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What is a General Partnership?

A General Partnerships is such a business setup in which two or more individuals manage and operate a business in compliance with the terms and objectives set out in the Partnership Deed. This structure is perceived to have lost its relevance since the introduction of the Limited Liability Partnership (LLP) because there the partners have unlimited liability, which means they are personally liable for the debts of the business. However, for some, low costs, ease of setting up and minimal compliance requirements make it a sensible option. It is beneficial for home businesses that are unlikely to take on any debt. Registration is optional for General Partnerships.

6 Essential Facts on Partnership

What is a partnership firm?

A partnership firm is that business setup swhere two or more individuals manage and operate a business in compliance with the terms and objectives set out in a Partnership Deed that might or might not have been registered. In this structure of a business, the members are individually partners and share the liabilities as well as profits of the firm in a predetermined ratio.

Why should I set up a partnership firm?

A partnership firm is best suitable for small businesses that plan to remain small. It is a sensible option for such businesses, because of its low costs, ease of setting up and minimal compliance requirements. Moreover, Registration is optional for General Partnerships as it is governed by Section 4 of the Partnership Act, 1932. For larger businesses, this has lost its relevance with the introduction of the Limited Liability Partnership (LLP). This is because an LLP retains the low costs of a partnership along with providing the benefit of unlimited liability, which means that partners are not personally liable for the debts of the business.

Is a partnership firm a separate entity?

The partners in a partnership firm are the owners, and thus, the partners are not a separate entity from the firm. Any kind of legal issues or debt incurred by the firm is the responsibility of its owners, the partners.

How many partners can there be?

A partnership must have at least two partner. A partnership firm in the banking business can have up to 10 partners, while those engaged in any other business can have 20 partners. These partners can divide profit and loss equally or unequally.

Is partnership firm registration necessary?

No, it is not necessary to have registration of a partnership. However, in case of a partner seeking to sue another partner or the firm itself, the partnership should be registered. Furthermore, for the partnership to bring any suit to court, the firm should be registered. For this important reason, it is recommended that larger businesses do register the partnership deed.

What are the main aspects of a partnership deed?

The deed should mandatorily contain names of the partners and their addresses, the partnership name along with the date of commencement of operation of the firm. Any capital invested by each partner, the type of partnership and profit-sharing matrix, rules and regulations to be followed for the intake of partners or removal, should also be mentioned.

Documents required for Partnership Registration

  • Form No. 1 (Application for registration under Partnership Act)
  • Original copy of Partnership Deed, signed by all partners
  • Affidavit declaring intention to become partner
  • Rental or lease agreement of the property/campus on which the business is set

Benefits of a Partnership

Minimum Compliance

For General Partnerships, there is no need to appoint an auditor. Also if the company is still in the process of registration or incase unregistered, then annual accounts filing with the registrar is not necessary either. With comparison to LLP, annual compliances are also fewer. Further, taxes depending on turnover, service and sales tax also does not need to be filed in General Partnerships.

Simple to Begin

General Partnerships can begin simply with an unregistered deed of the partnership within 2-4 business days. However, having registration for the same has its own perks and advantages. The primary advantage for having a registered firm is that it will allow you to book lawsuits in courtrooms opposing another business or the business associates in the firm for the administration of rights addressed in the Partnership Act.

Comparatively Economical

In comparison to LLP, a General Partnership is much cheaper to begin. Even in the longer run, it will still work out inexpensive as the compliance requirements are very minimal. For example, there is no need for an auditor. Therefore, Home businesses still opt for this, although it offers unlimited liability.

Common Partnership Policies


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