In India a Partnership is governed by the Indian Partnership Act, 1932. The term ‘partnership’ is defined under section 4 of Indian partnership act 1932 as under
“Partnership is an agreement between two or more persons who have agreed to share profits of the business carried on by all or any one of them acting upon all”
A Partnership Firm is generally envisaged with the objective of bringing together like minded people with a common business idea, with an object of mobilizing their skills and/or their financial strength. In our opinion it is most suitable in case of businesses where the initial capital requirement is medium i.e. it is neither too large nor too small. Businesses like retail and wholesale trade or small manufacturing units can be successfully run as a partnership firm. The key features of a partnership firm are listed as below:
- The number of partners can 2 or More but not exceeding 20 members ( 10 in the case of banking business)
- Partnership Deed
- Capital Contribution
- Sharing of Profits
- Unlimited Liability
- Partnership Firm has a legal existence but is not a separate legal entity like a company.
- Reconstitution possible by mutual consent.
- Transfer of partnership only by mutual consent.
It is not mandatory for the Partnership Firm to be registered with the Registrar of Firms. However, only if the Firm is registered with the Registrar or Firm, it would be entitle to file a suit and a suit can be filed against it either by partners or third parties. Therefore in our opinion it is desirable to get the Firm registered with the Registrar of Firms.
To register a Partnership Firm click here.