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Partnership Firm

You must have heard about the quote, “1+1=11”. This is what perfectly describes a partnership. Two people come together to create a business providing synergy and enhancing capacity of each other. Thus, to overcome the limitations of sole proprietorship and Hindu Undivided Family, Partnerships are formed. There can be a situation where one person has the capital but he won’t be having the business management skills and on the other hand, one would be having no capital but he has skills. So, both of them can come together and start a business.

Section 4 of Indian Partnership Act of 1932 defines partnership as “the relation between person who has agreed to share profits of a business carried on by all or any of them acting for all.”

“Partnership is the relation which subsists between persons, who have agreed to combine their property, abour or skill in some business and share the profits thereof between them” -Indian Contract Act, 1872.


1. Ease of Formation: The partners can agree mutually to create the partnership. The process of making partnership deep and getting it at registered with Registrar of firms is comparatively easy as compared with registration of a private limited company. This deed contains all the details like how the partnership will work, the rights and responsibilities of partners and what would happen in various possible situations, including if the partners fundamentally disagree or someone wants to leave.
2. Sharing: From sharing profits, losses and every part of the business, partners also share the burden and responsibility of the business. Starting and managing a business alone can feel stressful, particularly if you’ve not done it before. In a partnership, this downside of sole proprietorship can be avoided. As two different partnership having different experiences can help the business grow together.
3. Decisions: As every decision in any partnership firm involves intellect of two or more person, the chances of that decision being wrong or bias is much low.
4. Capital: More the partners, more the amount of money which can be invested into the business. Also, with every partner, the borrowing capacity of the firm also increases. Partners get interest for the amount invested in the firm by them at the rate of 12%.
5. Compliances: There are very fewer compliances for partnership firm as compared to a company. There is no requirement like board meeting, etc. Audit is mandatory if the turnover/ gross receipt exceeds Rupees One Crore in case of business and Rupees twenty-five laces in case of profession.
6. Easy dissolution: Dissolution of the partnership concern is very easy. The partnership can be dissolved on the death, lunacy or insolvency of a partner. There are no legal formalities involved in the dissolution. Any partner can get the partnership firm dissolved by giving notice to other partners or as per the terms of their deed.
7. Liability: There is no limited liability like companies but this works in favor for the firm as all the decisions and investment would be made sensibly as the partners will be responsible as well as liable for it themselves.

This form of business organization is most popular among lawyers, chartered accountants, doctors, solicitors and estate agents. Overall if one doesn’t want much statutory obligations on them and want to do business with ease, they can go for this kind of entity.

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