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A partnership is when two or more people agree to share the profits of a business they run together.
This requires three things:
These are the essential elements of a partnership as stated in Section 4 of the Indian Partnership Act.
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The members can extend anywhere from 2-20.
Only a verified Indian citizen is eligible to partner in a partnership firm.
However, non-residents with Indian origin can invest in a partnership with government approval
Documents required for a partnership firm registration:
The owners are given a free hand on investments with no minimum slabs.
Registering a partnership firm is highly recommended because only a registered partnership firm can file a lawsuit in any court against any partner or firm to enforce their rights under the Partnership Act.
Additionally, a registered partnership firm is the only one eligible to claim set-off or other proceedings in a dispute with a party.
Partnership firms and partners are considered the same legally. The partners have unlimited liability and are jointly and severally liable for the firm’s debts. Therefore, a Partnership firm does not have a separate legal existence.
Indeed it is mandatory for such a firm to file the income tax returns irrespective of the profit or losses incurred.
In order to transfer the ownership interest in a partnership firm, consent from each partner must be taken into consideration.
The Partnership deed outlines the terms and conditions of the Partnership and is a crucial document as it regulates the rights and duties of each partner.
A Partner cannot transfer their interest in the Partnership Firm without the consent of all other partners.
It is not mandatory for Partnerships to prepare audited financial statements every year, but a tax audit may be required based on turnover and other criteria.
Yes, a Partnership firm can be converted into a Company or LLP, but the process is complicated and time-consuming. It is advisable to consider starting an LLP or Company instead.
To open a bank account for a Partnership firm a registered Partnership deed along with an identity proof and address proof of the Partner is to be provided.
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