What is a General Partnership Firm?
In a general partnership firm, two or more persons run the business together and share its profits, assets and all the monetary and legal liabilities. It is a widely recognized type of partnership. It comes with unlimited personal liability in case of business debts, for all the partners. Therefore, any partner can be sued and held personally liable for the firm’s debts. All the partners actively participate in managing and controlling the affairs of the business. Each partner holds equal rights and responsibilities. They are also liable for each other’s actions.
For example, if one of the partners enters into an agreement without the knowledge or consent of the other partners, they will still be committed to the terms of the agreement.
Unlimited liability is one of the downsides of a general partnership firm. It results in the liquidation of personal assets. In case of bankruptcy, death or retirement of any of the partners, the remaining partners will have to settle on a new agreement, as the existing partnership will disintegrate on the happening of above-mentioned events because the firm is not a separate legal entity.
It is not considered as a separate tax entity too, and therefore no taxes are levied on its profits.
How to Open a General Partnership Firm?
It is at the partner’s discretion whether or not to register the firm but it’s advisable to get it registered in accordance with the Indian Partnership Act, 1932, to obtain legal benefits. The partnership deed can be oral or written, but the latter is likely to save the firm from various future issues.
The requirements to constitute a partnership firm is-
i. There must be a minimum of two partners
ii. They must enter into an agreement to form partnership either orally or in writing
iii. The object of the agreement must be to the share profits generated from the business
iv. All the partners or any one of the acting on everybody’s behalf must actively contribute to the business
How to register a partnership firm
1. An application should be made in the form of a statement accompanied by the prescribed fee and must contain-
- The firm name
- The place or principal place of business of the firm
- The names of any other places where the firm carries on business
- The date when each partner joined the firm
- Names in full and permanent addresses of the partners
- The duration of the firm
2. The statement must be signed by all the partners or by agents authorized on their behalf and sent to the registrar of the area where the firm is situated.
3. It must be also accompanied with required documents like ID and address proof of the partners as well as proof of registered address of the firm.
4. When the registrar, is satisfied that all the prerequisites have duly complied with he will make an entry of the statement and the firm will be considered as registered.
Forming a general partnership firm is easier cost-effective than setting up a corporation and requires lesser paperwork and the dissolution is simple too. Once the registration is complete, the firm will be entitled to all the legal benefits of that of a registered partnership firm.