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Two or More Partners: Minimum 2 persons required to form a valid partnership under the Indian Partnership Act, 1932.
Partnership Deed: A written agreement defining the roles, profit-sharing ratio, and obligations of each partner.
Mutual Agency: Every partner is both a principal and agent of the firm, and can bind the firm with their actions.
Sharing of Profits & Losses: Partners share profits and losses as agreed — equally if no ratio is specified.
No Perpetual Succession: The firm may dissolve upon the death, insolvency, or retirement of a partner unless the deed provides otherwise.
Unlimited Liability: Each partner is personally liable for the firm's debts — there is no liability cap as in a Pvt Ltd.
Fastest and most affordable business structure to register in India.
No minimum capital requirement — start with any amount.
Fewer compliance obligations compared to Pvt Ltd or LLP.
Flexible management — partners manage by mutual consent.
Ideal for small businesses, trading firms, family businesses.
A partnership requires a minimum of two persons. The Indian Partnership Act, 1932 does not specify a maximum limit, but the Companies Act, 2013 restricts the maximum number of partners to 50 for any business. For banking business, the maximum is 10 partners (as per the Banking Regulation Act).
A partnership is always formed by a voluntary agreement — either oral or written — among the partners. The agreement, known as the Partnership Deed, contains the terms and conditions of the partnership including the name of the firm, capital contributions, profit-sharing ratio, duties of partners, and procedures for dissolution.
The business carried on by a partnership firm must be lawful. A partnership formed for any illegal purpose (e.g., smuggling, fraud) is void and not recognised by law.
The primary purpose of a partnership is to earn profit and share it among the partners. The profit-sharing ratio is agreed upon in the Partnership Deed. In the absence of any agreement, profits and losses are shared equally among all partners as per Section 13(b) of the Indian Partnership Act, 1932.
Every partner is both an agent and a principal of the firm. Each partner can bind the firm by acts done in the ordinary course of business, and at the same time, each partner is bound by the acts of other partners. This principle of mutual agency is a defining characteristic of partnership.
Like a sole proprietorship, partners in a general partnership have unlimited personal liability. They are jointly and severally liable for all debts and obligations of the firm. If the firm's assets are insufficient, the creditors can recover dues from the personal assets of the partners. (Exception: In a Limited Liability Partnership, partners enjoy limited liability).
A partnership firm does not have a legal identity separate from its partners under the Indian Partnership Act, 1932. The firm cannot own property, sue, or be sued in its own name (except in states where the firm is registered). All rights and liabilities vest in the individual partners.
A partnership firm does not have perpetual succession. It is dissolved upon the death, retirement, insolvency, or lunacy of a partner unless the remaining partners decide to continue the firm under a new agreement. The firm's existence is tied to its partners.
No partner can transfer his/her share or interest in the partnership firm to any outside person without the unanimous consent of all the other partners. A partner can assign the financial benefits of the share to a third party, but the assignee does not become a partner or get any management rights.
Registration of a partnership firm under the Indian Partnership Act, 1932 is not compulsory. However, an unregistered firm suffers serious legal disabilities — its partners cannot file a suit against third parties or against each other to enforce their rights arising from the partnership contract. Therefore, registration is strongly advisable.
A partnership firm is taxed as a separate entity under the Income Tax Act, 1961 at a flat rate of 30% (plus applicable surcharge and cess) on its net income. Partners are then taxed on their salary and interest from the firm, but the share of profit received from the firm is exempt from tax in their hands.
This is the most fundamental document of a partnership firm. It is a written agreement signed by all partners on stamp paper (value as applicable in the respective state). It must contain:
A separate PAN must be obtained for the partnership firm from the Income Tax Department, as it is taxed as a separate entity. Application is made using Form 49A through NSDL/UTIITSL portals. The following are needed: Partnership Deed, identity proof and address proof of all partners, and address proof of the firm.
Application for registration of the firm is made in Form I (prescribed under the Indian Partnership Act, 1932), which requires:
Before registering the firm, the partners must prepare a Partnership Deed. This is drafted on non-judicial stamp paper of appropriate value (varies by state — typically Rs. 200 to Rs. 500). All partners must sign the deed in the presence of a witness. The deed should ideally be notarised.
Apply for a PAN Card in the firm's name using Form 49A. This can be done online via the NSDL portal or the UTIITSL portal, or offline through authorised PAN centres.
This is the formal registration step under the Indian Partnership Act, 1932. Application is made to the Registrar of Firms of the state/UT where the principal place of business is situated.
After obtaining the PAN Card and preferably the Registration Certificate, open a Current Account in the firm's name at a bank of choice. Documents required:
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