Partnership Firm – Advantages, Disadvantages and Registration Process

When 2 or more persons sharing the same business ideas or sensibilities want to operate some business together they can go for the formation of a partnership firm.

Advantages of forming a Partnership firm are:

  • Formation of a partnership firm is easy; Even the registration is optional no legal requirements are required.
  • There are large resources at disposal as compared to sole proprietorship as the number of members is higher.
  • There is flexibility of operations as the members can change the operation of the business anytime by mutual consent.
  • There is better management of resources as the partners are involved in the day to day operations of the business because of the ownership, profit and control.
  • Every partner bears the risk individually in the proportion of their contributed capital.

Disadvantages of forming a Partnership firm are:

  • A partnership firm does not exist for an indefinite period of time. The death, insolvency or lunacy of a partner may lead to dissolution of the partnership firm.
  • Liability of every partner in a partnership firm is unlimited as any of the partners may be called upon to pay all the debts even from its personal properties. A single wrong decision by one partner can lead other partners in heavy losses and liabilities.
  • Due to the restriction on the maximum number of members, a limited amount of capital can be raised.
  • A partnership firm does not have a legal status like a Joint Stock Company.
  • In a partnership firm it is not easy to transfer ownership. Consent of every partner is required in order to transfer ownership.

Registration Process:

As discussed in the advantages above, the registration of a partnership firm is not compulsory and the registration can be done before starting business or anytime when the partnership is in continuance.

An application and prescribed fee is required to be submitted to the Registrar of firms of the state in which the firm is situated.

The documents that are required to be submitted along with the application are:

  • Application for Registration of Partnership in form 1
  • Duly filed specimen of Affidavit
  • Certified true copy of the Partnership Deed
  • Ownership proof of the principal place of business or rental / lease agreement thereof.

The basic document of a partnership is formation of a partnership deed.

The main features of a partnership deed are:

  • Name and address of the firm as well as all the partners
  • Name of business to be carried on
  • Date of commencement of business
  • Duration of Partnership (Fixed period / project based)
  • Capital contribution by each partner
  • Profit sharing ratio among the partners.

Leave a Reply

Your email address will not be published. Required fields are marked *