Partnership

A Partnership is a business structure in which two or more individuals manage and operate a business and shares profits or loses. They are co-ordinate in accordance with the terms set out in the Partnership Deed. Partnership deed is a document stating respective rights and obligations of the partners and to be valid, it should be written and not oral. The terms of the Partnership Deed can be varied to suit the interests of the partners and can even be made contrary to the Indian Partnership Act, 1932 but if the Partnership Deed is silent on any point, then the provisions of the Act would apply.

IS REGISTRATION MANDATORY?

Though Registration of a partnership firm is not mandatory under law, the consequences of not registered the firm is so severe that it is always advised to get it registered. The Partnership Act, 1932 says that if the partners so desire may register the firm in the state in which the firm’s main office is situated. A partnership firm may be registered at the time of formation or at any time thereafter.

CONSEQUENCE OF NON-REGISTRATION

• ➢   cannot enforce its claims against the third party in a court of law
• ➢   Partners of an unregistered firm cannot file any suit to enforce a right against the firm.
• ➢   A partner of an unregistered firm cannot file suit against other partners.

POWER OF UNREGISTERED FIRM

• ➢   Even if the firm is unregistered, a third party can still bring out a legal action towards them.
• ➢   Unregistered firms give power to the partner to file a suit against another one in cases of dissolution and for settling the accounts.
• ➢   The court can release the insolvent property of the partner and bring legal action to it.

SHALL WE START A PARTNERSHIP FIRM OR LLP?

Limited Liability Partnership is new concept which gives the flexibility of the Partnership and Benefits of Corporate Body like Company to bring together under one structure of organization has been brought into by way of enforcing Limited Liability Act, 2008.

A BRIEF COMPARISION

TYPES OF ENTITY	LLP	PARTNERSHIP FIRM
Separate legal entity	Separate legal entity and can hold assets in its name.	No separate identity from its Partners.
Liability of Partners	The liability of Partners is limited to the extent of their contribution in LLP.	Unlimited and can extend to personal assets of Partners.
Number of Partners	Minimum 2 Designated Partners are required to from LLP.	Minimum is two maximum is 50.
Uninterrupted Existence	The existence of LLP is not affected by change in the Partners of LLP.	The Partnership Firm dissolves due to removal or death of Partner subject to clauses of Partnership Deed.
Registration	Registration of LLP is mandatory and it is registered with Registrar of Companies	Registration of Partnership Firm is not mandatory

PROS OR CONS (A MIND CHURNING CONCEPT):

PROS:

• •  Partnership registration is very easy and inexpensive as compared to LLP.
• •  It has minimum compliance requirement.
• •  A Partnership firm is not required to file its annual accounts with the Registrar each year unlike a Limited Liability Partnership or Company.
• •  Changing the legal structure is relatively simple (i.e. changing from a partnership into a company at a later stage)

CONS:

• •  All partners together are 'jointly and severally' liable (i.e. unlimited liability) for business debts.
• •  Ownership cannot be transferred by the partner to someone outside the partnership unless the other partner(s) agree.
• •  Personal differences may interfere with business.

REGISTRATION:

A partnership firm can be registered whether at the time of its formation or even subsequently.

DOCUMENTS REQUIRED

An application to be filled with the Registrar of Firms of the area in which the business is located to be signed and verified by every partner. This should include the following information:

• Name of the firm
• Name of the place where business is carried on
• Names of any other place where business is carried on
• Date of partners joining the firm
• Full name and permanent address of partners
• Duration of the firm

Ensure that the following documents and prescribed fees are enclosed with the registration application:

• Application for Registration in the prescribed Form – I
• Duly filled Specimen of Affidavit
• Certified copy of the Partnership deed
• Proof of ownership of the place of business or the rental/lease agreement

CONVERSION OF PARTNERSHIP TO LLP

The real driving forces that triggers shift from traditional partnerships to Limited Liability Partnerships (LLPs) are flexibility and limited liability that has increased conversion in recent years. This hybrid form of partnership has put to rest the undue pressure on the personal assets of the partners. Limited liability, perpetual succession and unlimited partners are the key incentives for a partnership firm to convert itself into an LLP
An existing partnership firm can be converted into LLP by complying with the Provisions of clause 58 and Schedule II of the LLP Act. Form 17 needs to be filed along with Form 2 for such conversion and incorporation of LLP.