Partnerships in India are governed by the Indian Partnership Act, 1932. A Partnership Firm is a popular form of business constitution for businesses that are owned, managed and controlled by two or more persons jointly for profit and it is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The members of such a business are individually called partners and collectively, a firm. Partnership firms are relatively easy to start and are prevalent amongst small and medium sized businesses in the unorganized sectors. With the emergence of Limited Liability Partnerships (LLPs) in India, Partnership Firms are fast losing their sheen due to the added advantage offered by a LLP.
Partnership Act does not mandate a Partnership Firm to register unlike in the case of setting up a company or LLP; however, it is always
advisable to register a Partnership Firm with the Registrar of Firms due to the added advantage available to a registered Partnership Firm. A summary of advantage and disadvantage of proprietorship business model are as follows:-
| Advantage | Disadvantage |
|
|
| Proprietorship
Concern | Partnership Firm | Limited Liability
Partnership (LLPs) | One Person Company
(OPC) | Private Limited
Company | Public Limited
Company | |
| Registration
Requirement | Not required | Not mandatory | Registration must | Registration must | Registration must | Registration must |
| Registering Authority | No Registration Required | Registrar of Partnership | Registrar of Companies | Registrar of Companies | Registrar of Companies | Registrar of Companies |
| Suitable for | Small businesses in unorganised sectors | Small businesses in unorganised sectors | Small to Medium businesses in organised sectors | Small businesses in organised sectors | Start up, Growing and Medium size businesses in organised sectors | Medium to large businesses in organised sectors |
| Name Availability | Anything. However should not breach trademark or copyright | Anything. However should not breach trademark or copyright | Anything with prior approval. However should not breach trademark or
copyright | Anything with prior approval. However should not breach trademark or
copyright | Anything with prior approval. However should not breach trademark or
copyright | Anything with prior approval. However should not breach trademark or
copyright |
| Time required for
Setting-up and start of business | Instantly | Instantly | Instantly after setting-up, however incorporation may take 7-10 days | Instantly after incorporation however incorporation may take 7-10 days | Instantly after incorporation however incorporation may take 7-10 days | Instantly after incorporation however business can be started only after
securing Certificate of Commencement of Business after incorporation, which
put together may take 15-21 days |
| Investment
flexibility | Limited | Limited | Limited | Limited | Unlimited | Unlimited |
| FDI Permission | Restricted | Restricted | Flexible | Restricted | Flexible | Flexible |
| Legal Recognition | Not a separate legal entity | Semi-Separate legal entity | Separate Legal Entity | Separate Legal Entity | Separate Legal Entity | Separate Legal Entity |
| Liability Protection | Not Available | Not Available | Limited | Limited | Limited | Limited |
| Existence /
Continuity | Limited | Subjective | ||||
| Min./Max. Members /
Owners / Shareholders | Minimum: 1 | Minimum: 2 | Minimum: 2 | Minimum: 1 | Minimum: 2 | Minimum: 7 |
| Minimum Paid-up
Capital | Nil | Nil | Nil | Nil | ₹ 1 Lakh | ₹ 5 Lakh |
| Income Tax | At Slab Rates | At 30%+SC+Cess | At 30%+SC+Cess | At Slab Rates | At 30%+SC+Cess | At 30%+SC+Cess |
| Profit Distribution
after Tax | Exempt | Exempt | Exempt | Exempt | Taxable | Taxable |
| Statutory Compliances | Minimum | Moderate | Moderate | Moderate | High | High |
| Main applicable laws (This is indicative
list of laws, there could be other laws applicable to a peculiar business
activity / entity) | Income Tax Act Goods & Service Tax Value Added Tax (limited) Excise and Customs Act* (for manufacturing and / or importers /exporters) | Income Tax Act Goods & Service Tax Value Added Tax (limited) Excise and Customs Act* (for manufacturing and / or importers /exporters) | Income Tax Act Goods & Service Tax Value Added Tax (limited) Excise and Customs Act* (for manufacturing and / or importers /exporters) | Income Tax Act Goods & Service Tax Value Added Tax (limited) Excise and Customs Act* (for manufacturing and / or importers /exporters) | Income Tax Act Goods & Service Tax Value Added Tax (limited) Excise and Customs Act* (for manufacturing and / or importers /exporters) | Income Tax Act Goods & Service Tax Value Added Tax (limited) Excise and Customs Act* (for manufacturing and / or importers /exporters) |
| Licensing
Requirements (This is an indicative list of licenses. Some
other licenses may also be required depending on underlying business activity /
entity) | -Trade License - Import/Export License - Excise & Customs License - Food & Beverages License | -Trade License - Import/Export License - Excise & Customs License - Food & Beverages License | -Trade License - Import/Export License - Excise & Customs License - Food & Beverages License | -Trade License - Import/Export License - Excise & Customs License - Food & Beverages License | -Trade License - Import/Export License - Excise & Customs License - Food & Beverages License | -Trade License - Import/Export License - Excise & Customs License - Food & Beverages License |
| Periodical
Compliances | Tax & Other Return | Tax & Other Returns | Tax & Other Returns | Tax & Other Returns | Tax & Other Returns | Tax & Other Returns |
| Liquidation /
Dissolution | Easy | Easy | Some legal formalities | Some legal formalities | Moderate legal formalities | Moderate legal formalities |