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Partnership Firm

Business Formation

Easy to form with simple and cost effective process, partnership firm is a business constitution that enables flexible ways to raise funds to any extent. Though the risk of liability being unlimited, partnership form of business is widely in existence because of ease of establishment and maintenance and resource pooling.

When two or more individuals come together to form a business collectively is called “partnership” and the participants of the business will be henceforth called “partners”. A partnership constitution of business is widely chosen by most entrepreneurs due to various reasons. It is governed by the Partnership Act, 1932.

The advantages of choosing a partnership constitution for a business entity are as follows:

• Easy to Setup: A partnership firm while compared with the other modes of business is much easier to start. The incorporation procedures of a partnership are easy when compared to the various formalities concerning the formation of other forms of business entities. 

• Lesser Documentations: A partnership firm has just one important document which states the rules, responsibilities and every other important that has to be considered during the business. Unlike a company or an LLP setup, there is no list of documents or other paperwork for a partnership.

• Better Decision Making: A partnership firm is a group of people with varied dynamics. This helps in bringing out different perspectives while taking up important decisions and hence brings out a subjective result. As the partner and the owner is the same person, the decision-making process becomes very well calculated and effective.

• Better Procurement of Funds: As a partnership involves two or more people, there is better scope for the arrangement of capital required of the business. Each partner can bring in capita, that is fit and feasible according to their capacity. This results in easy management and procurement of funds.

• Profit and Loss Sharing: The idea of having an equal or pre-determined share of profits and losses ensures that it does not benefit or burden one person. Since profit and loss sharing is distributed based on capital sharing, there is a definite sense of responsibility and ownership amongst the partners.

 

Profito Global provides its services from the initial step when you decide to constitute a partnership firm. We have a driven discussion with the client to understand the dynamics of the business, which will help us to form clauses about their nature of work. Profito Global also helps the firm to get their PAN and TAN registrations. Anything that concerns you with the formation of a partnership business, will be dealt with with the utmost care by the Profito Global professionals.

 

  • A partnership firm is governed by the Partnership Act,1932 whereas a sole proprietorship is not governed under any specific act. A partnership comprises two or more members and a sole proprietorship is solely conducted by one person.

    There is a better chance for raising capital and risk-sharing in a partnership firm but in a sole proprietorship, the capital and risk-sharing are exclusively dependent on the owner.

  • Even when partnership firms are the most widely accepted form of business in India, their acceptance for international collaborations is limited. If a business has plans to venture into international grounds, an ideal constitution of business will be either a company or an LLP.

  • When the partnership deed does not contain any clauses regarding the duration of partnership or the termination of partnership, it is then deemed to be a partnership at will.

  • No Perpetual Succession

    Unlike private and public companies, partnership firms do not propose perpetual succession. As the constitution of the firm solely depends on the partners, the business ceases to exist if the partners die. Also, a partner can take the stand to withdraw from the partnership and it can immediately dissolve the partnership.

    Unlimited Liability

    In a partnership, there is an unlimited liability on the partners. This means that the partners are completely obligated to take over the obligations and pay the liabilities out of their estate. This clause accounts to be a major disadvantage of a partnership firm.

    Number of partners.

    The number of partners in a partnership is limited to twenty. As there is a restriction on the number of partners, the capital investment is restricted as well. This takes a toll on the resources invested, therefore, large scale businesses are quite difficult to achieve with a partnership form of business.

     

  • •Death of a Partner.

    •When an existing partner becomes insolvent.

    •If the activities of the firm are illegal.

    •Dissolution under the mutual agreement of partners.

     

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