Financial Planning
What is Partnership Firms?
A partnership firm is one of the most important forms of a business organization. It is a popular form of business structure in India. A minimum of two persons are required to establish a partnership firm. A partnership firm is where two or more persons come together to establish a business and divide its profits amongst themselves in the agreed ratio. The partnership business includes any kind of trade, occupation and profession.
The Indian Partnership Act, 1932 governs and regulates partnership firms in India. The persons who come together to form the partnership firm are knowns as partners. The partnership firm is constituted under a contract between the partners. The contract between the partners is known as a partnership deed which regulates the relationship among the partners and also between the partners and the partnership firm.
Advantages of Partnership Firm
Easy to Incorporate
The incorporation of a partnership firm is easy as compared to the other forms of business organisations. The partnership firm can be incorporated by drafting the partnership deed and entering into the partnership agreement.
Apart from the partnership deed, no other documents are required. It need not even be registered with the Registrar of Firms. A partnership firm can be incorporated and registered at a later date as registration is voluntary and not mandatory.
Less Compliances
The partnership firm has to adhere to very few compliances as compared to a company or LLP. The partners do not need a Digital Signature Certificate (DSC), Director Identification Number (DIN), which is required for the company directors or designated partners of an LLP.
The partners can introduce any changes in the business easily. They do have legal restrictions on their activities. It is cost-effective, and the registration process is cheaper compared to a company or LLP. The dissolution of the partnership firm is easy and does not involve many legal formalities.
Quick Decision
The decision-making process in a partnership firm is quick as there is no difference between ownership and management. All the decisions are taken by the partners together, and they can be implemented immediately.
The partners have wide powers and activities which they can perform on behalf of the firm. They can even undertake certain transactions on behalf of the partnership firm without the consent of other partners.
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