HOW TO START A PARTNERSHIP FIRM?

Dear Folks

Smiles for All

After sole proprietor ship another business model comes into our mind at the initial stage is Partnership firm, though its not a separate legal entity unlike companies or LLP still prevalent amongst small and medium sized businesses in the unorganized sectors, this business model is very much prominent in our country.

When a group of individuals known as partner, decide to set up the business and form a relationship to share the profits of the business carried on by all or any one of them acting for all, they form a partnership amongst them which is governed and regulated by agreement formed between them. The partnership is the most popular form of organization to carry business in India.

WHAT IS PARTNERSHIP FIRM?

A group of people comes together to form setup and to provide services and products through it. These firms are governed by the Indian Partnership Act, 1932. Rights and Duties of partners with each other as well with third parties are governed by this Act. In nutshell partnership firms are:

The form of organization which is formed with 2 or more partner;	To carry on the goals or objectives decided as per an agreement;
To share profit;	To run the business collectively by partners In mutual consent

Partnership firms are the result of an agreement formed between partners.

IS REGISTRATION MANDATORY?

Unlike the company, registration of a partnership firm is not compulsory. It’s as per the discretion of partners to whether get it registered or not. However, a registered firm can enjoy certain benefits over unregistered firm such as:

1.   Partner can file a case against firm or any other partner.
2.  Firm can file a case in a court against third party.
3. Registered firm can always claim a set-off.

AS PER SECTION 4 OF THE INDIAN PARTNERSHIP ACT, 1932:

“Partnership is a relation amongst the partners who have agreed to share the profit of business carried on by all or any one of them acting for all”. 

ELIGIBILITY TO ENTER INTO PARTNERSHIP

The following can enter into a partnership and becomes a partner:

v  Individual: Any person who is competent to enter into a contract can become a member of a partnership firm.

v  Partner of any other partnership firm: A Partnership firm cannot be the partner of any firm but its partner can enter into a partnership with another person.

v  Hindu Undivided Family: Karta of HUF can be a partner in a partnership firm

v  Company: A private limited/public limited company being an artificial legal person can be a partner in a partnership firm if authorized by an article.

v  Trustees: Unless and until constitution or objects of trustees forbids to the contrary, trustees of religious trust/family trust/or any other religious endowments can be partners in a partnership firm.

TYPES OF PARTNERSHIP

There are four types of partnership:

1.       Partnership at will: It’s a form of partnership that can be dissolved by any partner during any time, i.e., it has no agreement and no clause about expiration or tenure of partnership

2.       Fixed-term Partnership: Opposite of partnership at will, as the name suggests, this is a partnership with a fixed term. Partners may agree on duration in an agreement. After the expiry of such duration, such partnership comes to an end.

3.       Particular Partnership: Certain partnerships are formed to carry out a particular business or venture. The scope of business to be carried out is defined in an agreement. Such partnership stand dissolved as and when such activity or venture is completed

4.       General Partnership: When a partnership is created to carry out business in general with no particular scope, it is termed as a general partnership.

TYPES OF PARTNERS

Persons who have entered into a partnership with each other to carry on the business are known as “Partners”.

Partner is both an agent and principle for himself as well as for other partners of a partnership firm. He can bind others by his act and he can be bound by the acts of other partners.

Minimum Partners: A minimum of two people are mandatory to enter into a partnership

.

Maximum Partners: Indian Partnership Act is silent for the maximum number of partners. Though as per Companies Act 1956, maximum number can be: In the case of banking business- 10 In the case of other business- 20 and as per companies act, 2013, maximum number shall not exceed 100.

FOLLOWING ARE TYPES OF PARTNER AS PER THE EXTENT OF THEIR LIABILITIES IN PARTNERSHIP:

ACTIVE PARTNER: These partners become the partner by an agreement and they take active participation in the day-to-day activity and business of the firm. Active partners must give public notice when willing to retire.

 DORMANT OR SLEEPING PARTNER: This partner doesn’t actively participate in the daily functioning of partnership. He is though bound by the actions of all the partners. He needs not to give public notice for his retirement. Capital Contribution and profit-sharing are similar to those of other partners.

 NOMINAL PARTNER: These partners only lend their name to the firm as a partner. They don’t contribute to capital nor have any share in profit.

 PARTNER IN PROFIT: These partners will share profits only. They are not liable for any loss.

MINOR PARTNER: A Minor cannot enter into a contract thus accordingly he can’t be a partner; however he can be admitted to the benefits of partnership firm with the consent of all the partners.

KEY POINTS TO THE PARTNERSHIP FIRM

Essential elements that are the key necessity of any partnership firm are:

Prior Agreement is the reason for the creation of this alliance. A partnership firm is voluntary and contractual. Since partnership is the result of a contract, a minimum of two peoples are necessary to constitute a partnership. Agreement jot down the following terms:

1. Responsibilities of partners;
2. Duties and obligations of partner
3. Profits and loss sharing ratio and rate
4. Other matters such as withdrawal, capital contribution, financial reporting.

Profit is shared amongst partners as per the capital contributed by the partners or at any rate agreed upon between them. Thus sharing of loss is not an essential element of the agreement, but in case of damage or loss, the same has to be borne in profit-sharing ratio.

Third and last essential element for a partnership firm is that there must be a certain goal for carrying on the business by all the partners or any one of them acting for all. That there should be a mutual agency. There cannot be a partnership if there is no intention to carry a business.

STEPS FOR REGISTRATION OF PARTNERSHIP FIRM

Forming a partnership firm is easy and less complicated as compared to Companies. It even needs a minimum of compliances to be obligated. Following simple steps should be followed to register a partnership firm:

a. SELECT A NAME:

Select any name as per the discretion of partners. However the selected name:

    It should not be too identical or similar to the name of the already registered firm.

    The name should not make use of words like the Crown, Emperor, Empire, etc.

b. PREPARE AN AGREEMENT

The next step is to create a partnership deed. The terms and conditions to be noted in an agreement are as per the discretion of partners, also it is on the partner to get it down orally or written. However written deed is advisable in case of future conflict arise.

Written agreements should consist of the following:

1.       Full details of partners such as name address etc

2.       Name & Complete address of the firm

3.       Nature of the business to be conducted

4.       Date of entering into an agreement i.e., date of commencing the business

5.       Duration of partnership

6.       Capital Contribution;

7.       Profit and loss sharing ratio;

8.       Management;

9.       Voting;

1.     Tax Implications;

1      Withdrawal;

1       Dissolution;

1    Interest on capital, loan, etc;

1    Salaries and commissions;

1    Retirement, death, and admission

Partnership deed so created should be made on stamp paper with necessary stamp duty paid as per the Indian Stamp Act.

c. SUBMIT AN APPLICATION TO REGISTRAR

Registration of a partnership is a very simple process. It’s not complicated like Company registration. An application form along with specified fee has to be paid with necessary documents to be submitted to the registrar:

v        Form-1 for applying for registration

v        Duly filled specimen of an affidavit

v        Certified original partnership deed

v       Proof of address of firm (Owned registry in case of owned property or rent agreement/ lease deed in case property is rented or leased

d. CERTIFICATE OF REGISTRATION

If the registrar verifies an application after scrutinizing an application and all the documents, he will register the firm and issue a Certificate of Registration.

CRUX: A partnership has many advantages as a form of business, such as

• Formation of a partnership firm is an easy task. You only require a contract of partnership. Registration is not compulsory in most cases.
• Since many partners are involved in a business they all bring their own expertise and management styles. This helps in better management of the business.
• All partners also contribute to the capital of the firm so it has more funds to work with
• The risk of the business is also shared among all partners.

  CS Annu Sharma is a Commerce Graduate and an Associate Member of the Institute of Company Secretaries of India (ICSI). She has cumulative experience of more than 3 years with Listed Company, CA and CS firms. She authored various articles on the topics of Corporate Laws, Securities Laws, DGFT, Income Tax, Start-ups among other. Articles authored by her are published on prominent Professional Websites. 

(Author be Contacted at csannusharma123@gmail.com & +91-7021848742 : CS Annu Sharma for any discrepancy.) 

CLOSE AN LLP STEP BY STEP - LIMITED LIABILITY PARTNERSHIP

Dear Professionals

Smiles for All

In this article, we shall study about the various aspects of striking off a LLP, Often; entrepreneurs are form Limited Liability Partnerships but are not able to maintain the same. Due to adverse market situation or less business opportunity Partners fails to carry or commence the business of LLP. Also, the penalty for LLPs defaulting in filing of any statutory return is Rs.100/- per day, without any maximum limit. Hence, it is often best to strike off/close dormant LLPs so that there is no requirement to file LLP Form 11, LLP Form 8 and Income Tax Return for the LLP each financial year to maintain compliance and avoid penalty.

The LLP Act, 2008 provides some important guidelines as to how one can close an LLP. The provisions of striking off of LLP are governed by Rule 37(1) of the Limited Liability Partnership Rules, 2017. Accordingly, the LLP can be stroked off in following two ways, likewise that of a Company:

MANDATORY STRIKING OF THE LLP:

 Under mandatory striking off, the ROC shall send a notice to the LLP of his intention to strike off the name of the LLP from the register and requesting them to send their representations within a period of one month from the date of the notice in the case the LLP is not carrying on any business for a period of two preceding years. Here it is important to note that the ROC shall have reasonable cause to believe that the LLP is not doing any business in case Form 8 and Form 11 are not filed for previous two years.

VOLUNTARY STRIKING OFF THE LLP:

Under voluntarily striking off of LLP, the LLP may make an application in e-Form 24 to the Registrar with the consent of all the partners of the LLP for striking off its name from the register.

Any LLP which has been inoperative for more than 1 year or incorporated for more than One year and have no business can apply for Closure 

THE FOLLOWING PROCEDURE CAN BE FOLLOWED FOR CLOSING A LLP BY FILING FORM 24:

SERIAL	PARTICULARS
1.       Complete all the Pending Compliances.	After incorporation of a LLP, the LLP agreement must be filed with the MCA within 30 days of registration. In case this compliance was missed and LLP agreement was not filed that compliance must be completed. Any overdue returns in Form 8 and Form 11 up to the end of the financial year in which the limited liability partnership ceased to carry on its business or commercial operations must be filed before filing LLP Form 24.
2.       Ensure all Statutory Dues, if any are settled.	Prior to filing LLP Form 24, Any Dues towards statutory authorities must be clear , Return regarding Income Tax must be filed, Since the copy of the same shall be attached in the Form-24.
3.       Closure of Bank Account,  if Any	Prior to filing LLP Form 24, any bank account opened in the name of the LLP must be closed and a letter evidencing closure of the bank account in the name of the LLP must be obtained from the Bank same can be demanded by the ROC to be attached in Form.
4. Obtain Certificate from Chartered Accountant.	A  statement of accounts disclosing NIL assets and NIL liabilities, that is certified by a practicing Chartered Accountant up to a date not earlier than thirty days of the date of filing of Form 24 must be obtained.
5. Prepare Closure Documents.	Prepare Attachments to be attached in Form -24 as provided under the law, Further Format of Application to Close is also attached.
6. File LLP Form 24	The documents along with LLP Form 24 (Download LLP Form 24) shall be filed with the MCA to strike off name of LLP. The Registrar, where he has sufficient cause to believe that the limited liability partnership has any asset or liability, satisfy himself that sufficient provision has been made for the realization of all amount due to the limited liability partnership and for the payment or discharge of its liabilities and obligations by the limited liability partnership , if found acceptable, the concerned Registrar of Companies would cause a notice to be published on the MCA website announcing the striking off of the LLP.
7. Surrender PAN of LLP	On Receipt of Certificate of striking off of the LLP, Authorized person should surrender the PAN and TAN of the Limited Liability Partnership.

Further, it is important to note that the following shall be the attachments to e-Form 24:

·         Affidavit signed by the designated partners [as per the format given sub clause (b) of clause (II) of sub   rule (1A) to rule 37)];

·         Copy of the undertaking/ indemnity bond for striking off name Indemnity bond

·         Copy of authority to make the application duly signed by all the partners;

·         Copy of acknowledgement of latest ITR.

·         Consent of all the partners;

·         Consent of creditors is also needed to be filed.

·         Statements of accounts disclosing nil assets and nil liabilities certified by a Chartered Accountant in practice made up to a date not earlier than thirty days of the date of filing; and

·         Application disclosing the reasons for strike off and the operative status of the Company.

FORMAT TO ISSUE A STATEMENT OF ASSETS AND LIABILITIES BY THE CHARTERED ACCOUNTANT

In accordance with the provisions of the LLP Act, 2009, there is no fixed format for statement of assets and liabilities of an LLP. However, in general parlance, the auditors prepare the accounts of the LLP as per the format of Form 8 and accordingly, the said format shall be followed for preparing the said statement of assets and liabilities.

FORMAT APPLICATION FOR CLOSURE OF LLP AS PER RULE 37(1)(B)

Date

The Registrar of Companies,

_________________

Sub: Application For Closure of LLP As Per rule 37(1)(b) Of The Limited Liability Partnership Rules,2009

Sir,

With respect to the subject matter cited above, it is hereby submitted that LLP M/s ABC LLP that is inoperative and has no intention to do any business or commercial activity at all in future. Thus the LLP is defunct. You are requested to strike off the name of the LLP under Rule 37(1) (b) of the Limited Liability Partnership Rule, 2009.

Thanking You

Yours Truly

For ABC LLP

Authorized Signatory/Designated Partner

FORMAT AUTHORIZATION TO MAKE APPLICATION TO STRIKE OFF

ABC LLP

(On the letter Head)

-------------------------------------------------------------------------------------------------------------------------------

To,

MMMM

Sub: Authorization to make Application to Strike Off the Name of the LLP to ROC

Dear Sir,

With respect to the subject matter cited above, the management decides to authorize you to file an application to the ROC to strike off the name of the LLP from their register.

An application shall be moved with the required documents as follows:

1.      Application Letter

2.      Consent of all the partner,

3.      Indemnity bond/ undertaking

4.      Affidavit duly notarized

5.      Copy of statement of assets & liability duly certified

For ABC LLP

MMMMX

(Designated Partner)

NOW, WE SHALL DISCUSS THE IMPORTANT POINTS AFTER INTERPRETATION OF THE RELEVANT RULE WITH RESPECT TO STRIKING OFF THE LLP:

1. Where the Limited Liability Partnership is regulated under a special law, the application for removal of name shall be accompanied by approval of the regulatory body constituted or established under that law.

2. The contents of the notice issued the ROC and the application made by the LLP shall be placed on the website of the Ministry of Corporate Affairs for the information of the general public for a period of one month.

3. As discussed, in case of mandatory strike off, the Registrar shall send a notice to the LLP to give reasonable opportunity of being heard as to why the LLP shall not be dissolved. The correspondence of the said notice shall have to be made within a period of one month or else the Registrar shall strike its name off the register, and shall publish notice in the Official Gazette thereof.

4. The liability of the every designated partner of the LLP dissolved as such shall continue and may be enforced as if the LLP had not been dissolved.

As a Key Point : The date of cessation of commercial operation is the date from which the Limited Liability Partnership ceased to carry on its revenue-generating business and the transactions such as receipt of money from debtors or payment of money to creditors, subsequent to such cessation will not form part of revenue-generating business.

CS Annu Sharma is a Commerce Graduate and an Associate Member of the Institute of Company Secretaries of India (ICSI). She has cumulative experience of more than 3 years with Listed Company, CA and CS firms. She authored various articles on the topics of Corporate Laws, Securities Laws, DGFT, Income Tax, Start-ups among other. Articles authored by her are published on prominent Professional Websites.

Contact No . 7021848742

Email: csannusharma123@gmail.com