A partnership firm is a popular business structure commonly chosen by newly established businesses in India. It requires a minimum of two partners to be formed.
The formalization of a partnership firm is done through a partnership deed—an important document that outlines the terms and conditions agreed upon by the partners. This deed serves as a guide for managing the firm’s operational and financial arrangements, ensuring clarity and mutual understanding among the partners.
Minimum two partners required. Max 50 (as per Companies Rules 2014). Must be of sound mind and not disqualified by law.
A legal document defining the terms and conditions agreed upon by all partners for business operations.
Partnerships must be formed for legal business activities such as trade or profession — not for charitable or non-profit purposes.
Profit-sharing ratios are pre-decided and mentioned clearly in the partnership deed.
All partners are agents and principals, meaning one partner can act on behalf of the firm and other partners.
A partnership firm does not have a separate legal identity from its partners.
Each partner is personally liable for the debts of the firm, just like in a sole proprietorship.
A partner cannot transfer their interest in the firm without prior consent of all other partners.
Provides official recognition and protects partners from personal liability. Obligations are limited to the capital contributed.
Clearly defines the roles, responsibilities, profit-sharing ratio, and dispute resolution through a partnership deed.
Improves credibility with clients, suppliers, and financial institutions — enabling better contracts and collaborations.
Less regulatory burden allows fast decision-making, quick market response, and agile operations by all partners.
Avoids double taxation. Profits are taxed only at the partner level, with eligibility for deductions and tax benefits.
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