What is a General Partnership Firm?
A General Partnership firm is a business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in the Partnership Deed. This structure is thought to have lost its relevance since the introduction of the Limited Liability Partnership (LLP) because its partners have unlimited liability, which means they are personally liable for the debts of the business. However, low costs, ease of setting up and minimal compliance requirements make it a sensible option for some, such as home businesses that are unlikely to take on any debt. Registration is optional for General Partnerships.
Advantages of a Partnership
Very Easy to Start
It can be started with a Partnership Deed. The entire process may take upto 4 days as compared to other business registrations that take up more time in the process of registration.
Very Less Compliance
Overall compliances are less as compared to a Private Limited Company or LLP eg- Appointment of Auditor, Annual filing etc. are not required.
A General Partnership is cheaper to start than a Limited Liability Partnership. This is why, despite its severe shortcoming i.e. unlimited liability, home businesses may opt for it.
Documents Required for Partnership Registration
- Scanned Copy of Pan card
- Scanned Copy of Aadhaar Card/Voter’s Id/ Passport.
- Scanned copy of Passport sized photograph
- Utility Bill for the office of the proposed partnership.
|Sole Proprietorship||Limited Liability Partnership||One Person Company||Private Limited Company||General Partnership Firm|
|Recommended For||Small manufacturers & traders||Professional services firms||Solo promoters||Start-ups and growing companies||Home businesses|
|Ease of Accommodating Investment||Impossible||Possible, but unlikely||Possible, but severely unlikely||Very easy to accommodate||Almost impossible|
|Limited Liability Protection||No||Yes||Yes||Yes||No|
|Tax Advantages||Minimal||Most efficient||Few benefits||Few benefits||Minimal|
|Know More »||Know More »||Know More »||Know More »||Know More »|
Why should I set up a partnership firm?
A partnership firm is the best option for small businesses that are not looking to expand and are not looking for investment. Low costs, ease of setting up and minimal compliance requirements make it a sensible option for such businesses. Registration is optional for General Partnerships. It is governed by Section 4 of the Partnership Act, 1932. For larger businesses, it has lost its relevance with the introduction of the Limited Liability Partnership (LLP).This is because a LLP retains the low costs of a partnership while providing the benefit of limited liability, which means that partners are not personally liable for the debts of the business.
How many partners can there be?
A partnership firm must have a minimum of two partners. A partnership firm can have upto 20 partners. These partners can divide profits and losses equally or in the desired ratio.
What are the main aspects of a partnership deed?
The deed should contain Partnership name, name and address of the partners, date of commencement of business of the firm, the capital invested by each partner, the type of partnership and profit-sharing ratio.
Is partnership firm registration necessary?
No, registration of a partnership is not necessary. However, for certain legal work and business registrations it becomes necessary for the partnership firm to be registered.
Does the partnership firm have a separate entity?
The partners in a partnership firm are the owners, and thus, are not separate entity from the firm. Any legal issues or debt incurred by the firm is the responsibility of its owners, the partners. Unlike a private limited company and LLP the partnership firm is not a separate legal entity.