Partnership–Vibrant Form of Doing Business

Partnership–Vibrant Form of Doing BusinessStart Up revolution is being liked in India. On global map, India is emerging amongst top three start up driven nations. As per latest trend, DPIIT is registering one start up every hour. Simplest business form which is acceptable in Start Up registration is ‘Partnership’. The word ‘partnership’ itself erupts many questions in young mind like:: Will it continue for long? How to write a partnership deed? Whether registration is compulsory? If yes, where this should be registered? What documents shall be written if partners are changing? Is there need to have separate PAN for partnership? Tax slabs starts from highest in case of partnership firm therefore, I am not interested in partnership firm? And many more such questions.Now-a-days, partnership is in-thing;because it is simple;because annual compliance expenses are less;because effecting changes (like office address, partners, objects, profit sharing ratio, etc.) is relatively easy and less time consuming. Simply speaking, in partnership, two or more people come together to form a business and divide the profits and losses thereof in an agreed ratio. The PartnershipFirmis best suitable for businesseshaving small scale operations and/or requiring flexibility in operationsand/or where the business idea involves higher risk of discontinuation. Once success of the business is assured then partnership can be easily converted into LLP or incorporated entity under Companies Act, 2013. FORMATION AND REGISTRATION OF PARTNERSHIP FIRMA Partnershipis easy to form since no complex business formalities are required and the compliance is minimal as compared to companies.Thefirst and the important thing for the formation of Partnershipis preparation of Partnershipdeed. The PartnershipDeed agreement may be written or oral. However oral agreement does not have any value for taxand legalpurposes and therefore PartnershipDeed should be written.Otherwise also, oral partnership is suitable for single transaction businesses. CS Monica Dixit

CORE INPUT -Details of Partnersand Core InfoThe journey of partnership start with the core inputs. The core inputs are: (1) ID proof (PAN), (2) address proof (Aadhar card), (3) photographs. These basic documents are further supported by (1) Name of Partnership Business (2) Address of Registered Office (3) Main Objects.PROCESS-Finalization of commercial terms with PartnersIt is in the interest of the smooth and longer journey of Partnership that partners must discuss and finalize the following commercial and financial terms with full clarity: (1) Capital contribution by each partner;(2) Profit sharing ratio; (3)Remuneration for working partners; (4)Interest on partner’s capital;(5) Interest on additional funds pitched in by partners as Loan capital.INPUTDetails of partners and other core informationPROCESSFinalization of commercial terms with partners; Drafting of partnership deed;signature of partners; Notary attestation; Registration with registrar of societies and firmOUTPUTReady for Tax and other registrationsFinancial matters are the main area of conflict between the partners. To minimize possibility of conflict, these shall be discussed at day zero. More clarity on these issues means smooth journey of partnership. Drafting of Partnership DeedPartnership deed should be clear, self explanatoryand shall not leave ambiguity.Critical clauses in PartnershipDeed:-Commercial and Financial Clauses–Key Clauses -Capital contribution by each partner; Profit sharing ratio; Remuneration for working partners; Interest on partner’s capital; Valuation method in case of exit of existing partner or entry of new partner. Inventors and financial partners shall have open discussions about these issues because continuation of any partnership model is dependent upon financial clarity amongst partners. Informative Clauses-Name of the firm; Nature of the business; Name and address of the partnersincluding email id, mobile number and mode of communication; Place of business and address of the business; Date of commencement of business. All these are the basic informationthat needsto be given tothe professional for drafting of partnership deed.Standard Clauses–Once draft partnership deed is ready, than Partners shall carefully go through the standard clauses. Duration of the partnershipand mode of dissolution;Responsibility, power and liabilities of the partners;Accounting year and books of accounts;Retirement and expulsion of partner;Terms of admission of new partner;Conflict resolution clauseare few such clauses. Though, it is the responsibility of the professional to take care to incorporate standard clause in the partnership deedbut partners shall carefully read these clauses because in case of conflict these clauses gain crucial significance. The partnership deed should be executed on the stamp paper (one may either opt for execution on non-judicial paper or franking i.e. payment of stamp duty from banking channel). Different states have different stamp duty fees, so before the execution of deed one should check and confirm the applicable feesfrom the Registrar of Societies and Firmsof the Statein which firm is situated. (now in most of the states, the offices of registrar of societies and firms is situated in each District headquarter and such officers are designated as District Registrar of Societies and Firms. For example, you can check the fees for registration of firm inHaryana and Delhi states at:Haryanahttps://haryanaindustries.gov.in/msme/Firms_services_manual2.pdf.Delhi dceast.delhigovt.nic.in › wps › wcm › connect › Partnership+requirmentSignature of PartnersOnce final draft of the partnership deed is ready it must be duly signed by all the partners along with the signature of at leastone witnesseach. An individual above the age of 18 who is present at the time of execution of deed can be the witness.Ideally partners shall put date along with their signatures. Though it is nowhere mentioned in the law, but witnesses shall write their details (complete name along with name of father, full address and contact details) in their own handwriting, Notary AttestationFor the purpose of authenticity, partnership deed needsto be notarized and partners shall put their signature in presence of Notary Public. Notary public are available in court premises. Though partnership deed can also be signated by advocate/CA/Gazetted Government Officerbut top preference shall be notary attestation. Registration withRegistrar of Societies and FirmPartnership registration is not compulsory and it is at the discretion of the partners whether they want to register it or not. But a partnership firm cannot avail legal benefits, in case of any disputewith third party or among the Partners they cannot file the caseif it is not registered. Moreso,it is easy to convert the partnership firm into any other form of business structure like LLP, Body Corporate etc if firm is registered. Hence it is always advisable to register it with ‘registrar of societies and firms’ ofthe respective State. Registration of Firm may be done before starting the business or anytime during the continuance of Partnership. Procedure for registration of PartnershipFirmThe procedure for registration of partnershipfirmis fairly simpleas compared to the registration of the company. For example, in Delhi, an applicationform FORM-1dceast.delhigovt.nic.in › wps › wcm › connect › Form)along with the specified fees has to be submitted in the office of District Registrar of Societies and Firms (DRSF).It means, there is need to identify District in which business is located and also to earmark location of the office ofRegistrar of Societies and FirmsGenerally following documents are required tobe submitted to the Registrar of Firmof the respective states:?FORMDuly filled and signed application form (FORM-1);?Firm related Documents:Self attested copies of (i) executed partnershipdeed;(ii) Proof of principal place of work(sale agreement /rent agreement /lease deed/ NOC from owner of place of business);utility bill as business address proof(not older than two months);?Partners related documentsSelf-attested copies of PAN card and Address Proof of Partners;photographs of the partners. ?Undertaking/Affidavit:In support of information filled in the form.?Prescribed Fees: In Delhi, it is 1% of the capital invested in the business. ?Any other document as required by the Registrarfor the purpose of verification.Note:The Application form must be signed by all the partners or bytheir agents especially authorized in their behalf.After scrutinizing an application form along with all related documents, if the Registrar is satisfied he will register the Firmand issue the Certificate of Registration.OUTPUT –Ready for Tax and Other RegistrationsTo read what all other registrationsare mandatory and recommendatory, kindly read ouranother article. Concluding ThoughtsNormally partnership deed provides the responsibilities of the partners. Usually there are two types of partners: one, active partners also known as working partners; two, dormant partners also known as financial / strategic partners. There must be proper financial and administrative transparencysystem in the firm. Generally,it is the duty of the active partner to communicate about operations of the firm to other partnersat regular intervals. Info sharing is core for thesuccess of the continuity of partnership business. This can be achieved by (i) organizing regular meetings;(ii) sending MIS (which may be weekly, monthly, fortnightly or quarterly) for periodic information; (iii) by sending SMS and e-mailsfor event specific information (iv) proper record keepingand sharing financial info.Regular info sharing helps in clearing cobwebs from time to time.

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