1. What is a Partnership Firm?
A Partnership Firm is a business structure where two or more individuals (partners) come together to carry on a business with a mutual goal of sharing profits and losses. Governed by the Indian Partnership Act, 1932, it can be:
- Registered with the Registrar of Firms (legally recognized)
- Unregistered / Notarised, by executing a deed on stamp paper and notarizing it
📘 Legal Reference: Indian Partnership Act, 1932
2. Types of Partnership Firms
| Type | Legality | Recognition |
| Registered Firm | Registered with Registrar of Firms | Legally enforceable in court |
| Unregistered / Notarised Firm | Deed notarised but not registered | No legal remedy in disputes with partners or third parties |
3. Partners
- Minimum: 2 partners
- Maximum: 20 for general business (10 for banking)
- Partners can be individuals or HUF representatives (not companies)
- Each partner has joint and several liability unless stated otherwise
📌 No separate legal entity – firm and partners are treated as one in the eyes of law
4. Capital Requirements
- No minimum capital required
- Contribution can be:
- Cash
- Property
- Goods or services
- Profit-sharing ratio and capital must be specified in the Partnership Deed
5. Registration Process
A. Notarised Partnership Firm
- Prepare Partnership Deed on stamp paper (value as per state laws)
- Include:
- Firm name, address, partner details
- Capital, profit-sharing ratio
- Rights and duties of partners
- Get the deed notarised by a Notary Public
B. Registered Partnership Firm
- File application with Registrar of Firms in the respective state
- Submit:
- Filled Form 1
- Original Partnership Deed
- Affidavit and ownership proof of firm address
- Registrar issues Certificate of Registration
🕒 Time: 10–20 working days
💰 Cost: ₹8,000 – ₹15,000 (depending on state & professional fees)
6. Contents of a Partnership Deed
- Firm name & address
- Partner names & addresses
- Nature of business
- Capital contribution
- Profit/loss sharing ratio
- Salary/interest to partners
- Roles, duties & decision-making
- Admission, retirement, dissolution clauses
- Dispute resolution process
📌 Notarised deed is sufficient for basic recognition but registered deed provides legal enforceability
7. Annual Compliance Requirements
| Requirement | Applicability |
| Maintain books of accounts | Mandatory if turnover > ₹25 lakh |
| File Income Tax Return (ITR-5) | Every year |
| Tax Audit (Sec 44AB) | If turnover > ₹1 crore (₹10 crore if digital payments ≥95%) |
| GST Return | If registered under GST |
| TDS Returns | If liable to deduct TDS (e.g., salaries, rent) |
| Re-registration of deed | Upon change in partnership, address, capital, etc. |
💡 No ROC filing or audit mandatory unless turnover crosses threshold
8. Taxation of Partnership Firms
- Taxed as separate taxable entity under Income Tax Act
- Flat Tax Rate: 30%
- Cess: 4% Health & Education
✅ Remuneration and interest to partners are deductible u/s 40(b), if:
- Deed permits payment
- Paid as per IT Act limits:
- 90% of book profit up to ₹3 lakh
- 60% of remaining profit
✅ Partner’s share of profit is exempt under Section 10(2A)
9. Dissolution or Change
- Firm can be dissolved by:
- Mutual consent
- Death/insolvency of partner
- Completion of term/project
- Changes (admission/retirement) must be reflected by:
- Creating Supplementary Deed
- Re-notarising / re-registering (if registered)
10. Advantages
- Easy and low-cost setup
- Minimal legal compliance
- Full control by partners
- Flexible structure (change by deed only)
- Suitable for traditional family businesses
11. Limitations
- Unlimited liability of partners (personal assets at risk)
- No separate legal identity
- Cannot raise equity capital or issue shares
- Less credibility than LLP/Pvt Ltd
- No perpetual existence (ends with partner exit/death unless continued)
12. Ideal For
- Small traditional businesses
- Traders and wholesalers
- Family-run operations
- Professionals not seeking external funding
- Partners with mutual trust and known relationships
13. Documents Required for Partnership Registration:
- PAN Card
- Adhar Card (Front & Back)
- Phone Number
- Mail ID
- Passport Size Photo
- Voter ID/ Driving License
- Bank Statement containing latest bank entries with name, address, A/c No, etc.
- Electricity Bill for proposed registered office.
- NOC if electicity bill is in the name of the third party.
Note: Provide above documents for all proposed partners & shareholder. RoC may ask for additional documents.
⚠️ Disclaimer
The above information is provided for general awareness and informational purposes only. While we strive to keep the content accurate and up to date, we do not guarantee the completeness, accuracy, or reliability of any information provided herein. The content should not be construed as legal, tax, or professional advice. We recommend consulting with our customer service team for the most recent and applicable guidance. We shall not be held responsible for any loss or liability arising from the use of this information.
