Partnership
When two or more persons come together for a common business and share the profits of the business amongst each other it is called a partnership. According to The Partnership Act, 1932 partnerships can be written or oral. However, it is highly recommended that Partnership deeds be written. Partnership firms are separate legal entities and they are supposed to obtain their own PAN and TAN for taxation purposes unlike proprietorship firms. The partners may mutually decide the share each one has in the partnership.
FAQ
1. How many persons are required to start a partnership?
The minimum number of persons required to start a partnership is 2.
2. Is there a limit to the maximum number of partners in a partnership firm?
Yes. The maximum number of persons that can be included in a partnership as partners is 50.
3.What is the procedure to start a partnership?
All that you need to start a partnership is two or more partners and a partnership deed. Once the partners sign the partnership deed, the firm has been created. After creation of the partnership deed we can apply for the PAN card and once the PAN card has been received we may open the bank account in the name of the partnership firm.
4. Is it compulsory to get a partnership firm registered?
No. It is not compulsory to register a partnership firm.
5. What do you mean by the term Partnership at will?
When in a partnership deed there is no mention of the ending date of the partnership, the partnership is deemed as a partnership at will. It means that the partnership shall continue as long as the partners desire.
6. Can a partnership firm buy property in its name?
Yes. A partnership firm can buy and sell property in its name just like an individual.
7. What kinds of businesses can I do under a partnership?
You may do any and every kind of business under a partnership provided that the acts of business are no illegal. The business of the partnership firm has to mentioned in the partnership deed and the partners cannot do any other business except that which is mentioned in the partnership. If they decide to do other businesses which are not currently mentioned in the partnership deed then the partnership deed can be amended and such new businesses can be started.
8. What are my legal obligations if I run a proprietorship?
A. The legal obligations of a partnership are the same as those of a sole proprietor. Your legal liabilities, in usual cases, are annual filing of Income Tax returns, Audit of accounts (if required), filing Quarterly TDS statements (if required). Further VAT/CST formalities and/or Service tax and Central Excise formalities may also be needed to be fulfilled depending on the business.
Advantages Of Partnership
Fast and easy to initiate
Partnership take relatively less time to initiate as compared to LLP/One Person Company/Pvt. Ltd Co. and a little more time then Sole Proprietorships. The Partnership is deemed to be constituted on the day when the Partnership Deed is prepared and signed by the Partners.
Taxation point of view
A Partnership Firm is allowed to give interest on capital to the Partners upto 12% per annum and remuneration as per the provisions of sec. 40(b) of the Income Tax Act, 1961 from the book profit of the firm. Both these payments shall constitute the income of the partners in their individual capacity and shall be taxed in their hands. If any profit remains, after paying the interest on capital and remuneration to the partners, only then would the Partnership Firm be liable to pay tax.
A Good medium when more then one person are involved in the same business
In cases where more then one person are involved in the same business and work together with a view to earn profits, a Partnership Firm is the simplest way to achieve this. It becomes a lot simpler and transparent for individuals doing the same business together to keep records and calculate their shares in profit at the end of the year.
Different entity
A Partnership is a legal person and has its own distinct identity apart from its partners. It has its own PAN, TAN, Books of accounts and is assessed separately. A Registered Partnership Firm can sue and can be sued independently.
No other legal formalities
A Partnership Firm does not need to fulfill other legal formalities like LLP/One person company/Private Limited Company like submitting of annual reports before the MCA or holding Board and Executive meetings or maintaining minutes of such meetings etc.