Partnership Firm Registration

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What is a Partnership Firm?

A partnership is a form of a business structure wherein two or more than two individuals come together to operate and manage the business as per the terms and conditions laid out in the formal partnership agreement known as Partnership Deed.

Due to the rapid changes in time, this business model has lost its effect in the Indian business houses. The reason for the same is the incident of unlimited liability on the partners of the business because here, they are personally liable to pay off the business debts from their personal property or assets. 

Advantages of a Partnership Firm

There are still some of the businesses that continue or opt for a general partnership type of model due to the benefits it associates with e.g. home businesses who are unlikely to take debts or loans, etc. Few of them are mentioned below: 

  • Low costs involved in initialising the business.
  • Ease of setting up the business
  • Minimal regulatory compliance is required in general partnership
  • It is optional for the businesses to get their business registered under general partnership

Features of General Partnership

  1. Unlimited Liability

The partners in this form of business are liable for paying off all the debts of the business. This implies that if for any reason, the business is unable to pay off the balance amount to its creditors, then the partners from their personal capacity has to pay it off. Therefore, all the external entities or creditors of the organization are directly having a right on the personal possessions of the partners of the business.

  1. Easy to Start the business

Many business houses often find the registration processes difficult and thus, general partnership is a form of a business in which registration is not compulsory. The only thing they require is a Partnership Deed which can be received in 2 to 4 working days. As compared to private limited company or even a LLP, the registration process of general partnership is very simple as it can be finished off within 1 day as the only thing required for the same is to get a registrar.

  1. Relatively Inexpensive

A General Partnership is extremely cheaper to start the business and also in the long-term because of minimum mandatory compliances required, is highly inexpensive and no auditor is required to be hired. Hence, despite the several shortcomings in this form of business model, home businesses go for it.

  1. Registration

Al the partnership businesses in India are regulated by the Indian Partnership Act, 1932. Partnership business can be started and carried out in India with or without registration as per the act. For registering the partnership firm, a Legal Partnership Agreement has to be made which defines the terms and conditions, roles and responsibilities of all the partners in the particular firm. This partnership deed consists of the profit-sharing ratio amongst the partners.

Documents required to register a Partnership firm:

  • The statement mentioned in Form 1 along with the fees stated therein.
  • A true copy of the final partnership deed that has been notarized must declare the following things
    1. Firm’s name.
    2. Business nature or model.
    3. The place or principal place of business of the corporation.
    4. The names of all the places where the business performs its operations.
    5. Partners’ joining date in the corporation.
    6. Details of every partner i.e. name and full address.
    7. The time period of the corporation.
    8. Proof of the location of the business is required in both the cases: If owned by the partner/s or taken on rent/lease
    9. Partners’ PAN, Aadhar Card/ Voter identity card copies

Takeover of partnership firm

A partnership firm can be taken over by any Private limited company or even by any another partnership firm too. The liabilities and assets of the partnership firm can be transferred on payment of the consideration amount & on the payment of the stamp duty. The key points are

  • A private limited company can take over all the existing assets and liabilities of the partnership firm at the time of acquiring it but is it to be done only with the consent of the creditors and partners of the existing partnership firm.
  • The acquisition costs are usually higher and sometimes not only for this reason, but to save the incidence of tax also, companies take loans. The loan will be only given to the private limited company to acquire the partnership firm and not to the partnership firm.
  • A tripartite agreement is a legal document of agreement between the seller, buyer and the bank is not required in this type of acquisition.
  • Bank’s permission is required with respect to the acquisition which the company is planning because the loan is secured against farm

Important things before acquiring a general partnership firm:

  • The acquisitor firm/company should scrutinize whether the MoA of the firm has been empowered or not. As MoA is the base of any organization or firm, if it is being followed rigidly, it implies that the firm was in compliance with legal regulations and they will not face any issue in future.
  • It should be made sure before proceeding towards the acquisition process that the consent of acquisition by other company has been obtained from all the partners in the firm. 
  • Every company will move into the acquisition phase when they are planning to expand their business and, in this scenario, inheriting a liability will be a sign of danger. So, it should be looked carefully that all the dues are paid and statutory laws are being followed and are in favour of the firm.
  • All the assets and the liabilities owned by the firm must be exhaustively valued. Any discrepancy in the same will lead to abnormal loses for the acquiring business.
  • Resolution indicates the agreeableness of the partners and it has to be passed before any major decision is being taken by anyone of the partners. So, this resolution must be checked by the acquiring company.
  • Creditors owe an amount to the business and their consent also plays a vital role in purchasing or acquiring any business. This problem arises mainly when a private limited company is acquiring the general partnership firm because in the former the liabilities of the directors are restricted and then the creditors of the partnership firm may not agree due to the same.
  • Adjustments of assets and liabilities must be analyzed because the firm might have done some unethical adjustments as its not mandatory for them to get their financial statements audited. These adjustments include writing off assets, bad debts, goodwill valuation, depreciation method, etc.
  • Partners in the partnership are liable to pay even from their personal bank accounts if the need arises. So, their bank accounts details in respect to how it will be settled or disbursed must be kept in mind.

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