Partnership Firm Registration

Partnership Firm Registration

The Indian Partnership Act of 1932 specifies the law that governs partnership firms in India. In addition to other legal relationships between partners and third parties that arise incidentally to the creation of a partnership, this Act also establishes the rights and obligations of the partners with respect to one another. As a result, the Act establishes the position of a partner as well as a partnership firm towards third parties in legal and contractual interactions arising out of and during the course of a partnership firm's operation. We examine each component of managing a partnership firm in India in detail in this post.

Partnership

According to Section 4 of the Indian Partnership Act, a partnership is an arrangement between two or more parties who have consented to split the profits from a business that they all, or any one of them acting for all, conduct. In light of this, there are three crucial components to a relationship.

1. A partnership must be a result of an agreement between two or more individuals.
2. The agreement must be built to share the profits obtained from the business.
3. The business must be run by all or any of them representing the rest.

All these conditions must coexist before a partnership can come into existence.

Essential Elements of a Partnership

Some key elements are required for the formation of a Partnership. They are listed below with a brief explanation.

An Agreement

When two or more people come to an agreement, a partnership is the consequence. One thing to keep in mind is that a bargain of this nature can only result from a contract, not from a person's status. A partnership can be distinguished from a Hindu Undivided Family conducting family business because of this. Because only a mutually beneficial agreement may lead to the formation of this kind of cooperation. A partnership is thus by its very nature a voluntary and legally binding arrangement.

A partnership relationship may be established through an express agreement. Additionally, a shared understanding between the partners may be inferred from the Partnership Act that the partners have completed and from a continuous course of behaviour that is followed. You have the option of an oral or written agreement.

Sharing Profit of Business

Two options should be thought about when dividing the company's profits.

First, a firm needs to be operational. In this context, the term "business" would generally refer to all trades, careers, and professions. A company's existence is essential. The "acquisition of gains" is the driving force behind a business and what results in the creation of a partnership. Therefore, a partnership cannot exist if there is no plan to operate a business and split the earnings from it. For example, co-owners who share the rent derived from a piece of land are not considered partners as a business does not exist. Similarly, no charitable institution or club may be called a partnership. However, a Joint Stock Company may be floated as a partnership for non-economic purposes.

A deal must also be reached regarding how the revenues will be divided. As an illustration, let's say A and B agree to acquire a particular number of cotton bales, which they then agree to sell on their shared account and split the proceeds equally. A and B in this case are partners with regard to the intended enterprise. Although it is taken into consideration, a shared loss agreement is not a necessary component. Damages must be paid for in a profit-sharing ratio, though, unless something other has been agreed upon.

Running the Business

The third requirement for a partnership is that the business must be carried on by all the partners or by one or more of the partners acting for all. This is the crucial principle of the partnership law. An act of one partner in the course of the business of the firm is, in fact, an act of all partners. A partner carrying on a business is the principal as well as the agent for all the other partners. Therefore, it should be noted that the real test of a partnership is a mutual agency rather than sharing of profits. If the element of interactive agency is absent, then there will be no partnership. Sharing of benefits is the only Prima Facie evidence which can be rebutted by stronger evidence. This, this prima facie evidence can be countered by proving that there is no mutual agency.

Distinction between Partnership and Firm

Partners refers to each individual who has formed a partnership with another. The name under which the business is conducted is known as the name of the Firm, and the partners may be referred to collectively by that name. The legal relationship between couples is essentially a legal abstraction. The collective entity for all the partners is symbolised by a firm, a physical item. A firm is the outward shape of this partnership, which is bonded together as a result, while a partnership is an invisible tie that ties the partner(s) together.

Types of Partnership

There are two types of partnership which are as follows.

Partnership at will

A partnership by will is a partnership where there is no provision made by contract between the partners for the duration of their partnership, or the determination of their partnership.

Particular Partnership

When someone partners with another person in a specific business enterprise or for a specific business venture or undertaking, like building a road or laying a railway line, for example, this is referred to as a specific partnership. After the project for which it was originally founded is finished, this kind of collaboration will come to an end.

Types of Partners

The different classes of partners can be derived based on the extent of liability in a partnership firm.

Active/ Actual/ Ostensible Partner

When a partner of a partnership firm,

1. has become a partner by an agreement.
2. actively participates in the conduct of the partnership.

In all matters pertaining to the firm's regular business cycles, the partner represents the other partners. A partner who decides to retire from the partnership must publicly notify the other partners in order to release themselves from responsibility for any actions taken by the other partners following the partner's retirement.

Sleeping or Dormant Partner

A Sleeping or a Dormant Partner is a partner

1. who is a partner by agreement;
2. who does not actively take part in the conduct of the business.

These partners share their profits and losses and are liable to third parties for the business carried out by the partnership firm. However, they are not required to give public notice of their retirement from the partnership firm.

Nominal Partner

The person whose name appears on the partnership agreement is known as a nominal partner. A nominal partner is someone who participates in this without having any real stake in the company. A partner in this category is not eligible to get a cut of the company's profits. This partner does not contribute financial resources to the company or participate in its management. However, this kind of partner is responsible for all of the firm's decisions and acts in the eyes of third parties.

Partner in Profits only

This is a partner who is entitled to have a share of the profits without being liable to the losses. This kind of a partner is liable to third parties only for acts of the gain.

Sub-Partner

A Sub-partner is a partner in a partnership firm who agrees to share his profits in a partnership firm with an outsider to the firm. A sub-partner does not hold any right against the firm nor is liable to any debts caused by the firm.

Incoming partners

This is a partner who is accepted into an established firm with the approval of all of the other partners who are already there. Any actions of this kind that were committed prior to the partner's accession into the firm are exempt from liability.

Outgoing Partner

An outgoing partner is a partner who leaves the firm in which the rest of the partners continue to carry on the business. Such a partner remains liable to third parties for all the actions taken by the firm until a public notice concerning his retirement is given.

Partner by holding out (Section 28)

Estoppel is another name for a partnership that is formed by holding out. It happens when someone presents themselves as a partner or permits others to do so. In this case, the person is prevented from rejecting the persona he has adopted and the basis on which creditors may be deemed to have behaved. When a person falsely represents himself or willfully allows himself to be falsely represented as a partner in a partnership firm (when in fact he is not), he is responsible to anyone who gave the firm credit based on the false representation in the same way as a partner in the firm.

By their words or actions, a person may have led people to believe that they are a partner, or they may have permitted others to represent them as one. Both circumstances have the same outcome.

Partnerships vs. Company

The following are the differences between a partnership and different types of organisations.

Partnership VS. Club

Partnership VS. Hindu Undivided Family

Partnership VS. Co-ownership

Partnership VS. Association

Proprietorship vs Limited Liability Partnership (LLP) vs Company

Documents Required For Partnership Firm Registration

Pan Card

PAN of Partners

Aadhar Card

AADHAR of Partners

Rental Agreement

Electricity Bill

NOC from Landlord