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 requirement 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.
The formation of a partnership requires a voluntary “association” of persons who “co-own” the business and intend to conduct the business for profit. There are two types of Partnership firms, registered and un-registered. It is not compulsory to register a Partnership firm; however, it is advisable to register a Partnership firm due to the added advantages.
Persons can form a partnership by written or oral agreement, and a partnership agreement often governs the partners’ relations to each other and to the partnership.Generally, each partner is jointly and severally liable with the partnership for the obligations of the partnership and for the wrongful acts or omissions of a copartner.
Not necessarily. However, unless a partnership firm is registered with the registrar of firms and societies, the rights of the partners inter-se or against strangers cannot be enforced in a court of law. Only a registered Partnership firm can file a suit in any court. Hence, it is advisable for Partnership firms to get it registered sooner or later.
It is not necessary for Partnerships to prepare audited financial statements each year. However, a tax audit may be necessary based on turnover and other criteria.
No, it is not necessary. However it is often prudent to make a partnership deed to produce to the bank, income tax authorities and to clients with whom the partnership firm deals with
Yes, there are procedures for converting a Partnership business into a Company or a LLP at a later date. However, the procedures to convert a Partnership firm into a Company or LLP are cumbersome, expensive and time-consuming. Therefore, it is wise for many entrepreneurs to consider and start a LLP or Company instead of a Partnership firm.
Yes. The firm and all the partners are liable for the wrongful act or fraud that causes loss or injury to any third parties.
A person may sue a partnership firm but the he has to disclose the name of all the partners who constitute the firm. However under the Income Tax Act, a firm can be assessed to tax independently of its partners. A partnership firm therefore enjoys a quasi-independent status.
Any property can be treated as the property of the firm by simply showing it as such in the book of accounts. This would constitute partnership property and all partners are joint owners of the partnership property as increased or decreased by profits in the course of business. Property belonging to an individual partner does not become the firm’s property simply by being used for the purpose of the partnership.
There is no limit on the minimum capital for starting a Partnership firm. Therefore, a Partnership firm can be started with any amount of minimum capital.
Just like a sole proprietorship, the liability of partners in a partnership firm is also unlimited. This means, if the assets of the firm are insufficient to meet the liabilities, the personal properties of the partners, if any, can be utilized to meet the business liabilities.
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