Partnership Formation

A partnership is a voluntary association of persons wherein two or more people own an entity to carry on business, and personally share it's profits, losses and risks. A partnership can be formed by a written/verbal agreement.

The formation of Partnership Firm shall be with mutual consent of Partners to the business. The firm shall be formed and registered by following the procedure prescribed in this regards under Indian Partnership Act, 1932.

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Benefits of Partnership Formation

Sharing Risk & reward

Combined skills & Balanced judgement

Easy to start & Operational Flexibility

Higher Resources

Documents Required for Partnership Formation

Documents Required :

KYC documents of Proposed Partners along with photograph
Utility Bill as Business Address Proof
Rent or lease Agreement or NOC from the owner of Business Address (if place is rented)

Details Required :

Nature of business to be conducted
Profit sharing pattern
Duration of Partnership
Capital contribution
Powers, rights, duties and liabilities of the each partners
Any special clauses to be entered

Important clauses to be entered for Partnership Formation

Name & Address of the firm
Address of any other office of the firm
Names, addresses and occupations of the partners
The firm's nature of the business and the date of commencement
The capital invested by each partner
The proportion of sharing profit and loss of the firm
Arbitration clause
Duration of the partnership
The name of the active partners and the dormant partners
Remuneration to the active partners
Interest on capital (if any)
Interest on advances made by the partners (if any)
Periodical drawing by the partners for their expenses
Nomination of representative to be a partner on the death of a partner
Bank accounts and the person's capacity to operate them
Powers, rights, duties, and liabilities of the partners in the management and the affairs of the firm

FAQ on Partnership Formation

Q. Who can be a partner ?

Any person who is major (i.e. Aged 18+), a person of sound mind and a person not being barred by law to entered into agreement; can enter as a partner. It generally includes individuals, corporations, other partnerships and business associations.

Q. How will decisions be made under partnership ?

Decisions under partnership are governed by partnership deed where day to day business and special business decision rights are allocated. Where nothing is stated then decisions will be taken considering majority votes.

Q. When any partner withdraws, how will the pay off price be determined and paid?

It will also be governed by agreed clauses of partnership deed. In case nothing is mentioned then it can be referred to neutral third party to determine valuation of the partnership and partners may agree to pay it in lump sum or in installments considering adverse impact on continuing business.

Q. Whether liability of partner is limited to the extent of capital contributed ?

No, all owners are subject to unlimited personal liability for the debts, losses and liabilities of the business. However under Limited Liability Partnership this liabilities are limited.