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Partnership Firm – Process and Procedure 12th Project

INTRODUCTION :

A partnership is an arrangement where parties, known as partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or maybe only governed by a contract.

The proprietorship form of ownership suffers from certain limitations such as limited resources, limited skill, and unlimited liability. Expansion in business requires more capital and managerial skills and also involves more risk. A proprietor finds him unable to fulfill these requirements. This call for more persons come together, with different edges and start a business. For example, a person who lacks managerial skills but may have capital.

Another person who is a good manager but may not have capital. When these persons come together, pool their capital and skills and organize a business, it is called partnership. Partnership grows essentially because of the limitations or disadvantages of proprietorship.

The Indian Partnership Act, 1932, Section 4, defined partnership as “the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”. The Uniform Partnership Act of the USA defined a partnership “as an association of two or more persons to carry on as co-owners a business for profit”.

AIMS AND OBJECTIVES :

The project aims to learn about the process of registering a partnership firm and its benefits

Objectives of the study are

  1. To learn about what is partnership firm
  2. To learn about process of registering a partnership firm
  3. To learn about different benefits of partnership firm
  4. To study how partnership firm is different from a company
  5. To learn pros and cons of partnership firm

METHOD AND METHODOLOGY :

The project aims to learn about the process of registering a partnership firm and its benefits

Objectives of the study are

  1. To learn about what is partnership firm
  2. To learn about process of registering a partnership firm
  3. To learn about different benefits of partnership firm
  4. To study how partnership firm is different from a company
  5. To learn pros and cons of partnership firm

 

NEED AND IMPORTANCE :

Advantages of partnership firm

  • Availability of large resources
  • Better decisions
  • Flexibility in operations
  • Sharing risks
  • Protection of interest of each partner
  • Benefits of specialization

Disadvantages of partnership firm

  • Instability
  • Unlimited Liability
  • Lack of Harmony
  • Limited Capital
  • No legal status
  • Not easy to transfer ownership

DETAIL REPORT OF PROJECT :

Registration of partnership firm

A partnership firm can be registered whether at the time of its formation or even subsequently. You need to file an application with the Registrar of Firms of the area in which your business is located.

  • Application for partnership registration should include the following information: – Name of your 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
  • Every partner needs to verify and sign the application
  • Ensure that the following documents and prescribed fees are enclosed with the registration application:

– Application for Registration in the prescribed Form

– Duly filled Specimen of Affidavit – Certified copy of the Partnership deed

– Proof of ownership of the place of business or the rental/lease agreement thereof It may be noted here that the name of your partnership firm should not “contain any words which may express or imply the approval or patronage of the government except where the government has given its written consent for the use of such words as part of the firm’s name”. Once the Registrar of Firms is satisfied that the application procedure has been duly complied with, he shall record an entry of the statement in the Register of Firms and issue a Certificate of Registration.

Essential Elements of a Partnership Firm

  • Contract for Partnership

The partnership is the result of a contract. It does not arise from status, the operation of law or inheritance. Thus, at the time of the death of the father, who was a partner in the partnership firm, the son can claim a share in the partnership property but cannot become a partner unless he enters into a contract for the same with other persons concerned. Similarly, the members of a HUF carrying on a family business cannot be called partners for their relation arises not from any contract but from status. Thus, a “contract” is the very foundation of partnership.

  • Maximum No. of Partners in a Partnership is 20

 

Since the partnership is the result of a contract, at least two people are necessary to constitute a partnership. The Indian Partnership Act, 1932 does not mention anything about the maximum no. of partners in a partnership firm but as per the Companies Act, a partnership consisting of more than 10 persons for a banking business and more than 20 persons for any other business would be considered as illegal. Hence, these should be regarded as the maximum limits to the number of partners in a partnership firm. Only, the persons competent to contract can enter into a contract of partnership. Persons may be natural or artificial. A Company may be an artificial legal person, enter into a contract of the partnership if authorized by its Memorandum of Association to do so.

  • Carrying on of Business in a Partnership

The third essential element of a partnership is that the parties must have agreed to carry on a business.  The term “business” is used in its widest sense and includes every trade, occupation or profession. Therefore, if the purpose us to carry on some charitable work, it will not be a partnership. Similarly, if a number of persons agree to share the income of a certain property or to divide the goods purchased in bulk amongst them, there is no partnership and such persons cannot be called partners because in neither case they are carrying on a business.

Thus, where A and B jointly purchased a tea shop and incurred additional expenses for purchasing pottery and utensils for the job, contributing the money in equal proportions and then leased out the shop on rent which was shared equally by them , it was held that they are only co-owners and not partners as they never carried on any business

  • Sharing of Profits

This essential element provides that the agreement to carry on business must be the object of sharing profits amongst all the partners. Thus, there would be no partnership where the business is carried on with a philanthropic motive and not for making a profit or where only one of the persons is entitled to the whole of the profits of the business. The partners may, however, agree to share the profits in any ratio they like. Sharing of losses not necessary

To constitute a partnership, it is not essential that the partners should agree to share the losses (Raghunandan vs. Harmasjee). It is open to one or more partners to agree to bear all the losses of the business.

Moreover, the manner in which the profits/losses are to be shared should be expressly stated in the partnership deed. In the absence of this being mentioned in the partnership deed, the provisions of the Partnership Act, 1932 would apply which state that the profits/losses should be distributed equally among all partners.

  • Mutual Agency in a Partnership

The fifth element in the definition of partnership provides that the business must be carried on by all the partners or any (one or more) of them acting for them all, i.e. there must be a mutual agency. Thus, every partner is both an agent and principal for himself and other partners, i.e. he can bind by his acts the other persons and can be bound by the acts of other partners. The importance of the element of mutual agency lies in the fact that it enables every partner to carry on the business on behalf of others.

TYPES OF PARTNERSHIPS

GENERAL PARTNERSHIP

In a traditional partnership model, all the partners share in the profits and risks of the business. Each partner has unlimited liability for the debts of the business – your personal assets can be seized if your business owes money. If your partners do anything wrong with the business, you are also held responsible.

LIMITED PARTNERSHIP

Limited partnerships have two different types of partners: general partners and limited partners.

General partners are responsible for managing the business. They have unlimited liability (the same as a general partnership).

Limited partners are only liable for what they’ve contributed to the business – they can only lose the money they’ve invested. Limited partners do not manage the business.

LIMITED LIABILITY PARTNERSHIP

A limited liability partnership protects the partners from the debts of the business or the actions of other partners.

Limited liability partnerships are only available to some professions:

  • Chartered Accountants
  • Certified management accountants
  • Certified general accountants
  • Medical doctors
  • Chiropractors
  • Dentists
  • Optometrists
  • Lawyers


ANALYSIS OF DATA :

Features of partnership firm

The essential features and characteristics of a partnership are:

  • Agreement: The partnership arises out of an agreement between two or more persons.
  • Profit sharing: There should be an agreement among the partners to share the profits of the business.
  • Lawful business: The business to be carried on by a partnership must always be lawful.
  • Membership: There must be at least two persons to form a partnership. The maximum number is 20. But in case of the banking business, the maximum is 10 members.
  • Unlimited liability: The liability of every partner is unlimited, joint and several.
  • Principal-agent relationship: Every partner is an agent of the firm. He can act on behalf of the firm. He is responsible for his own acts and also for the acts done on behalf of the other partners.
  • Collective management: The firm and the partners are one. When a contract is made in the name of the firm all the partners are responsible for it individually and collectively.
  • Non-transferability of shares: A partner cannot transfer his share of interest to others without the consent of the other partners.

CONCLUSION :

According to the above definition of partnership firm we can describe the following characteristics of partnership firm:-

  • There should be a proper contract between the partners which shall state all the terms and conditions of the partnership firm. The contract clearly will show the rights and liabilities of the partners, capital to be employed by the partners, the interest on capital of the partners, the salary and other remuneration to the partners, the admission of new partners, the dissolution of the partnership firm etc.
  • Nothing is clear in Indian Partnership Act in respect of a number of partnership firm but as per the Company Act, there should not be more than 10 persons in case of banking business and 20 persons in other business. Otherwise, the partnership shall be deemed as illegal.
  • The partnership firm should be formed for doing a business and the aim of the business firm should be to earn a profit. For example, Mr. X and Mr. Y agree to go on a pleasure trip and agreed to divide the expenditure 50:50, it is not a business. Hence, it will not be treated as a partnership firm.
  • The profit should be divided between the partners after the end of financial year as per the agreement. The profit cannot be carry forwarded in case of partnership firm.
  • The business can be carried out by one partner or few partners or by all.

DISCUSSION :

Do you want to minimize your record keeping, audit and administrative requirements?

There is no provision for the regular meeting of Board and members for LLPs. Partners can decide when and how to meet decide on delegation of powers etc. However, provision exists that LLP should maintain minute book. However, Quarterly Board of Directors meeting and the annual shareholding meeting is mandatory for a limited company. If you want to lower your liability with regards to paperwork and administrative activities, opt for an LLP business structure.

Also, Companies are mandatorily required to get their accounts audited annually whereas for LLPs only those having turnover more than Rs.40Lacs or Rs.25Lacs contribution in any financial year are required to get their accounts audited annually as per the LLP Act.

SUGGESTION:

There are different sorts of business to business partnerships that every business proprietor, perhaps follow to develop their businesses. The great motto is behind any business associations is to find out new customer leads and transform entirely into enhanced revenue and sales for all organizations.

Partnership in business facilitates companies to speedily progress in processes and reduces all financial crisis-related to obtaining new clients. A successful partnership provides capability in particular sectors and also increase production of products accessible more services to the customers. Though, lots of partnerships do not succeed abruptly after contracts are approved, just because of failure to fix divergence that takes place during the execution of the business deal. However, all small matter can twist into big dilemmas that exterminate every successful business partnerships. But there are great benefits of the partnerships that ensure that the partnership provides important value to both parties’ relationships. Building business associations with retailers generally create a great economical sense along with help to pursue sole business opportunities.

Building an effective and lasting business partnership is not an easy task ever, but when you come to the right place and the right people, it’s great to associate or enhance the good relationship as a partner in the business. Maintain frank and clear communication between you and your team members and partner of your organization that will help further stay remain with mutual agreement.

ACKNOWLEDGEMENT :

My profound gratitude to all the faculty members of the Department, for their timely assistance and encouragement throughout my research work.

I duly acknowledge the encouragement and support by the research scholars in the department, and all my colleagues and friends.

I thank my friends in the stock market and the management of broking firms who helped me with valuable data in time.

It gives me immense pleasure to take the opportunity to all the people who are directly or indirectly involved in the completion of my project based on Partnership Firm – Process and Procedure

With deep reverence, I offer my deepest gratitude _____, without whom this project could not have been fulfilled.

Lastly, I thank Almighty, my parents, family members, friends and teachers for their constant encouragement and support without which this project would not be possible.

 

Name of School/College

BIBLIOGRAPHY / REFERENCE :

  1. http://www.yourarticlelibrary.com/partnership-firms/partnership-firms-definition-features-advantages-and-disadvantages/40804
  2. http://www.commercevilla.com/partnership-firm.html
  3. https://quickbooks.intuit.com/in/resources/legal/registration-procedure-for-partnership-firms-in-india/
  4. charteredclub.com/partnership-firm/
  5. https://accountlearning.com/partnership-features-advantages-disadvantages/
  6. http://www.sterlingccpl.com/bizstart-partner.php
  7. https://inc42.com/resources/choose-best-business-structure-company/
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