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ABOUT Partnership Firm

A partnership is formed between two or more individuals or businesses who have agreed to combine their property, labor, skill in the capacity of partners wherein they try to achieve and share profits and losses in the agreed ratio of the business run by all or any one of them acting for all.The real test of partnership is mutual agency where a partner is an agent for the acts that he/she does on behalf of the firm, whereby he/she can bind the other partners for such acts. The other partners would be the principals for such acts.

The relation between partners arises out of a contract or an agreement which may be oral or written. When the written agreement is duly stamped and registered, it is known as "Partnership Deed". "Business" includes every legal trade, occupation and profession.


Any individual or sovereign entity can start with a partnership firm.

Required Documents

  • Partnership deed(stamped and notarized).
  • Pan card of the partners.
  • Passport Sized Photo of all the partners.
  • Address Proof of the partners.
  • Address Proof of the Firm.

Partnership Formation

Registration of Firm
  1. Partnership Deed Preparation
  2. PAN
  3. TAN


  • Proprietorship cannot grow beyond a certain limit because it is not readily favoured by banks or other financial institutions for lending funds.
  • The proprietor’s own capital contribution is not very high.
  • The benefit of expertise decision is not available as he has to take all decisions himself for running the business.
  • A proprietor might not be strong in all the fields that are important for making successful business decisions.
  • So, one may start a partnership firm with the objective of pulling in people so that more capital is generated or making specifically skilled people partners so that wise successful business decisions may be made.
The minimum number of partners has to be two whereas the maximum can be 10 in case of banking business and 20 in case of others.
A minor, insolvent person or a mentally handicapped person cannot enter into a partnership though as per the provisions of Partnership Act, a minor can be admitted only to the benefits of the partnership and cannot execute any agreement of partnership.
Partnership is appropriate form for medium sized business involving limited capital. This may include small scale industries, wholesale and retail trade; small service concerns like transport agencies, real estate brokers.
Partners actively participating in the day-to-day operations of business are known as active partners.
These partners "only" allow the firm to use their "name" as a partner. They "do not" have any real interest in the business of the firm. They neither invest any capital nor share any profits or participate in the business of the firm. However, they do remain liable to third parties for the acts of the firm.
A silent partner is the one who is not involved in the management of the business or publicly known but still has a share in the profits and losses of the business due to investment made by them in such business.
The Registrar of Firms is responsible for registering partnership firms.
Usually partners have joint and several (individual) liabilities. The liability of limited partners is limited to their investment in the partnership business; else the liability is unlimited of other partners meaning in case of insufficient property of firm to meet liabilities, personal property of general partners can be attached to pay off the debts.
A partnership business actually may be carried on by all the partners together or by any one or more partners for all and on behalf of the others, in which case each partner is an implied agent of the other partners. It is therefore not necessary that all the partners take part in the business of the partnership firm. Some partners can be active partners and others can be sleeping partners.
Yes. As per the definition of partnership firm as per the Partnership Act 1932, partners are mutual agents wherein any partner has authority to bind the firm. Act of any one partner is binding on all the partners.
No. The act nowhere mentions that the Partnership Agreement is to be in written or oral format as long as it satisfies the basic conditions of being a contract which is legally enforceable. Still a written agreement is advisable to establish existence of partnership and to prove rights and liabilities of each partner.
  • A partnership is easy to form as no cumbersome legal formalities are involved.
  • The firm can easily be started with a minimum two number of partners.
  • The firm has no separate legal existence of its own i.e., the firm and the partners are one in the eyes of law. 
  • All partners have a right to participate in the activities of the business unless otherwise agreed.
  • Greater capital and credit resources as compared to proprietorship firms.
  • Better judgment and more managerial abilities.
  • A partnership firm is flexible. At any time, the partners can decide to change the size or nature of the business or area of its operations without following any legal procedure. Only the consent of all the partners is required.
  • Liability of the partners is unlimited.
  • Restrictions are there on the transfer of interest in the firm to any person(except to the existing partners) without the unanimous consent of all other partners.
  • The firm has a limited span of life in legal terms; the firm must be dissolved on the retirement, lunacy, bankruptcy, or death of any partner.
  • Absence of ultimate authority 
  • Liability for the actions of other partners
  • Due to various viewpoints sometimes there is a possibility of friction and difference of opinion leading to the end of the partnership.
  • In case of unregistered firm, the firm will be deprived of certain legal benefits.
The Supreme Court has observed that Hindu Undivided Family cannot enter into a contract of partnership with another person or persons because since its composition changes by births and deaths, marriages and divorces and such a partnership is likely to have a risky existence. However the Karta of the family or a member of the family can become a partner in his individual capacity and not the joint family whom he represents.

No. Even if the partnership deed provides the admission of the deceased partner's heirs or any one or more of them, then also they do not become partners automatically on such death. A fresh agreement of partnership will have to be executed between the existing partners and the heirs of the deceased partner. If the heir is a minor the new partnership will stand postponed till the minor attains majority or if the surviving partners are more than one, the minor can only be admitted to the benefits of partnership.

A partnership can be for a fixed period of time or it may be limited to a particular adventure or it may be for duration at the will of the partners. Where the period of the partnership is not fixed and the partnership is not for a particular venture then it shall be deemed to be a partnership at will.
Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other and to render complete information of all things affecting the firm to any partner or his legal representative. Every partner is bound to indemnify the firm for any loss caused to it by fraud in the conduct of the business of the firm.If a partner derives any profit for himself from the firm name or property or business connection he is liable to account for the profit and pay it to the firm.
Implied authority or mutual agency does not empower a partner to
  • Submit a dispute relating to the business of the firm to arbitration,
  • Open a banking account on behalf of the firm in his own name,
  • Compromise or relinquish any claim or a portion of a claim by the firm,
  • Withdraw a suit or proceeding on behalf of the firm,
  • Admit any liability in a suit or proceeding against the firm,
  • Acquire immoveable property on behalf of the firm,
  • Transfer any such property or enter into any partnership on behalf of the firm.
  • A partner of an unregistered firm cannot file a suit in any court against the firm or other partners.
  • No suits to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third.
  • An unregistered firm or any of its partners cannot claim a set off (i.e. mutual adjustment of debts owned by the disputant parties to one another) or other proceedings in a dispute with a third party.
  • However, non-registration of a Partnership firm shall not affect the rights of third parties to sue the firm and/or its partners or any suit or claim or set-off not exceeding one hundred rupees in value to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim.
Any property can be treated as the property of the firm by simply showing it as such in the book of accounts. This would constitute partnership property and all partners are joint owners of the partnership property as increased or decreased by profits in the course of business. Property belonging to an individual partner does not become the firm's property simply by being used for the purpose of the partnership.
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