A partnership firm is a type of business entity where two or more individuals come together to conduct business and share profits and losses in agreed-upon proportions. It is governed by the Indian Partnership Act, 1932. Partnerships are popular for small and medium-sized businesses in India due to their simple structure, minimal regulatory compliance, and flexibility.
The first step in forming a partnership firm is to choose reliable and like-minded partners. As per the Indian Partnership Act, 1932, a partnership firm must have at least two partners, with a maximum of 20 partners. Each partner should have complementary skills and should be willing to contribute capital, time, and effort to run the business effectively.
Selecting a name for your partnership firm is crucial. Ensure the name is unique and not similar to an existing business, especially one registered under the Registrar of Firms. The firm’s name should not violate the provisions of the Emblems and Names Act, 1950, meaning it cannot include names of national emblems, government bodies, or anything considered offensive.
The partnership deed is a crucial document that outlines the rights, duties, and responsibilities of each partner. It serves as a legal agreement between the partners and helps prevent disputes. The deed should include:
The deed can be either written or oral, but it's recommended to have a written agreement for legal clarity.
Although partnership firm registration is optional under the Indian Partnership Act, 1932, it's beneficial to register your firm to avoid any legal disputes and gain access to certain benefits, such as the ability to file suits against third parties. The process involves:
Upon submission, the registrar will verify the documents, and if approved, the firm will receive a Certificate of Registration.
Every business entity in India, including partnership firms, must have a Permanent Account Number (PAN). You need to apply for a PAN card with the Income Tax Department. This PAN will be used for filing the firm’s tax returns and other financial transactions.
To manage the financial transactions of your partnership firm, you need to open a current bank account in the firm’s name. Most banks in Bangalore will ask for the partnership deed, PAN card, and proof of registration before opening the account.
If your partnership firm’s annual turnover exceeds ₹20 lakh (₹10 lakh for service providers), you need to register for Goods and Services Tax (GST). GST registration is mandatory for businesses involved in the supply of goods or services beyond these thresholds.
To register for GST in Bangalore:
Depending on the nature of your business, you may need to obtain additional licenses and approvals from local authorities, such as:
Partnership firms in India are taxed as separate entities. The income tax rate for partnership firms is 30% plus applicable surcharge and cess. However, partners can receive salary and interest payments, which are deductible from the firm’s income.
It is essential to maintain accurate accounting records and file annual income tax returns for the partnership firm. Hiring a professional accountant or tax consultant can help ensure compliance with the tax laws.
Starting a partnership firm in Bangalore is an excellent option for entrepreneurs looking to establish a business with minimal setup formalities. By following the legal procedures, drafting a partnership deed, and obtaining necessary licenses, you can set up a successful partnership firm. Partnering with like-minded individuals and leveraging the growth potential of Bangalore’s business ecosystem can lead to a prosperous venture.
If you need assistance with setting up your partnership firm or require help with taxation, legal, or registration services, TAXAJ is here to guide you through every step of the process.