V R Singh & Associates LLP
When two or more person wishes to commence a business, the simplest form of business entity available is Partnership firm. Partnership firm structure is generally selected for cases where otherwise would have gone for proprietorship but two or more persons are involved in the business.
The registration process for partnership starts with executing a partnership deed on a stamp paper and registering the same with the Registrar of Firms.
As per the Indian partnership act, 1932 registration of partnership deed with the registrar of firms is optional, but banks generally insist on the registration in order to open the bank accounts.
Also, unregistered partnership firms can't file any suit in any court as per the provisions of the Partnership Act, 1932. Hence it is advisable to get the partnership deed registered even though the same is not mandatory.
Advantages of Partnership Firm:
A partnership deed is a very flexible document, as there are no prescribed rules as to the terms of the partnership deed, partnership deed can contain custom made terms to document the understanding between the partners.
Raising of funds is more flexible in the case of the Partnership firm as compared to a Pvt ltd company, there is no restriction on borrowing from third parties. In the case of Pvt Ltd companies borrowing the funds is restricted to only from Directors, members, and corporates.
Statutory compliance applicable in the case of Partnership firms is very simple as compared to Pvt Ltd Companies or LLPs. There is no requirement to hold Board Meeting, or Shareholders meeting, or do filing of annual returns, accounts or other statutory returns with government authority. The income Tax law provides for a simpler presumptive taxation procedure under which profit is estimated as a certain percentage of turnover, thereby removing the requirement to maintain books of accounts and filing of Financial Statements under the Income Tax Act.
In case of a partnership, profit after taxes is free for distribution among the partners, and distributed profits are exempt from taxes in the hands of partners. This is unlike in the case of Pvt Ltd Company where profit distributed in the form of dividends is taxable in the hands of recipients.
Disadvantages of Partnership Firm:
The number of partners in a partnership firm is restricted to 20. This is a disadvantage as compared to LLP or a Pvt Ltd company which doesn't have restrictions on the number of partners or Shareholders.
Partnership lacks the distraction between the owners and the management which is available under the Pvt Ltd structure. The partnership structure is not suited for raising funding from Private Equity investors.
Partnership firms don’t offer the flexibility of exit offered in the case of private limited companies by the transfer of shares. Also, it doesn't offer the option for sharing ownership with employees by way of ESOP, etc.
Contact V R Singh & Associates LLP to get Partnership Firm registration service in Mumbai.
