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Incorporation of Partnership
Partnership firm is one of the most popular forms of entity incorporation where two or more people form a business together and share the profits and losses. The registration of partnership is not mandatory but it is highly risky and not recommended by the department and professional experts. This kind of business registration is most suitable for small and medium size businesses as it is easy and economical to manage. Read to know the benefits, process, documents required and fees of partnership firm registration.
What is a Partnership firm?
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Partnership firm is a business entity registered under the Partnership Act, 1932 where two or more people join together as partners for running & managing a business while sharing the profits and losses in an agreed ratio. Partnership firms can only be registered when the partnership deed is signed and accepted by all the partners of the firm.
Note: It is not mandatory to register a partnership but it is very risky and is not recommended by any professional experts.
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What is a Partnership deed?
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Partnership deed is an agreement between the partners in which all the terms and conditions related to business are incorporated. Some of the major terms and conditions mentioned in the deed of a partnership are:
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Details of the firm and partners
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Profit and Loss sharing ratio among the partners
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Nature, commencement and duration of partnership firm
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Salary and commision of partners
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Interest on capital and loan
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Provisions related to capital introduction and capital withdrawal
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Accounting and Auditing
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Banking and Voting rights
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Conditions for admission, resignation and retirement of partners
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Firm
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Minimum Compliances: Managing a partnership firm is very easy as there are no mandatory compliances of auditing for small businesses unlike a limited liability partnership or private limited company.
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Cost Effective: Registering and maintaining a partnership firm does not require involvement of Digital Signature Certificate and Designated Partner Identification number which makes it more economical than other forms of businesses.
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Easy to Start and Exit: Partnership can be registered only with a partnership deed and PAN Card of the firm. Hence, it is easy to start and exit.
Procedure of Partnership firm registration
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Step 1. Preparation of Deed
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Foremost step to incorporate a partnership is preparing a partnership deed which needs to be agreed and signed by all the partners of the firm. It is the most important step of partnership registration as all the necessary terms and conditions are mentioned in this agreement.
Step 2. Registration under Income Tax and Issuance of PAN
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Once the partnership deed is registered, PAN card application has to be made with the Income Tax Department. It takes around 3-7 working days for registration under the Income Tax Department and issuance of physical PAN Card.
Step 3. GST registration
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Depending upon the requirement of the business and GST Law, application for GST registration has to be made with the Department. GST registration usually takes 5-10 working days.
Step 4. Bank Account Opening
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Once all the steps are completed, the current bank account should be opened by the partnership firm. Single partner or all the partners can act as an authorized signatory for opening and managing the bank account.