Many people easily get confused when it comes to technicalities in the business world. As Henry Ford said “paying attention to simple little things that most men neglect makes few men rich”. Talking about business and complexities we will try to breakdown Partnership under Company legislature and its advantages to you.
What is the partnership?
In India, the partnership act is governed under section 4 partnership act. It exemplifies it as “An agreement between two or more people who have agreed to share profits and losses of the business carried on by all or one of them acting for each other”
A Company is formed through registration under the comPANies act or incorporation in pursuance of an Act of the legislature. A partnership, on the other hand, an association of persons based on mutual agreement among them and is not compulsorily required to be registered under the act.
What are the different types of partnership?
- General partnership(GP)
- Limited Partnership(LP)
- Limited liability partnership(LLP)
- Limited liability limited partnership(LLLP)
The two most general forms of partnership are General partnership and Limited partnership.
There are three essential elements to a General Partnership i.e.
- Sharing of profits and losses.
- Joint ownership of the business.
- An equal right in the management of the business.
Coming towards the Limited partnership
In a limited partnership, there is one general partner and one or more (depending on the type of firm) limited partners. Usually, the general partner has the responsibility of the management of the business and the limited partner contributes to the assets of the business, having no role in the responsibility.
What are the advantages of a partnership firm registration in India?
- Businesses registered under the act do not have to pay income taxes as each partner files the profits as well as the losses on his/her own PERSONAL MATTERS income tax return. This is a great advantage as this way businesses do not get taxed separately.
- Under the law partnership is very easy to establish, it requires minimum paperwork legally.
- When the business exPANds and is in need of extra funds, under partnership act they have an ability to easily generate funds as there is more than one owner i.e. it reduces the risk repayment of funds and due to that more trust can be there.
- Since there are more than one owner the skill, management and knowledge quotient increases. A business decision can be more accurate and well thought if there are more people on the board.
- If there is a limited partnership it leads to decrease in liability on the partners with respect to potential lawsuits and money. Each and every partner is limited to the amount of capital it brings in hence reducing the chances of bankruptcy.
- Limited partners get to share in the profits and losses without having to participate in the business itself.
- A business creditor cannot come after the assets of a limited partner as they are limited to the capital they bought in.
Despite having various advantages partnership Company registration does have some disadvantages too like a partner cannot transfer interest in the business without the unanimous consent of the other partners. Partnerships Company registrations in India can potentially be unstable because of the danger of dissolution if one partner wants to withdraw from the firm.
But as we can see above the pros outweigh the cons. In today’s scenario where capital with everyone is limited partnership is a great way to start the business.