. As the process of Partnership Firm Registration is less complicated and requires minimal compliance, many business entities are drawn towards it. This write-up will guide you about the advantages and disadvantages of registering a Partnership Firm.
“Alone we can do so little, but together we can do so much” this quote emphasizes the efficacy of partnership. A Partnership Firm is a corporate structure that is easy to form with the union of 2 individuals who voluntarily joins together to kick-start a business for profit. As the process of Partnership Firm Registration is less complicated and requires minimal compliance, many business entities are drawn towards it. This write-up will guide you about the advantages and disadvantages of registering a Partnership Firm.
Advantages of Partnership Firm Registration
Let’s look at the benefits of registering a Partnership Firm in India:
- Easy to Register and Start- A partnership business is the easiest way of entering into the corporate world. In most of the cases, one just requires to have a partnership deed to start off on the same day. Whereas, it takes around 5 to 10 working days for LLP Registration as the applicant needs to have DIN, Name Approval, and Incorporation Certificate from the MCA.
- Swift Decision Making- Decision making is the most crucial part of an organization. The procedure of decision making in a Partnership Firm is much faster as there is no requirement for passing the resolutions. The partners get a wide range of powers and can undertake any transaction on behalf of the firm.
- Raise Funds with Ease- In contrast to a Sole Proprietorship Firm, a Partnership Firm can quickly raise funds. Multiple partners make a feasible contribution to run business operations. Further, banks also favour a Partnership Firm more than Proprietorship Firm while sanctioning credit/loan facilities.
- Sense of Ownership- Each partner of the Partnership Firm manages and regulates the activities of the business. It gives a sense of ownership to the partners; they might carry different tasks but ultimately contributes to the central objective. Ownership creates a higher sense of accountability amidst members that result in a diligent workforce.
Disadvantages of Partnership Firm
As a blessing comes with a disguised curse, similarly there are drawbacks of registering a Partnership Firm as, such as:
- Unlimited Liability- The biggest disadvantage of owing a Partnership Firm is that all partners are personally liable for the losses of the firm. Moreover, if any loss is incurred by one partner, then also other partners shall be personally liable to cover up the debts. In order to yield the benefit of limited liability in a Partnership Firm, one must consider registering under the Liability Partnership Act, 2008.
- No. of Members- Partnership Firm is confined to have 20 members at max., while there is no such restriction in an LLP.
- Lake of Efficient Management- As in a Partnership Firm, everyone is on the same page, and no partner is leading another, it creates a considerable gap in the prospective goal and course of actions. The combined ownership withdraws the possibility of leadership, and lack of effective management leads to vague operations. Though in a Partnership Firm, some partners can be designated with more powers & responsibilities, which can culminate conflicts.
- Difficult to win Public Trust- Partnership Firms are not obligated to follow any stringent regulations and can be formed without any legal stipulations. Thereby, it often becomes onerous to gain trust amongst the general public.
- Abrupt Dissolution of the Business- Another downside of a Partnership Firm is that it can be dissolved abruptly due to the insolvency or death of a partner, which hampers the business on a significant level. Whereas, the death/insolvency of a partner does not automatically dissolve a Limited Liability Partnership. Hence, the business relishes perpetual succession.
Importance of a Partnership Deed in the Partnership Firm Registration
The value of a partnership deed in Partnership Firm Registration is beyond assessment. It is considered to be the most important document of business partnership. Here are the fundamental essentials of a partnership deed:
- A partnership deed entails the terms & conditions pertaining to the partnership.
- It also lies down the guidelines that will govern the internal management of the partnership organization.
- The partnership deed can either be in oral or written form. Usually, it is a written agreement among the partners of the firm, which is used to address the set plans.
- A partnership deed defines the nature of a business and includes these clauses:
- Profit & Loss sharing ratio amongst the partners;
- Duties, rights and obligations of all the partners;
- Duration of the partnership;
- Rate of interest charged on the share capital;
- The maximum amount of withdrawal for each partner and interest charged upon it.
Things to keep in mind before choosing the name of a Partnership Firm
Now that you have perceived both the advantages and disadvantages of Partnership Firm registration, you must be eager to undertake the process. However, there are some crucial aspects to consider before opting a name for your partnership, which are as follows:
- The name of a Partnership Firm needs to be unique and original. It implies that an applicant has to ensure that his selected name does not match any existing firm involved in the same or similar business class.
- To attain name approval from the government, the applicant must not utilize words like a crown, emperor or empire in the name of his/her firm.
Documents required for the registration of a Partnership Firm
Documentation plays a vital role in Partnership Firm Registration, so affix these set of documents with your application:
- Form 1- application for registration under the Partnership Act;
- An original copy of your Partnership Deed/Agreement duly signed & stamped by all the partners.
- Declaration/Affidavit stating the intention of becoming a partner.
- Rent Agreement (if applicable)
- Documents of the Partnership Firm such as address proof, PAN card
- Documents of partners like PAN, address proof, Voter Id Card, Driving License, etc.
The procedure of registering a Partnership Firm is simple and can be done online without any professional help. However, it is prudent to consult legal experts for the preparation of the partnership deed and documents.
One of the best legal service providers for you could be, Swarit Advisors. It a finance and legal consultancy that assists thousands of business enthusiast in registering a Partnership Firm and also streamlines other company registrations.