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Partnership Firm


A partnership firm in India is governed by The Partnership Act, 1932. Two or more people can form a Partnership subject to maximum of 20 partners. A partnership deed is prepared that details the amount of capital each partner will contribute to the partnership. It also details how much profit/loss each partner will share. Working partners of the partnership are also allowed to draw a salary in accordance with The Indian Partnership Act. A partnership is also allowed to purchase assets in its name. However the owner of such assets are the partners of the firm. A partnership may/may not be dissolved in case of death of a partner. The partnership doesn’t really have its own legal standing although a separate Permanent Account Number (PAN) is allotted to the partnership. Partners of the firm have unlimited business liabilities which means their personal assets can be attached to meet business liability claims of the partnership firm. Also losses incurred due to act of one partner is liable for payment from every partner of the partnership firm.

A partnership firm may or may not be registered with Registrar of Firms (ROF). Registration provides some legal protection to partners in case they have differences between them. Until a partnership deed is registered with the ROF, it may not be treated as legal document. However, this does not prevent either the Partnership firm from suing someone or someone suing the partnership firm in a court of law.

Salient Features of Partnership Firms

  • Ease of Formation

    Partnership firm 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.

  • Low Cost Registration

    As comparison to other business form, cost of registering partnership firm is very low.

  • Restriction on number of Partners

    The minimum number of partners must be two, while the maximum number can be 10 in case of banking business and 20 in all other types of business.

  • Sharing of Risk

    Individuals having same business goal can form and share risk & rewards. The firm has no separate legal existence of its own i.e., the firm and the partners are one and the same in the eyes of law. In the absence of any agreement to the contrary, all partners have a right to participate in the activities of the business of the firm.

  • Compliances & Disclosure

    Least compliance & disclosure required as compare to other business form.

  • Unlimited Liability

    Liability of the partners is unlimited. Legally, 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 individual partners.

  • Transfer of Interest

    Restrictions are there on the transfer of interest i.e. none of the partners can transfer his interest in the firm to any person (except to the existing partners) without the unanimous consent of all other partners.

  • No Perpetuality

    The firm has a limited span of life i.e. legally, the firm must be dissolved on the retirement, lunacy, bankruptcy, or death of any partner.

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