A Partnership Firm is a popular form of business constitution for businesses that are owned, managed and controlled by

an Association of People for profit. Partnership firms are relatively easy to start are is prevalent amongst small and
medium sized businesses in the unorganized sectors. With the introduction of Limited Liability Partnerships in India,
Partnership Firms are fast losing their prevalence due to the added advantages offered by a Limited Liability Partnership.
There are two types of Partnership firms, registered and un-registered Partnership firm. It is not compulsory to register a
Partnership firm; however, it is advisable to register a Partnership firm due to the added advantages. Partnership firms
are created by drafting a Partnership deed amongst the Partners and IndiaFilings can help start a registered or unregistered Partnership firm in India

Frequently Ask Questions(FAQs)

How many people are required to start a Partnership firm?
A minimum of two Persons is required to start a Partnership firm. A maximum number of 20 Partners are allowed in a
Partnership firm.
What are the requirements to be a Partner in a Partnership firm?
The Partner must be an Indian citizen and a Resident of India. Non-Resident Indians and Persons of Indian Origin can
only invest in a Proprietorship with prior approval of the Government of India.
What are the documents required to start a Partnership firm?
PAN Card for the Partners along with identity and address proof is required. It is recommended to draft a Partnership
deed and have it signed by all the Partners in the firm.
What is the capital required to start a Partnership firm?
There is no limit on the minimum capital for starting a Partnership firm. Therefore, a Partnership firm can be started with
any amount of minimum capital.
How will IndiaFilings help me start a Partnership firm?
An IndiaFilings Associate will understand your business requirements and help you start a Partnership firm by drafting the
Partnership deed. Based on the requirements, IndiaFilings can also help register the Partnership deed with the relevant
Authorities to make the Partnership Firm a Registered Partnership firm.
Who will register a Partnership firm?
Partnership firms are registered by the Registrar of Firms, under the Indian Partnership Act, 1932.
What are the advantages of a Registered Partnership firm?
Only a registered Partnership firm can file a suit in any court against the firm or other partners for the enforcement of any
right arising from a contract or right conferred by the Partnership Act. Also, only a Registered Partnership firm can claim a
set off (i.e. mutual adjustment of debts owned by the disputant parties to one another) or other proceedings in a dispute
with a third party. Hence, it is advisable for Partnership firms to get itself registered sooner or later.
How to open a bank account for a Partnership firm?
To open a bank account for a Partnership firm, a registered Partnership deed along with identity and address proof of the
Partners need to be provided.
Will my Partnership firm have a separate legal identity?
No, a Partnership firm has no separate legal existence of its own i.e., the Partnership firm and the partners are one and
the same in the eyes of law. Liability of the Partners is also unlimited, and the partners are said to be jointly and severally
liable for the liabilities of the firm. This means that if the assets and property of the firm is insufficient to meet the debts of
the firm, the creditors can recover their loans from the personal property of the individual partners.
Will my Partnership firm have a Certificate or Incorporation or Registration?
If the Partnership firm is registered, the Partnership deed will be registered and a Registration Certificate will be issued by
the Registrar of Firms.
How to register the name of a Partnership firm?
Partnership firms are business entity that are owned, managed and controlled by one person. So Partners cannot be
inducted into a Partnership firm.
How can I transfer my Partnership firm?
There are restrictions on the transfer of ownership interest in a Partnership firm. A Partner cannot transfer his/her interest
in the firm to any person (except to the existing partners) without the unanimous consent of all other partners.

Can other people invest in a Partnership firm?

Indian Nationals and Indian Residents are allowed to invest in a Partnership firm without any approval. Usually those who
invest in the Partnership firm become a Partner of the firm and in the absence of any agreement to the contrary, all
partners will have a right to participate in the activities of the business.
What are the annual compliance requirements for a Partnership?
Partnership firm will have to file their annual tax return with the Income Tax Department. Other tax filings like service tax
filing or VAT/CST filing may be necessary from time to time, based on the business activity performed. However, annual
report or accounts need not be filed with the Ministry or Corporate Affairs, which is required for Limited Liability
Partnerships and Companies.
Is audit required for a Partnership firm?
It is not necessary for Partnerships to prepare audited financial statements each year. However, a tax audit may be
necessary based on turnover and other criterion.
Can I later convert my Partnership firm into a Company or LLP?
Yes, there are procedures for converting a Partnership business into a Company or a LLP at a later date. However, the
procedures to convert a Partnership firm into a Company or LLP are cumbersome, expensive and time-consuming.
Therefore, it is wise for many entrepreneurs to consider and start a LLP or Company instead of a Partnership firm.

Advantages of Partnership
Easy to Start
A Partnership is easy to form as no cumbersome legal formalities are involved. Its registration is also not essential.
However, if the firm is not registered, it will be deprived of certain legal benefits. The Registrar of Firms is responsible for
registering partnership firms.
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Business Name
Since the name of a Partnership firm is not registered, a Partnership firm can choose to have any name - as long as it
does not infringe on a registered trademark. However, since the name is not registered, any other person can also use
the same business name unless trademark registration is obtained.
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Annual Filing NOT Required

A Partnership firm is not required to file its annual accounts with the Registrar each year unlike a Limited Liability
Partnership or Company. Limited Liability Partnership's and Company's are required to file their annual accounts with
Registrar of Companies each year.
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Audit NOT Required

A Partnership firm is not required to file audited financial statements with the Ministry of Corporate Affairs each year.
Therefore, audit of financial statements is not required. However, tax audit may be required for a Partnership firm if the
turnover exceeds prescribed limits

About IndiaFilings
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