You might have seen many technical articles on how to start a Partnership Business. In this article, we are trying to give you a little more practical scenario on how to start a partnership business in India.
We hope this information may help those wanted to start a partnership business and become a success.
Table of Contents
What is a Partnership Business ?
Partnership Business is a type of business by which two or more persons agreed to do business.
They agreed to share the profit and loss as per the mutually agreed ratio. This business may be carried out by all the partners, or any of them may act for all other partners.
In India, Partnership Business is governed by the Partnership Act 1932.
But some vital areas like capital invested, share profit, type of business are decided by the Partnership Deed.
How to Create a Partnership Firm ?
We can try to understand various steps to form and register a partnership business in India
First Step : Finding a Suitable Partner
Main points need to consider while selecting a suitable partner
- The personal and professional background of the person with whom we planned to start a partnership
- We need to check the financial stability of the prospective partner
- Try to partner with a like-minded, cooperative person only. If you are considering these, it may lead to undermining the common objective of the partnership
- You should find a partner who may have a business quality which you do not have. Suppose, you have expertise in the production and design of the product, you can find a partner having expertise in sales and marketing
These are some of the soft and brilliant consideration you need to do in advance before jumping to a partnership business with someone.
Second Step : Decide the Number of Partners Required
To constitute a Partnership Firm, the minimum required partners is 2 and the maximum number is 100, subject to some exceptions.
Third Step : Selection of the Business
We need to decide the type, nature and the size of business for which the partnership is formed.
There must be a clearly stated Partnership object.
Fourth Step : Slection of Name of the Firm
We can select a mutually agreeable name for the partnership. We can give a name as per our wish provided that
The name should not be identical to a firm already doing the same business.
Partnership name should not contain names like Crown, Emperor, Empress, Empire, Imperial, King, Queen, Royal or words expressing or implying the sanction, approval or patronage of Government when the State Government signifies its consent to the use of such words as part of the firm name by order in writing.
Fifth Step : Estimation of Capital Requirement of the Firm
Based on the decision as to the type, size and nature of the business, we need to finalize the capital requirement of the firm.
The share of each partner also decides based on the total capital requirement.
Sixth Step : Partnership Agreement
The essential element needed to form a partnership firm is the agreement amid partners, with specifically mentioned profit sharing ration, the business carried out by all or any of them acting for all, and the agency relationship between the partners.
Once you decided the name of the partnership firm, the next step in the formation of the partnership business is drafting the partnership agreement. This agreement is called a Partnership Deed.
Partnership Deed is an essential component in the registration of the partnership firm. It must print on stamp paper.
Partnership Deed is a binding agreement among partner. Partners’ rights, obligations and responsibilities are defining in this document.
Adequate care should be given to each element of the provisions in the deed and must agree by all the partners to the firm. The partnership deed needs to stamp as per the stamp duty.
Generally, partnership deed containing the following information.
- Name and address of the firm
- Name and address of the partners
- Details of the Managing partner and other partners authorization
- Nature of business and place it may operate
- Date of commencing of partnership
- Purpose and duration of the partnership firm
- Initial capital investment and the ratio of contribution
- Plan of raising finance in future
- How to share the profit and loss of the firm
- Interest on partners loan
- Interest on partners drawings
- Interest on Capital, if any
- Salaries and commission payable to partners
- Obligation, rights, responsibilities of each partner
- Procedure and circumstances at the time retirement, admission and death, dissolution of partners
- Arbitration in case of disputes
- Any other provisions the partners think fit
- Exit procedures if any partner desires to do so.
All the pages of the partnership deed must be signed by all partners and witnessed by two persons .
Seventh Step : Registration of Firm
As per the Indian Partnership Act, 1932, the registration of partnership firm is optional to partners. If the firm is not registered, it will impact on partners in case of confliction arise. Unregistered firms will not have legal protection.
It is recommended to register the firm to enjoy some rights which a non-registered firm can not enjoy.
To register a firm, we need to apply to the Registrar of Firms in the state, where the firm situated with the following documents.
- Application for registration of partnership. The form of registration of a partnership firm ( Form no1)
- Proof of identity and the address of Partners
- Photos of partners
- Required Stamp Papers as the value
- Duly filled the Specimen of Affidavit
- Certified original copy of the Partnership Deed
- Proof of principal place of business
The registrar will register the firm in the Register of Firms and issue the certificate of registration if the registrar is satisfied with documents
In India, all the States have their procedure to register the firm. Some of the States have the online facility to register the firm, but other States don t have.
Eight Step : Application for PAN Card
To apply for a PAN card for the partnership firm, we need the Partnership Deed or Certificate of Registration.
The Partnership Deed must mention the address, date and the details of managing partner.
Partners must sign all the pages of the Partnership Deed. The firm needs a stamp in its name with the name as “partner”.
The Managing Partner requires to sign the PAN application form with this seal.
The notary in India must notarize the deed
We can apply online or offline to get the pan.
Ninth Step : Opening a Bank Account
We need to visit ta bank with the below-mentioned document to open a Current Account with them .
- Copy of Partnership deed
- Registration certificate, if registered
- The authorization granted to a partner or an employee of the firm to transact business on its behalf
- PAN card
- Address prof of the partnership firm
- Aadhar card for all the partners
- Any related license copies
The documents to open a current account with a firm nay vary from bank to bank.
You need to visit the bank for more details to confirm the required document s for the concerned bank.
Tenth Step : Obtain All Other Mandatory Licenses
We need to obtain related affiliations and certificated from government agencies based on the nature of the business.
Suppose your business is dealing with restaurant, you need licenses like FSSAI license, Liquor License, Shop and Establishment license, GST Registration, Fire Dept approval etc.
These all are the main steps to form a partnership firm in India. At present, instead of forming a partnership firm, the Limited Liability Partnership has gained significant importance. We can enjoy further comfortable if you start a Limited Liability Partnership. It has some advantages like separate legal entity, no limit of the number of members, it can own its own property in its own name. But the compliance requirement is high.