A partnership, as the name suggests, is a legal agreement that allows two or more people to jointly run a business and split profits. The primary objective of partnerships is to generate revenue. The first and most crucial requirement for forming a partnership corporation is the existence of a contract between its members.
A partnership deed is the formal legal contract that is created when two or more people work together to run a business. The business’s key terms and conditions, such as profit and loss allocation, liabilities, established regulations, compensation, and exit procedures, are all outlined in this agreement.
Advantages of a Partnership Deed
A partnership deed is always preferable for legal reasons. Creating a partnership deed has a number of advantages, including the following:
- legal rights of each partner are safeguarded;
- specifies the amount that each partner earns or loses;
- helps acquire a PAN in the company’s name;
- simplifies the company’s registration for GST;
- enables the submission of an FSSAI license request
Types of Partnerships
There are various types of partnerships, each of which is distinguished by the manner in which its partners interact with one another in a commercial venture. Common partnerships include the following.
General partnership: A general partnership is an arrangement in which two or more people form a business partnership. In this partnership, each partner is equally accountable for all aspects of the business. In this arrangement, obligations and profits are split equally.
One partner in a limited partnership has unlimited liability, while the other has limited liability. The company’s day-to-day management is largely in the hands of limited partners, if at all.
A limited liability partnership is one in which each partner is accountable for their proportionate share of the investment made by the partnership. The partners are not personally liable for the company’s debts under this partnership.
Can an Indian partnership firm trade shares?
A partnership firm can, in fact, make stock market investments. The partnership company, on the other hand, cannot hold shares in its name. Shares in any corporation may not be owned by partnerships. Partners must open a Demat account in their joint names and provide proof of their partnership in order to own shares in the business.
Five Essential Parts of a Partnership Firm
In the following paragraphs, we provide a comprehensive explanation of five essential parts of a partnership firm.
Agreement A partnership is established by a written agreement. It is not caused by inheritance or social position. As a result, the son, whose father was a part of the business when he died, can get some of the assets of the partnership, but he can’t join other parties.
Max. number of partners Because it is the result of a contract, a partnership requires the presence of two or more people. Although there is no mention of the maximum number of partners in a general partnership in the Indian Partnership Act of 1932, 20 individuals are generally considered to be the maximum number.
The third requirement for forming a partnership is the parties’ agreement to run a business. When the term “business” is used in its broadest sense, it encompasses every business, industry, and profession. Therefore, if the objective is to carry out some social action, it will not be a partnership.
Profits distribution This essential part stipulates that the agreement to conduct business must aim to distribute profits among all partners. A partnership cannot exist in situations where a single person is entitled to all of the company’s profits or where the business is run for charitable rather than commercial purposes. However, the partners are free to divide the profits in any way they see fit. To split the losses, the partners do not need to agree. However, the division of profits and losses should be specified in the partnership agreement.
This part says that if all of the partners have mutual agency, any one of them can act on behalf of the other partners. It enables each partner to act on behalf of other partners in business.
Click here to know more: what is registration of partnership firm?
Documents Required to Form a Partnership
To Register a Partnership Deed, a Collection of Paperwork Must Be Submitted Take a look at these documents:
The first application form, the PAN card of each partner, a signed copy of the partnership agreement, and the firm’s PAN. Address verification for the organization and each partner. An acknowledgment affidavit that has been completed and notarized. Images of each partner.
A representative of the relevant authorities must sign the necessary paperwork to register the partnership deed. If you want to start a partnership to trade derivatives and invest in derivatives on the Indian stock market, this service is perfect for you.
Advantages of Registering a Partnership Firm
If there is a disagreement between partners and the company over contractual rights or rights granted by the Partnership Act, partners of a registered firm can always sue the company in court. Partner in an unlicensed company is not granted this authority. Any contractual rights, such as the right to recover the cost of the delivered goods, can always be protected by the partners of a registered business by filing a lawsuit in court in the event that it becomes necessary. This power is unavailable to partners in firms that have not been registered.
In conclusion, two or more people can share ownership of a business through a legal partnership arrangement. The ownership, profits, obligations, and potential losses are divided among these partners. A new business’s chances of success can be increased by a well-planned partnership, whereas a poorly planned partnership may result in poor management and disagreements.