Partnership Firm Registration in India

A partnership firm is a business carried on by two or more people who have agreed to share its profits, under the Indian Partnership Act, 1932. The firm is not a separate legal entity, so in law the partners collectively are the business, and they are personally responsible for its obligations.

At least two. The maximum is 50 partners, as prescribed under the rules made under the Companies Act. Every partner must be competent to contract, so a minor cannot be a partner, although a minor can be admitted to the benefits of a partnership with the consent of all partners.

The partnership deed is the written agreement between the partners. It records capital contributions, profit and loss sharing ratios, remuneration and interest on capital, each partner's duties and authority, banking arrangements, and how a partner is admitted, retires or is removed. Where the deed is silent, the default provisions of the Partnership Act apply, which may not be what the partners intended.

No. The Indian Partnership Act, 1932, does not compel registration, and a firm can legally operate without it. However, section 69 prevents an unregistered firm or its partners from suing to enforce a contractual right against the firm or against a third party. In practice that means an unregistered firm cannot go to court to recover money a customer owes it, so we recommend registering.

PAN, Aadhaar, identity proof, address proof and a photograph for each partner, the partnership deed executed on stamp paper, proof of the firm's place of business, a rent agreement if the premises are rented, and a no-objection certificate from the owner.

The partners agree their terms, a deed is drafted and executed on stamp paper of the value prescribed by the state, the firm applies for its own PAN, and an application is filed with the Registrar of Firms for the state with the deed and supporting proofs. The Registrar issues a certificate of registration on approval.

The difference that matters most is liability. In a partnership firm the partners are personally liable without limit, including for the acts of the other partners. In an LLP, liability is limited to the agreed contribution and a partner is not personally liable for another partner's wrongful acts. An LLP is also a separate legal entity and can hold property in its own name, but it carries annual ROC filing obligations that a partnership firm does not.

Yes. The LLP Act and the Companies Act both provide routes for converting a registered partnership firm into an LLP or into a company, subject to conditions including the consent of all partners. Many firms start as a partnership and convert once the business grows or once limited liability becomes a real concern.

The firm is assessed to income tax as a separate entity at the rate applicable to firms, plus applicable surcharge and cess. A partner's share of the firm's profit is exempt in the partner's own hands because it has already been taxed in the firm, but interest on capital and remuneration received from the firm are taxable for the partner, and are deductible for the firm only within the limits set by section 40(b).