What is a Partnership Firm Registration?

Partnership is one the oldest establishments in the categories of the small enterprises. This form of enterprise has existed in the Indian economy since the time of kings and queens. Yes! It is that old. And also, the most popular form of business in which there is more one person involved in the business. It is immensely popular because of the ease of set-up and also because of the simplicity of the formation and of literally no compliance cost.

Partnership is the most-simple form of business entity. It is an entity that gives the benefit of good capital access and also of managerial distribution. It also helps to experience economies of scale because generally share most of the work and thus are able to experience the economies of scale.

Partnership became popular because when the need for growing business arises sole proprietor falls short of manpower and capital requirements. Hence, in order to fulfil those requirements, it is required to establish a bigger firm, more individuals and a huge capital. Thus, the entrepreneurs developed the partnership which was to overcome the difficulties of sole proprietorship and establish an entity which can upgrade over the disadvantages of the sole proprietorship.

There are many advantages of the partnership, such as, managerial distribution, economies of scale, flexibility and many others but as each coin has two sides, similarly partnership also has many disadvantages such as that of every partner is bound by the decisions any one of the partners makes in the capacity of the firm. Moreover, one of the major disadvantages of the partnership firm is that of unlimited liability, under this head the personal assets of the partners can be attached to pay off the liabilities of the firm. This is a major disadvantage; it is because of this reason that people generally flock to the formation of private limited companies.

Even, then we must note that it is one of the oldest and immensely popular form of business organization. Hence, we see that people still form partnerships to conduct business.

A Partnership firm is a business structure in which two or more individuals register and operate a business in according to terms and objectives which is set out in the partnership firm registration deed. All the partners of firm collect investment, skills and other resources and share profit and loss according to profit sharing ration with the terms of partnership deed. In the absence of such agreement, a partnership firm is assumed to exit where the partners in an enterprise agree to share the associated risk and rewards proportionately or equally.

After online registration of partnership firm, the partners are required to maintain the tax compliance to maintain the legal status of a partnership. The partnership firm is known through their tax registration like GSTIN, PAN Card, TAN.

Apply Company Registration Online

Agreement
- The partnership business is jointly run which makes it necessary for all the partners have to agree with things that are being done. This means that in some circumstances, there are fewer freedoms with regards to the management of the business especially compared to sole traders. However, there is still more flexibility than with limited liability partnership where the directors must bow to the will of the members (shareholders).
Limited Liability
- Ordinary Partnerships are subject to unlimited liability, which means that each of the partners shares the liability and financial risks of the business which can be off-putting to some people. This can be countered by the formation of a limited liability partnership firm, which benefits from the advantages of limited liability granted to limited companies, while taking advantage of the flexibility of the partnership model.
Profit Sharing
- Partners share the profits equally. This can lead to inconsistency where one or more partners aren’t putting a fair share of effort into the running or management of the business, but still reaping the rewards.
Taxation
- One of the major disadvantages of partnership firm registration is the taxation laws which means that the partners must pay tax in the same way as sole traders, each submitting a Self-Assessment tax return each year. The current laws mean that if the partnership (and the partners) bring in more than a certain level, they are subject to greater levels of personal taxation rather than they would be in a limited company. This means that in most cases, setting up a limited company would be more beneficial as the taxation laws are more favourable.
Disagreements
- One of the most obvious disadvantages of a partnership registration is the danger of disagreements between the partners. Obviously, people are likely to have different ideas on how the business should be run, who should be doing what and what the best interests of the business are. This can lead to disagreements and disputes which might not only harm the business, but also the relationship of those involved. This is why it is always advisable to draft a deed of the partnership during the formation period to ensure that everyone is aware of what procedures will be in place in the case of disagreement and what will happen if the partnership is dissolved.