What is a partnership firm?
A partnership is formed when two or more people agree to run a business together and share its profits. It is governed by the Indian Partnership Act, 1932 and is one of the simplest structures for small businesses with more than one owner. The terms of the partnership are recorded in a partnership deed.
The partnership deed
The deed is the foundation of the firm. It sets out the firm's name and business, partners' capital contributions, profit-sharing ratio, roles, salaries and interest on capital, how new partners join or existing partners leave, and how disputes are resolved. A well-drafted deed avoids misunderstandings and is also the main document banks and tax authorities rely on.
Who can be a partner?
- Any individual who is an adult, of sound mind and not insolvent
- The karta of a Hindu Undivided Family (in a representative capacity)
- A company, where its objects permit
- Trustees of certain private trusts, unless their trust deed prohibits it
- A firm itself cannot be a partner, but its partners can join individually
A partnership can have a maximum of 50 partners.
Advantages and disadvantages
Advantages
- Easy and inexpensive to set up
- Partners bring varied skills and capital
- Shared financial burden and risk
- Flexible decision-making
- Fewer regulatory filings than a company or LLP
Things to consider
- Unlimited, joint liability — personal assets are at risk
- Disagreements between partners can stall the business
- Continuity depends on the partners and the deed
- Raising large funds is difficult
If limited liability matters to you, consider an LLP instead — or convert an existing firm to an LLP.
Why register your partnership?
Registration is optional under the Partnership Act, but strongly recommended. An unregistered firm and its partners cannot file a suit against third parties or against each other to enforce rights under the deed, and cannot claim set-off in court. A registered firm enjoys full legal standing and is taken more seriously by banks and clients.
Documents required
- PAN and Aadhaar of all partners
- Passport-size photographs
- Partnership deed on stamp paper (we draft it)
- Proof of the principal place of business — utility bill, rent agreement and owner's NOC
- Application for registration (Form 1) signed by all partners
Registration process in Karnataka
- Choose a nameUnique and not similar to an existing firm or trademark.
- Draft the partnership deedWe draft it to your terms; it is executed on stamp paper as per the Karnataka Stamp Act and signed by all partners.
- Apply to the Registrar of FirmsWe file Form 1 with the deed and supporting documents. It states the firm name, principal place of business, other places of business, partners' names and addresses, dates of joining and the duration of the firm.
- Certificate of RegistrationAfter verification, the Registrar enters the firm in the Register of Firms and issues the certificate.
- PAN, TAN, GST and bank accountWe apply for the firm's PAN and TAN, GST if needed, and help open a current account.
Frequently asked questions
Is registration of a partnership firm mandatory?
No, but an unregistered firm cannot sue third parties or partners to enforce the deed, so registration is strongly advised.
Can an unregistered firm be registered later?
Yes. A firm can apply to the Registrar of Firms at any time after it is formed.
How is a partnership firm taxed?
A firm is taxed as a separate assessee at a flat rate on its profits. Partners' share of profit is exempt in their hands, while salary and interest paid to partners (within limits) are deductible for the firm.