registrar office should be located in the area where the firm conducting his business. Before submitting the application it should be signed by all the partners. The timeline provided for registration is one year from date of formation of the firm.

    The application form contains detail like -

    • Name of firm and nature of business.
    • Place of business
    • Other place of business if any
    • Joining date of each partner
    • Detail of the each partner like name and address of each partner
    • Duration or time period of the firm.

    2. Verification of application:

    All the partners who are signing the document they must verify the same as per given in the partnership act. That means all the partner should have to verify the document of registration along with their signature.

    3. Required document for registration :

    The document should be submitted along with requisite fee for registration of firm is as follows –

    • Form No 1 (Application for registration)
    • True copy and certified copy of partnership deed. partnership deed of the firm should be on stamp paper as per stamp paper act
    • Affidavit certifying that all detail mentioned in the partnership deed is correct.
    • Address proof of place of business like recent Electricity bill along with rent agreement showing name of the owner and date and duration of lease. 

    4. Registration fee:

    The registration fee varies from state to state. The firm should have to pay the fee as per the prescribed fee by the state government along with required documents for registration.

    5. Name of partnership firm:

    While deciding the name of the firm, all the partners should have to consider the rules mentioned in section 72 of Indian partnership Act. After registration the firm should use the word ‘registered’ after the name of the firm in the bracket.

    If the order is given by register and any partner is not satisfied about name of the firm, he can make appeal on behalf of firm to the authorized person appointed by the State Government within 30 days from the date of order along with the payment of fee. The authorized person appointed by the State Government makes decision in this regard.

    6. Statements entry in the register:

    After completion of this process the registrar as per section 59 of Indian Partnership Act makes the entry of statement in the registrar of firm and files the statement. This will happen only after satisfaction of registrar that the application for registration of firm, complies all necessary provisions.

    7. PAN Card of firm:

    It is mandatory for all firms that they should have to register the firm with the Income Tax Department and obtain PAN Card in the name of the firm.

    8. Bank Account of firm:

    After obtaining the PAN Card the firm should have to open their Bank account. The bank account should be current account in the name of firm. The main reason is all the operations in the firm are routed through this current account.

    Registrar after approval will make an entry in the register of firm and will subsequently issue a certificate of registration.

    Advantage of Registration:

    1. The main advantage of registration is the firm can suit a case against third party like other firm or individual
    2. The creditor means who gives loan to firm on the credit basis. If the firm is registered creditor can recover the money by filing suit against firm.
    3. If in firm any partner has conflict or dispute then such dispute can be solved through court. Each partner have right to sue other partner.
    4. For incoming partner the certificate of registration will provide detail information about the firm. This will make him easy to invest in the firm.
    5. For outgoing partner- if the existing partner is leaving the firm because of death of partner and retirement of partner then his shear is calculated separately.
    6. If there is death of any partner proceedings of the other partners like son, daughter, wife etc. they are not liable for any kind of liabilities because of this registration.

    Summary - Partnership in business:

    Partnership in business is the relationship between two or more person in order to make profit in their business. Partnership is not legal entity but it is group of partners. It is not mandatory to register the firm but it is preferred to be registered. Such registration of firm will provide legal right so that they can sue other party. They can resolve their dispute within the partner.

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