In recent years, most start-ups have evolved into partnership firms. The majority of businesses in India are proprietorships or partnerships. The most common type of firm is a partnership. The Indian Partnership Act, 1932 governs partnership firms in India.
The chances of having a successful business are high in a partnership firm. In addition to sharing their business ideas, the partners complement each other’s weaknesses. However, as with any business, there is the possibility that it may not succeed as planned. The firm may not do well simply because one or more partners are not doing well. It is possible that differences may arise under these circumstances and that legal action may be necessary. Thus, registering the firm is preferable.
Partnership firms have the following benefits:
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Registering a partnership firm has the following advantages:
Suing the firm or other partners is possible:
In the event of a conflict between the partners, between the current and former partners, or even between one partner and the firm itself, and as long as the conflict arises out of the partnership deed or relates to the rights vested to the partner under the Partnership Act, then a partner belonging to the firm where the partnership is registered can always go to court. Despite being able to initiate criminal proceedings against wronged partners, partners of unregistered firms do not have this privilege.
Firm’s ability to sue third parties:
In a partnership firm, one or more partners can always file a lawsuit if one of their contracts isn’t honored. This leniency is not offered to partners of unregistered firms.
The right to use the set-off principle:
The partnership firm can use the principle of set-off against a third party to recover money it owes to it if the latter owes some money to the partnership firm as well. It is possible for the registered partnership firm to simply counterbalance the amount it owes to the third party. Partnerships that are not registered cannot participate in this arrangement.
Credibility is improved:
While both registered and unregistered firms are legal under the Partnership Act, a registered partnership firm looks more credible in the eyes of potential clients.
Convertibility into an entity:
Registered partnership firms are always capable of converting themselves to other corporate entities, such as Limited Liability Partnerships (LLPs) or private companies. Unregistered firms do not benefit from this ease of conversion.
Creating a partnership firm involves the following steps:
Deed of partnership:
In order to register their firm, the partners must have a partnership deed ready. Indian Partnership Act, 1932 prescribes how the deed should be drafted. Deeds can be finalized according to the business terms and conditions between the partners. There are many elements that are essential to running a successful business, such as salaries to be paid, profit and loss allocation, interest on capital, exit strategies, etc.
Partnership deed execution:
After the existing partners have agreed upon the drafted deed, the next step would be to pay the stamp duty required for the execution of the deed. Depending on the state where the deed is registered, stamp duty will apply. The deed should also be notarized. All partners should sign the deed. The partnership deed should also include the signatures of the witnesses.
Notary procedures and stamp duty:
After stamp duty payments are made as directed by the Stamp Act of the state where the firm’s business is located, the partnership deed is executed. To execute the deed, a non-judicial stamp or franking can be utilized. While stamp duty indicates the legality of the document, franking signifies its authenticity. When a document is franked, it implies that charges or taxes have been deposited, such as stamp duty. As with stamp paper, franking is paid through banks. The deed is notarized once the stamp duty is paid, the partners’ and witnesses’ signatures are obtained.
The process of obtaining a PAN for the partnership firm is as follows:
It is possible to apply for a Permanent Account Number (PAN) either before or after the partnership firm has been registered. It can be done both online and offline. Most states allow the applicant to apply for a PAN when registering the partnership firm. A copy of the partnership deed must accompany the application for a PAN.
The registration of a partnership deed
A partnership firm is registered with the Registrar of Firms (RoF), whose jurisdiction the firm is located. An application form asks for information such as the firm’s name, the names of the partners and their contact details, the place of business, the time period during which the business was active, etc. Documents and proofs can be requested by the Registrar and must be provided by the partners.
Account opening
Most often, a partnership firm’s sole purpose is to carry out commercial activities. Therefore, it is clear that the business needs a bank account to conduct its daily operations. Therefore, a current account is opened in the firm’s name. The bank receives all the required partnership firm documents.
After incorporation, the firm can register itself at any time. An application for registration cannot be made after a third party files a lawsuit against the partnership firm. It is important for the partners in a partnership firm to be practical and intelligent enough to foresee the necessary evil and make informed decisions by registering their firm despite the best possible optimism at the beginning.
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