One of the most important types of business organizations is a partnership firm. In India, this type of business structure is very common. Establishing a partnership firm requires the involvement of two or more people. A partnership firm is a group made up of two or more people who start a business together and share the profits according to a ratio that has been set. A partnership business may include any type of trade, career, or occupation.
In India, the partnership firms are regulated under the Indian Partnership Act, 1932. Individuals who join to form a partnership firm are partners. A contract between the partners constitutes the partnership firm, and this contract is known as a partnership deed, which rules the relations between the partners and the partnership firm and among the partners.
A general partnership is a type of organization in which two or more people manage and run a company as per the rules and goals specified in a partnership deed. In a general partnership, all partners share equal responsibility for the debts and liabilities of the company as well as equal profit and loss sharing.
2. Limited Liability Partnership (LLP)
In this type of partnership, partners have limited liability, which protects them from personal responsibility for the financial and legal debts of the firm. Although LLP partners are separate legal entities, this protection is comparable to that of a limited partner in a limited partnership.
Business Activity: In order to be profitable, the partnership must do a particular type of business activity.
ITR-5
Registration of a Partnership Firm
Types of Partnerships
1. General PartnershipA general partnership is a type of organization in which two or more people manage and run a company as per the rules and goals specified in a partnership deed. In a general partnership, all partners share equal responsibility for the debts and liabilities of the company as well as equal profit and loss sharing.
2. Limited Liability Partnership (LLP)
In this type of partnership, partners have limited liability, which protects them from personal responsibility for the financial and legal debts of the firm. Although LLP partners are separate legal entities, this protection is comparable to that of a limited partner in a limited partnership.
3. Limited Partnership
There are limited and general partners both in a limited partnership. In addition to managing the company and having unlimited liability, the general partner is also responsible for the other limited partners. On the other hand, limited partners are not involved in day-to-day operations and have limited control. Usually, they don't have the power to make decisions, but they do invest and share profits. Because they do not participate in management, limited partners are not permitted to set off the partnership losses in ITRs.
4. Partnership at Will
A partnership that is formed without a set duration or objective is known as a partnership at will. It runs into infinity and can be dissolved at any time by either partner informing the other partner of their intention to leave. Because this partnership is based on the will of the partners, they have the right to dissolve the partnership whenever they feel it is necessary. It is usually created for valid and continuing business operations and has no set expiration date, allowing participants to decide how long it will continue by mutual consent or on their own.
4. Partnership at Will
A partnership that is formed without a set duration or objective is known as a partnership at will. It runs into infinity and can be dissolved at any time by either partner informing the other partner of their intention to leave. Because this partnership is based on the will of the partners, they have the right to dissolve the partnership whenever they feel it is necessary. It is usually created for valid and continuing business operations and has no set expiration date, allowing participants to decide how long it will continue by mutual consent or on their own.
Main Features of a Partnership
The main features of a partnership are:Business Activity: In order to be profitable, the partnership must do a particular type of business activity.
- Contract or Agreement: A partnership is the result of a contract signed by two or more people.
- Number of Partners: At least two individuals must be joined for a partnership to be formed. The maximum number of partners is restricted.
- Common Objective: Partners have a common objective or mission for the company.
- Unlimited Liability: Every partner is personally liable for the debts and liabilities of the partnership.
- Sharing of Gains and Losses: Partners agree that they should share the company's gains and losses.
- Ownership and Agency: Partners act as the firm's owners and agents. One partner's actions can have an impact on other partners and the business as a whole.
- Collective Liability: In general partnerships, all partners have joint liability for the obligations of the company, even if it means risking their own personal assets.
- Limitations on an Interest Transfer: Without the approval of other partners, partners are not permitted to freely transfer their interest in the partnership.
- Strict Rules for Partnership Changes: All parties must agree before a partner can join, leave, or transfer ownership.
Returns Applicable for Partnership Firms
ITR-4 (SUGAM)- Individuals, Hindu Undivided Families (HUFs), and firms (except Limited Liability Partnerships) are all eligible to file this ITR form.
- The individual, or HUF, must be a resident other than not ordinarily resident (RNOR). The partnership firm must be a resident.
- The entity's total income must not exceed ₹50 lakh.
- Under sections 44AD, 44ADA, or 44AE of the Income Tax Act, entities having income from a business or profession computed on a presumptive basis can file this return. It is also applicable if the entity generates income from one house property, other sources (such as dividends, interest, family pensions, etc.), and up to ₹5,000 in agricultural revenue.
ITR-5
- This ITR is required to be filed by a person who is:
- Association of Persons
- Body of Individuals
- Firm
- Limited Liability Partnership
- Artificial Juridical Person
- Local Authority
- Estate of a Deceased Person
- Estate of an Insolvent
- Representative Assessee
- Trusts other than trusts eligible to file Form ITR-7
- Business Trust
- Investment Fund
- Cooperative Society
- Society registered under the Societies Registration Act or under any other act.
Registration of a Partnership Firm
There are 3 steps for registering a partnership firm.
1. Application Form for Registration
To register a firm, one must submit an application (Form 1) and the required fees to the Registrar of Firms of the State in which the firm is located. To register a firm, one must submit an application (Form 1) and the necessary payments to the state's registrar of firms. Each partner or their representative needs to sign it and verify it. The application form (Form 1) is available for download from the website of the registrar of firms in the relevant state or can be collected from the Registrar of Firms office. The application can be physically delivered or sent by post to the Registrar of Firms, which includes the following information:
It is possible to give any name to a partnership firm. However, there are a few requirements that must be fulfilled when choosing the name:
The name must not be exactly similar to that of an already-existing firm that does the same business.
The name shouldn't include any words that indicate government approval or sanction or any words like emperor, crown, empress, or empire.
3. The Registration Certificate
The registrar will register the firm in the Register of Firms and issue the registration certificate if the registrar is satisfied with the registration application and the supporting documents. All firms' latest data is available for viewing in the Register of Firms, which can be viewed by everyone for a fee. The Registrar of Firms of the State where the firm is located must receive an application form along with the prescribed fee. The application is required to be signed by each partner or their representative.
It can take up to 10 or 14 working days in India to register a partnership firm.
Is a partnership considered invalid?
A partnership may be declared invalid by the court if the partnership agreement is not registered. The court may declare the partnership invalid and dissolve it if the business's purpose is unlawful.
To register a firm, one must submit an application (Form 1) and the required fees to the Registrar of Firms of the State in which the firm is located. To register a firm, one must submit an application (Form 1) and the necessary payments to the state's registrar of firms. Each partner or their representative needs to sign it and verify it. The application form (Form 1) is available for download from the website of the registrar of firms in the relevant state or can be collected from the Registrar of Firms office. The application can be physically delivered or sent by post to the Registrar of Firms, which includes the following information:
- Firm's name.
- Principles of place of business
- Other places of business where the firm conducts business
- Date when each partner joined the firm
It is possible to give any name to a partnership firm. However, there are a few requirements that must be fulfilled when choosing the name:
The name must not be exactly similar to that of an already-existing firm that does the same business.
The name shouldn't include any words that indicate government approval or sanction or any words like emperor, crown, empress, or empire.
3. The Registration Certificate
The registrar will register the firm in the Register of Firms and issue the registration certificate if the registrar is satisfied with the registration application and the supporting documents. All firms' latest data is available for viewing in the Register of Firms, which can be viewed by everyone for a fee. The Registrar of Firms of the State where the firm is located must receive an application form along with the prescribed fee. The application is required to be signed by each partner or their representative.
Documents Required for Partnership Registration
The following documents need to be sent to the registrar when applying for registration of a partnership firm:- Application Form (Form 1)
- Original Partnership Deed (certified copy)
- The specimen of an affidavit attesting to the accuracy of all the information included in the partnership deed and supporting documents
- The partners' proof of address and PAN card
- Partners’ address proof and PAN card
- Documents that provide proof of the firm's principle place of business, such as ownership records or a rental or lease agreement.
Frequently Asked Questions (FAQ)
In India, how long does it take to register a partnership firm?It can take up to 10 or 14 working days in India to register a partnership firm.
Is a partnership considered invalid?
A partnership may be declared invalid by the court if the partnership agreement is not registered. The court may declare the partnership invalid and dissolve it if the business's purpose is unlawful.
