Partnership firms in India are governed by the Partnership Act, 1932. Section 4 of the Act defines Partnership as - "An agreement between persons who have agreed to share profits of the business carried on by all or any one of them acting for all." Registration of partnership firm may be done at any time – before starting a business or anytime during the continuation of partnership. It is always advisable to register the firm since a registered firms enjoy special rights which aren’t available to the unregistered firms.
An application form along with fees is to be submitted to Registrar of Firms of the State in which the firm is situated. The application has to be signed by all partners or their agents.
The LLP structure is available in countries like the United Kingdom, United States of America, various Gulf countries, Australia and Singapore. On the advice of experts who have studied LLP legislations in various countries, the LLP Act is broadly based on UK LLP Act 2000 and Singapore LLP Act 2005. Since LLP contains elements of both ‘a corporate structure’ as well as ‘a partnership firm structure’ LLP is called a hybrid between a company and a partnership.
After deciding on your business model, it's important to choose between the Private limited company registration and LLP, by understanding their differences and advantages they provide, so as to choose what’s best for your business model.
The most vital reason for registering as LLP is the limited liability. The members of the firm are only liable for a small amount of debt incurred by it. This is entirely different from proprietorship and partnership where the personal assets of directors and partners are not protected if the business becomes bankrupt.
Foreign Direct Investment (FDI) is permitted in LLPs operating in sectors/activities where 100% FDI is allowed through the automatic route with the approval of Foreign Investment Promotion Board (FIPB). FDI in LLPs will not be allowed in sectors such as agricultural/plantation activity, print media or real estate business.
LLP has a unique feature that offers reduced personal responsibility for business debts. In other words, a partner is not responsible or liable for another partner's misconduct or negligence. Instead, the liability is limited to only their acts of commission or omission. An LLP while its formation, should execute and maintain a "Deed of Partnership" which is a legally binding agreement between members. This deed lays out the rights and responsibilities of each party to the agreement.
Application for registration of partnership (Form 1)
Proof of principal place of business (ownership documents or rental/lease agreement)
Identity proof of partners - PAN Card, Voters' ID card, Passport etc.
Address proof of partners - electricity bills, ration cards, Aadhaar Card, Passport etc.
Certified original copy of Partnership Deed
Stamp Duty of appropriate value
If the registrar is satisfied with the documents, he will register the firm in Register of Firms and issue Certificate of Registration.
Register of Firms contains up-to-date information on all firms and can be viewed by anybody upon payment of certain fees.
Name and address of the firm and all the partners
Nature of business
Date of starting of business Capital to be contributed by each partner
Capital to be contributed by each partner
Profit/loss sharing ratio among the partners
Registering a firm under the Partnership Act (hereinafter called the Act) is not mandatory as in the case of setting up a company. That said it is always advisable to get your firm registered at Registrar of Firms/Department of Industries of the Town/City where you are planning to set up the business.
This ensures that you get a legal proof of the firm's existence.Gives partners the ability to file a case against third parties, and other partners
Grants the power to claim set-off against any third-party claim
It's easier and faster to convert into any other business structure if the partnership is registered
Partnerships are dependent on two or more individuals working together for making profits in a business. If one of them disagrees with the other, it can harm the business. Hence, it’s best to choose your partner cautiously for a successful business arrangement. A lot of thought should go in choosing a right partner for your business. People with similar mind-sets, goals, and values usually create successful partnerships. Before you sign the partnership deed it is better to gauge your options.
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