An Intro to Partnership Firms for Startups

 

Section 4 of the Indian Partnership Act of 1932 defines partnership as “the relation between person who has agreed to share profits of a business carried on by all or any of them acting for all.”

Rights of Partners in Partnership

The rights of the partners are written in a partnership deed. If the rights are not mentioned in the partnership deed, then it is specified in the partnership act. Partners have many rights in a partnership enterprise which are mentioned below.

Every partner has the right to indulge in day today business affairs and has effective control over the management.

Every partner should have mutual trust and understanding for smoother functioning of an enterprise.

Each partner can voice their opinion by contributing each one’s ideas into business activities.

Partners have the right to inspect and access the book of accounts of the company and check for any maladjustment.

Profits are equally distributed among the partners and have to bear the losses when incurred.

Partners are not eligible to get remuneration for taking part in the business affairs.

Partners have the right to get interested in the capital and advances that they have invested in the business.

They have the right to continue or cease to become a partner.

Partners have the right to prevent other new partner’s entry into the business.

Partners have the right to use the partnership property only for the business and not for personal use.

Right to retire can be availed if necessary by consultation of the partners.

Partners must indemnify the firm for loss if any fraudulence is taken in the conduct of the business.

Partners should not make any personal profits from partnership transactions.

Partners are not eligible to carry on other firms affairs.

Every partner has to abide by the law and act accordingly.

All the partners are jointly liable for each and every business affairs.

It is the duty of the partners not to assign their interests to outsiders without the consent of other partners.

Advantages and Disadvantages of Partnership

A partnership is an agreement or a contract between two or more partners to indulge in a business. A partnership deed is a written agreement among the partners which helps in resolving some disputes in the future. In order to enter into a partnership deed, the partner’s role and level of authority, financial contribution, the procedure for ending the partnership have to be taken into consideration.

Advantages of Partnership:

There is mutual trust and shared control in management among the partners.

A partnership is easy and economical to make registration.

Lesser documents are required for its registration.

It is easy to dissolve the partnership in case of disputes and it is legally supported by an act.

Sharing of profits and losses among the partners makes mutually beneficial.

Business is easy to establish when there is a partnership and start-up costs would be lesser.

There are lesser limitation from outside regulation

There will be a greater borrowing capacity and there will be larger tax savings.

Sharing of partner’s skills and collaboration in making strategies would render greater beneficial to the business.

A partnership can be easily dissolved with the consent of partners according to the agreement.

Disadvantages of Partnership:

The partners are jointly responsible for all the debts and the losses incurring in the business.

It is very difficult to withdraw any funds from the business.

Disputes may arise among the partners in decision making or due to different thoughts and ideas.

There are chances to misuse the financial resources by the partners.

It is not easier to transfer one’s personal stake to another without the prior consent of the partners.

There is instability as partnership gets dissolved when the partners retire or die or resign and may cause sudden panic in the profitable business.

The authority between the partners is not clearly mentioned the responsibilities.

If the business becomes insolvent, then the personal assets of the members of the partnership may cover the debts.

It has some limitations when the business grows into a larger one.

Disagreements may occur between the partners leading to ending of partnership deed.

 There is a liability of the firm for the wrongful act of a partner, improper utilization of funds and for retiring partner if he wishes to quit before his retirement.

It is the partner’s duty to give information to other partners in all matters of the firm.

The partners should owe a duty of loyalty and should not maintain any secrecy with other partners.

 Registration of a partnership firm

Registration of firms by partnership deed plays a vital role for the partners. A partnership deed is an agreement that details on rights and responsibilities of all parties to deal with the business operations. It acts as a guide to the partners for the effective functioning of a firm. In other words, a partnership deed is a written agreement signed by the partners. Registration is not mandatory and there are no penalties for nonregistration of the firms.

Advantages of Registration of a partnership firm:

Registered firms are safeguarded by law in case of filing suit against the parties. The rights of registered firms are regulated by the act of parliament and can enforce any right arising from the contract.

The rights and privileges of the partners are secured by legislation. If partners steal the property of the firm, the partners can prosecute against him.

The property of the partners continues to be protected even in the case of retirement.

There is legal protection in accordance with government rules and regulations.

Registration gives reputation to business firms as its copyrights for the products and trademarks are secured.

Banks and financial institutions render money to registered firms when compared to other unregistered firms.

Trust and confidence is built among the business partners who indulge in business activities with a registered company.

Government renders many facilities and provisions to registered firms which enhances the company’s growth.

People also have more confidence in registered firms as fraudulence activities are absent in registered firms as it is legally abided under the government’s supervision.

The procedure to follow in registering a firm is simple.

Registration of partnership firms is mostly suitable for medium-sized businesses.

It helps in avoiding misunderstanding between the partners in the future.

The procedure for the registration of partnership firms is easy and simple. In order to make registration of a company a filled application and prescribed fees are essential. The following documents have to be given for the registration of a firm:

Application for registration of partnership as in Form No. 1

Duly filled specimen of an affidavit

A certified true copy of the partnership deed

Ownership proof of the rental/lease agreement of the business

 Partnership Business Examples

GoPro & Red Bull.

Pottery Barn & Sherwin-Williams.

Casper & West Elm.

Bonne Belle & Dr. Pepper.

BMW & Louis Vuitton.

Uber & Spotify.

Apple & MasterCard.

Airbnb & Flipboard.

F. A. Q

Sorts of Partnerships 

Before you start an organization, you should choose what sort of association you need. There are three various types that are normally set up. 

A General Partnership (GP) comprises accomplices who partake in the everyday tasks of the association and who have an obligation as proprietors for obligations and lawsuits.

A Limited Partnership(LP) has at least one general accomplice who deals with the business and holds an obligation for its choices and at least one restricted accomplice who doesn't take an interest in the tasks of the business and who doesn't have liability. 

A Limited Liability Partnership(LLP) stretches out lawful insurance from responsibility to all accomplices, including general partners. An LLP is regularly framed by accomplices in a similar expert classification, like bookkeepers, engineers, and legal counselors. The organization shields accomplices from risk from the activities of other partners.

Kinds of Partners in a Partnership 

Accomplices might be people, gatherings of people, organizations, and corporations.1 Depending on the kind of association and the degrees of association chain of importance, an association can have various sorts of accomplices. 

General partners and Limited Partners: General accomplices take part in dealing with the organization and regularly have the risk for association obligations and commitments. Restricted accomplices put yet don't take part in management.10 

Various degrees of accomplices: For instance, there might be junior and senior accomplices. These association types may have various obligations, duties, and levels of info and speculation necessities.