It is a form of business organisation in which two or more partners manage and operate the business to achieve and share profit and losses. It is easy and inexpensive form of business to establish and manage as compared to corporate form of business.
These persons having stake are known as Partner and responsible for sharing the losses and profits of the firm in an agreed ratio (i.e. profit sharing ratio). The said partners are personally liable for the debts of the partnership.
Partnership firm can be created by drafting a Partnership Deed and business can be immediately started subject to relevant sector conditions and local laws etc. It can be registered firm or un-registered Firm. However it is always advisable to get the firm registered to enjoy extra legal privileges/benefits.
1. There should be at least 2 partners to form a partnership
2. Every partner act as an agent of another partner
3. Partnership business can be carried on by all the partners or any one of them for all
4. Every partner contributes his capital in the agreed ratio
5. Liability of each partner is unlimited
1. Simplicity in Formation: A partnership is easy to form without any complex legal formalities and requires very little paperwork. A partnership may be formed through an oral agreement, although a written agreement is easier to prove in court.
2. Minimum Capital Requirement: There is no such minimum capital requirement for formation of partnership.
3. Filing of Annual Accounts: A partnership firm is not required to file annual accounts with the any statutory authority annually like ROC in case of Company.
4. Sense of Responsibility: Partners have unlimited liability, so every partner performs his duties honestly.
5. Secrecy: In partnership there is no requirement to publish annual accounts, so the business secrecy remains with the partners.
6. Minimum Alternate Tax (MAT): There is no liability of partnership towards MAT.
7. Dissolution: Partnership business can be dissolved easily as there are legal restrictions.