Persons who have entered into partnership with one another to carry on a business are individually called “Partners“; collectively called as a “Partnership Firm”; and the name under which their business is carried on is called the “Firm Name” A partnership firm is not a separate legal entity distinct from its members. It is merely a collective name given to the individuals composing it. Hence, unlike a company which has a separate legal entity distinct from its members, a firm cannot possess property or employ servants, neither it can be a debtor or a creditor.Partnership is the result of a contract.Thus, a “contract” is the very foundation of partnership.
Benefits of Partnership Firm
Formation of Partnership Firm is easy and not much legal formalities are involved in formation. Registration of Partnership Firm is not compulsory. So a Partnership Firm can start its business immediately after entering into Partnership Deed. However, registration of a Partnership Firm is always advisable as there are many add on benefits given to a Registered Partnership firm.
Name of a Partnership Firm is not registered. Partners are free to select any name of their choice for the firm. However, partners should be always be very careful make sure that the chosen name does not infringe any trademark or copyright of third person. It is also advised to get trademark of the name chosen for a Partnership Firm, otherwise some other person may also use the same name for his company.
No Annual Returns
The Registrar of Firms does not require the Partnership Firms to file Annual Returns like the Ministry of Corporate Affairs in case of Companies or Limited Liability Partnerships. As the annual compliances are lesser, it reduces efforts and cost for the Partnership Firm.
No Statutory Audit
A Partnership Firm is not required to file Audited financial statements with the Registrar of Firms. Therefore a Partnership Firm is not required to get its books of accounts audited. However, it might be necessary as per the provisions of Income Tax Act, to do Tax Audit if turnover exceeds prescribed limits.
Compliances and Regulations
The annual and event based compliances and regulations to run business are considerably less in case of a Partnership Firm as compared to Company of LLP.
Winding up of a Partnership Firm can be done by simply entering into a dissolution deed. There are very less legal processes for winding up a Partnership Firm as compared to a Company.
Due the more number of members the partnership firm has larger resources for the business operations as compared to sole proprietorship.
Flexibility in Operation
Due to the limited number of partners there is flexibility in the operations of business as the partners can amend any objectives or change any operations any time by mutual consent.
Business of a partnership firm is very well managed by all the partners as they take interest in the daily affairs of business because of the ownership, profit and control.
Sharing of Risk
In partnership every partner bears the risks individually as it is easier compared to sole proprietorship.