What is a General Partnership?
A General Partnership is a business structure in which two or more individuals manage and operate a business in accordance with the terms and objectives set out in the Partnership Deed. This structure is thought to have lost its relevance since the introduction of the Limited Liability Partnership (LLP) because its partners have unlimited liability, which means they are personally liable for the debts of the business. However, low costs, ease of setting up and minimal compliance requirements make it a sensible option for some, such as home businesses that are unlikely to take on any debt. Registration is optional for General Partnerships.
It is a separate legal entity distinct from its owners. It can enter into a contract and acquire property in its name. LLP form is not just prevailing in India. It is also seen in countries like the United Kingdom, Australia etc.
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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”
What is a partnership firm?
A partnership firm is a form of business in which a group of people, also known as partners, come together. They set up their firm and provide services and products through it. However, a partnership firm is not considered to be a separate legal entity. Partners share all the profit and losses amongst each other. There is an unlimited liability given to all the partners. To become a partner in a partnership firm you will require certain things as mentioned below. To become a partner you need to be a major and should be of sound mind. You should not be disqualified from contracting in any way by the law. However a minor can also become a partner. In such a case scenario, all the partners should give their consent. The minor won’t be able to participate in the workings, however, he will be entitled to the benefits of a partnership. He is personally not liable for any act. He cannot sue other partners anyhow. The following can enter into a partnership by law:
- An Individual
- A firm (which is recognized as a separate legal entity by law)
- A company
- A Trustee
- The main member (Karta) of a Hindu Undivided Family
Why should I set up a partnership firm?
A partnership firm is best for small businesses that plan to remain small. Low costs, ease of setting up and minimal compliance requirements make it a sensible option for such businesses. Registration is optional for General Partnerships. It is governed by Section 4 of the Partnership Act, 1932. For larger businesses, it has lost its relevance with the introduction of the Limited Liability Partnership (LLP). This is because an LLP retains the low costs of a partnership while providing the benefit of unlimited liability, which means that partners are not personally liable for the debts of the business.
Is a partnership firm a separate entity?
The partners in a partnership firm are the owners, and thus, are not a separate entity from the firm. Any legal issues or debt incurred by the firm is the responsibility of its owners, the partners.
Kinds of partner
- Active or Managing Partner
- Nominal Partner
- Partner in profits only
- Minor Partner
- Other Partner
He is the one who is present in the workings of the partnership in every step. He plays the most crucial role and is majorly responsible for all the workings.
He is one who does not participate actively in the proceedings of the partnership. They are not known to the public. They work in the background.
He is a partner by name only. That is he plays no part in the workings of the firm. He is not interested in workings nor he shares the profit.
Partner in profits
He is when a partner is entitled to only the profits as agreed by all the other partners. He is not liable to any kind of losses.
He is one who is below eighteen years of age and is entitled to the benefits of the partnership only. There are restrictions like he cannot participate or intervene in the workings of the firm.
Generally, including silent partner. They don’t want to be known to the outside world. They sit back and work.
Documents To Be Submitted
- Form No. 1 (Application for registration under Partnership Act).
- Original copy of Partnership Deed, signed by all partners
- Affidavit declaring intention to become partner
- Rental or lease agreement of the property/campus on which the business is set.