A partnership is an association of two or more persons who have come together to share profits (losses) of a business carried on by all or any one of them acting for all. Partners who have entered into a partnership with each other are individually called ‘Partners ‘ and collectively called ‘A Firm’ and the name under which the business is carried on is called the firm name.
Partnership Firms in India are established and governed by the provisions of the Indian Partnership Act, 1932. The procedure for establishment of a partnership firm under the Indian Partnership Act leaves the partnership registration with the Registrar of Firms (ROF).
Essential Clauses In A Partnership Deed
The following clauses are common to all partnership deeds but every deed is different. So you need a customized deed as per your requirements :
- Profit -sharing clause :It states the profit and loss sharing ratio among the partners of a firm.
- Capital contribution clause: This clause states the amount of capital contributed by each partner, how it will be utilized and whether it will be returned to the partner on leaving the firm.
- Dispute resolution clause :It states the mode for settling the disputes among the partners.
- Retirement /Termination clause :It states the conditions that need to be fulfilled for the expulsion of a partner, the age of retirement and the consequences of either.
Benefits Of Registration To A Partnership Firm
Although registration of a partnership firm is not compulsory as per law, a registered partnership firm enjoys many benefits which are not available to an unregistered firm:
- A partner of a registered firm can sue the co-partners as well as the firm in case of a dispute.
- A registered firm can sue third parties as well as any of its partners in its own name to enforce its own claim.
- If a third party sues a registered firm to recover a sum of money, the firm can claim a set-off ,i.e., mutual adjustment of debts. An unregistered firm cannot claim a set-off.
- A registered Partnership Firm enjoys higher credibility compared to an unregistered one.
- The conversion of a Partnership Firm into any other entity such as a Private Company or LLP,i.e., in corporate structure can be easily done if it is registered.