HOW TO FORM A PARTNERSHIP FIRM?

Before knowing how to form a partnership firm, one must have a clear idea of what is a partnership firm. In simple words, a partnership firm can be described as a group or organization which is formed with two or more persons to run a business with the view of profit earning. Each member of this organization is known as a partner and collectively known as a partnership firm. The Indian Partnership Act, 1932 govern this type of firm.

According to section 4 of the Indian Partnership Act, 1932,

"The relations between persons who have agreed to share the profits of the business carried on by all or any of them acting for all."

The characteristics of a partnership firm are –

• The number of partners – in a partnership firm, the minimum number of partners is two, and maximum limit is ten is a case of banking business and maximum twenty just in case of all other sorts of business.
• Sharing of profit and loss – in a partnership firm, all the profits and losses are shared by the partners in the ratio that is agreed among all the partners. If it is not agreed, then they share it equally.
• Competence of partners – every partner must be competent enough to be a part of the partnership agreement. He/she should not be minor, lunatic, or insolvent.

A partnership firm isn't a separate legal entity. But according to the Indian Partnership Act, 1932, a firm must be formed from a legal agreement between all the partners so a contract must be entered into to make a partnership firm.

AGREEMENT BETWEEN THE PARTNERS

It is an agreement between partners during which rights, duties, shares of profits, and other obligations of each partner are specified. The partnership deed may be written or oral, although having a written contract will help us avoid any future issues.

HOW IS A PARTNERSHIP DEED CREATED?

The following are the essential characteristics to start a partnership firm:

1. Name, address of the firm as well as all the partners
2. Nature of business to be carried on
3. Date of commencement of business
4. Duration of partnership
5. Capital contribution by each partner
6. The profit-sharing ratio among the partners

CHOOSING THE NAME OF THE PARTNERSHIP FIRM

The partners in an organization are free to choose any name as they desire for their partnership firm. But one has to maintain the following rules:

• The names must not be too identical to the name of another existing firm doing similar business, so as to avoid confusion. The reason for this rule being that the reputation or goodwill of a firm could also be injured, if a replacement firm could adopt an allied name.
• The name must not contain words expressing or implying the sanction, approval or patronage of the Government, except when the State Government signifies its consent to the use of such words as part of the firm name.

REGISTRATION OF THE PARTNERSHIP FIRM

The Indian Partnership Act, 1932 governs participation. Registration of a partnership firm is optional and at the discretion of the partners. A partnership firm can be registered at any time. It is always advisable to register a firm as registered firms enjoy exclusive rights not available to unregistered firms. Registration of a partnership firm could also be done before starting the business or anytime during the continuance of partnership. However, when the firm intends to file a case in the court to enforce rights arising from the contract, the registration should be done before filing the case.

CONCLUSION

1. This type of firms is comparatively more successful than sole proprietor owned firms.
2. Liabilities are shared as a result, and there is less risk.
3. Decision-making process would comparatively be more successful.
4. If the partners of the firm do not have the same mentality, then there may arise a chance of clause in decision making.

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