Advantages and Disadvantages of Partnership Firm Registration in India

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Advantages and Disadvantages of Partnership Firm Registration in India

When it comes to India, one of the most popular business structures that has emerged is the partnership firm. It is a type of business entity where two individuals collaborate and join forces to conduct business with the aim of making a profit. However, like any other business entity, a partnership firm comes with both advantages and disadvantages. 

In this blog post, we will take a look at the advantages and disadvantages of partnership firm registration.

Advantages of Partnership Firm Registration

The benefits of a partnership firm are as follows: 

• This sort of business entity is easy to start: Among all the business entities that are present in India, this is the sort of firm that is easiest to start. The only requirement for the incorporation process for this firm is the need of a partnership deed. With this requirement, you can incorporate and start a partnership firm the same day. When you compare this form of firm with the Limited Liability partnership, you would note that compared to the 10 to 15 day registration process of LLP, this is just one day.

• There is no need to pass resolutions in a partnership firm: When it comes to any sort of business, the most amount of time it takes to start a process is with the decision process. The reason for this is the need to pass a resolution. However, this is one thing that a partnership firm does not need to partake in. To that end, the decision process is fast and it is reliable.

• Easy to raise funds: It is far easier for a partnership firm to raise funds when you compare it to the proprietorship firms. As there are multiple partners available to contribute money. Furthermore, when it comes to loans, it is easy for a partnership firm to access it as the banks favour this lot more. Therefore, an online partnership firm registration in India is something that you might be interested in.

• Equal sense of belonging: Each partner in a partnership firm has a sense of belonging. They both can manage and indulge with many activities within the company. However, their cause is also a common one. With ownership, what you have is a higher sense of accountability. The more accountable that the partners feel, the better is their performance.

However, all is not green in the world of partnership for there are certain drawbacks to this as well.

Disadvantages of Partnership Firm Registration

The drawbacks of a partnership firm are as follows:

• The liability is unlimited: When the firm suffers a loss, then each and every partner associated has to bear them. Furthermore, the liability that one partner creates happens to be one for the other partner as well. In order to quell this liability, LLP business structure came into existence after enforcement of LLP Act 2008.

• The number of members is low: When it comes to the numbers of members that are allowed in such a firm, the number is limited to 20. To that end, the LLP makes for a much better option in this regard.

• There is no central figure: While it is commendable that this form of business entity tries to take a lot more opinions into account, the lack of a central figure when it comes to operations can make the entire endeavour a bit directionless. Furthermore, there can also be a discrepancy as to how much power is given to the partner(s). There are times when one partner has more power than the other and this can turn things ugly as well.

• The public finds it hard to trust a partnership firm: When it comes to the matters of trust, you should know that a partnership firm does not require any sort of registration. To that end, there is no need to have a structure of this firm. Now, for something even appears to be directionless, it is quite hard to gather the trust from anyone, let alone the public.

• It can be dissolved abruptly: When there is a certain case of “death” of one of the partners of the firm, it results in the complete dissolution of the partnership firm. This suddenly tends to end the business of this firm. With no protection against dissolution, LLP has become a more desirable option as the death of the partner does not lead to any such disruptions to operations.

Conclusion

There are both ups and downs when it comes to a partnership firm. However, certain advantages and disadvantages come with any form of business entity. While the lack of a central figure and lack of limited liability is quite obvious, there is a sense of freedom that comes with such a company that still makes it alluring to traders. Need help in registering a partnership firm? Connect with Registrationwala for professional guidance! 

Frequently Asked Questions (FAQs)

Q1. How many partners can be a part of a partnership firm?

A. A minimum of 2 and a maximum of 50 partners can be a part of a partnership firm.

Q2. Which Act governs the partnership firms in India?

A. The Indian Partnership Act, 1932, governs the partnership firms in India.

Q3. Is it mandatory to register a partnership deed in India?

A. No, it is not mandatory to register a partnership deed in India. However, registering this document is recommended as it ensures legal recognition. 

Q4. Who registers the partnership firms in India?

A. Partnership firms are registered by Registrar of Firms of the respective state in which the firm’s principal place of business is situated.

Q5. Do traditional partnerships offer perpetual succession?

A. No, the traditional partnerships do not offer perpetual succession. This means, in case of demise, insolvency or retirement of a partner, the firm may be dissolved (unless there is a contract to the contrary between the partners).

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