A Partnership firm is a business structure that is operated, managed and controlled by association of people for profit according to the terms, conditions and objectives set out in a partnership deed. In partnership business the members are individually partners and share the profit and liability of the firm in a predetermined ratio.
In India, Partnership firm are governed by the Partnership Act, 1932. Partnership is the relation between person who have agreed to share the profits of a business carried on by all or any of them acting for all.
Partnerships are of two types i.e. registered and un-registered. Registration of partnership firm is not compulsory but if it registered, advantages are added.
Now, let’s discuss the advantages of Partnership Firm:
Like sole proprietorships, partnership businesses can be formed easily without any compulsory legal formalities. It is not necessary to get the firm registered. A simple agreement or partnership deed, either oral or in writing, is sufficient to create a partnership. Registration of the partnership is voluntary in most states. However, it would be best to check up the rules of your state to be sure. In states like Maharashtra, registration is almost compulsory.
Since two or more partners join hands to start a partnership business, it may be possible to pool together more resources as compared to a sole proprietorship. The partners can contribute more capital, more effort and more time for the business.
The partners are the owners of the business. Each of them has equal right to participate in the management of the business. In case of any conflict, they can sit together to solve the problem. Since all partners participate in the decision-making process, there is less scope for reckless and hasty decisions.
A partnership firm is a flexible organization. At any time, the partners can decide to change the size or nature of the business or area of it’s operation. There is no need to follow any legal procedure. Consent of all the partners is required only.
In a partnership firm all the partners “share” the business risks. Because of this, the partners may be encouraged to take up more risk and hence expand their business more.
In a partnership firm, every partner has an equal right in decision making and the management of the business. If any decision goes against the interest of any partner, he can prevent the decision from being taken.
Since all the partners are owners of the business, they can actively participate in every aspect of business as per their specialization, knowledge and experience. If you want to start a firm to provide legal consultancy to people, then one partner may deal with civil cases, one in criminal cases, and another in labour cases and so on as per the individual specialization. Similarly, two or more doctors of different specialization may start a clinic in partnership.
Documents Required for Partnership Firm Registration (whether Registered or not) are: –
i. Partnership Deed
ii. Copy of PAN Card, Aadhaar Card of All partners
iii. Address proof of the firm (Any utility bill)
iv. NOC from the owner