What is a Partnership in India?

A general partnership in India is a business structure in which at least two individuals manage and operate a business according to the terms and objectives set out in the Partnership Deed. This structure is considered to have lost its significance since the introduction of the Limited Liability Partnership (LLP) because its partners have unlimited liability, meaning they are personally liable for the debts of the business. However, low costs, ease of setting up, and minimal compliance requirements make it a viable option for some, such as small businesses that are unlikely to incur any liability. Registration is optional for General Partnerships.

6 Essential Facts on Partnership in India:

  1. What is a Partnership Firm?
    • A partnership firm is a business structure in which at least two individuals manage and operate a business according to the terms and objectives set out in a Partnership Deed, which may or may not be registered. In such a business, the members are individually partners and share the liabilities as well as profits of the firm in a predetermined ratio.
  2. Why Should I Set Up a Partnership Firm?
    • A partnership firm is best for small businesses that intend to remain small. Low costs, ease of setting up, and minimal compliance requirements make it a suitable option for such businesses. Registration is optional for partnership in India. 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 an LLP retains the low costs of a partnership while providing the benefit of unlimited liability, meaning that partners are not personally liable for the debts of the business.
  3. Is a Partnership Firm a Separate Entity?
    • The partners in a partnership firm are the owners and, therefore, are not a separate entity from the firm. Any legal issues or liability incurred by the firm are the responsibility of its owners, the partners.
  4. How Many Partners Can There Be?
    • A partnership must have at least two partners. 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 profits and losses equally or unequally.
  5. Is Partnership Firm Registration Necessary?
    • No, registration of a partnership is not mandatory. However, for a partner to sue another partner or the firm itself, the partnership should be registered. Also, for the partnership to bring any suit to court, the firm should be registered. Therefore, it is recommended that larger businesses register the partnership deed.
  6. What Are the Main Parts of a Partnership Deed?
    • The deed should contain names of the partners and their addresses, the partnership name, the date of commencement of operations of the firm, any capital contributed by each partner, the type of partnership, and profit-sharing matrix, rules and regulations to be followed for admission of partners or removal.

Documents Required for Partnership in India:

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