A partnership is a business entity having two or more owners. Earnings are distributed according to the partnership agreement and are treated as personal income for tax purposes. Thus, like the sole proprietorship, the partnership is simply aconduit for directing income to its partners.Partnership has aunique liability situation. Each partner is jointly and severally liable. Thus, a damaged party can pursue a
single partner or any number of partners- and that claim may or may not be proportional to the invested capital of the partners or the distribution of the earnings. This means that if the one partner did something to damage acustomer, that customer could sue all the partners even though other partner played no part in the problem.
Organizing apartnership is not as effortless as with asole proprietorship. The partners must determine, and should set down in writing, their agreement on anumber of issues:The amount and nature of their respective capital contributions (e.g., one partner might contribute cash, another a patent, and a third property and cash)
- How the business’s profits and losses will be allocated
- Salaries and draws against profits
- Management responsibilities
- The consequences of withdrawal, retirement, disability, or the death of a partner
- The means of dissolution and liquidation of the partnership
Advantages of a Partnership
Partnerships have many of the same advantages of the sole proprietorship, along with others:
· Except for the time and the legal cost of crafting a partnership agreement, it is easy to establish.
· Because there is more than one owner, the entity has more than one pool of capital to tap in financing the business and its operations.
· Profits from the business flow directly to the partners personal tax returns; they are not subject to a second level of taxation.
· The entity can draw on the judgment and management of more than one person. In the best cases, the partners will have complementary skills.
Disadvantages of a Partnership
As mentioned earlier, partners are jointly and severally liable for the actions of the other partners. Thus, one partner can put other partners at risk without their knowledge or consent. Other disadvantages include the following:
· Profits must be shared among the partners.
· With two or more partners being privy to decisions, decision making may de slower and more difficult than in a sole proprietorship. Disputes can tie the partnership in knots.
· As with a sole proprietorship, the cost of some employee benefits may not be deductible from income taxation.
Depending on the partnership agreement, the partnership may have a limited life. Unless otherwise specified, it will end upon the withdrawal or death of any partner.
15 responses so far ↓
anwar ali // October 11, 2008 at 3:15 pm |
how to registerd a sole-proprietorship firm?
mukeshrajco // October 11, 2008 at 7:01 pm |
Mr. Anwar
I have already explained that there is no need to register a sole proprietorship firm seprately. You have to obtain only VAT/Service tax Registration, if applcable.
Prabhat // September 7, 2009 at 9:29 pm |
Dear Sir,
I am just planning to launch my website http://www.b2bsutra.com. I want to open a partnership firm along with my wife. Please suggest me the procedures and step by step method of opening a partnership firm. I am situated in Pune- Maharastra.
Suresh // January 12, 2010 at 8:59 pm
Hi Prabhat,
Me and my partner has just signed the Partnership Agreement Deed today.. You would like to know more ..plz mail me
Anthony // October 16, 2008 at 10:38 pm |
Sir
I would like to know what is required for a partership business other than a partnership deed. Is is necessary to Register, and lastly is it necessary to obtain VAT / Service Tax and CST numbers.
As we are going to start a partnership firm in the next week.
Request you to please guide me in this regard.
thank & regards
Anthony
Prashant Khanna // December 9, 2008 at 2:37 pm |
Dear Sir
Pl explain the benifit of opening a partnership firm IN TERMS OF TAX, since my mother and cousin both want to open a firm in partnership.
Pl give details on TAX liability if opened propertership and if opened partnership @50%.
Pl assume Same profit in both cases.
Prashant
sangeeta // December 19, 2008 at 6:56 am |
can a proprietorship firm be changed to partnership firm
Soumitri // January 5, 2009 at 5:25 pm |
Dear Sir,
Would like to be a partner in a Consulting firm. We are only two partners who would like to run this business. I will be the active partner and the other person will be a sleeping partner. Please let me know What are all the documents, registrations required to run the business?
Shilpi // January 13, 2009 at 9:46 pm |
Sir,
I completed CA from India in 2004 & am holding a COP.I am currently living in USA with my husband & am not working here.
The firm under which I did my articleship in India wants to add me as a partner as one of their partners has resigned.
I want to know if legally this is fine?
Also what will be the other issues related to my responsibilities & liabilitis?
Plese mail me as soon as possible
SUNITA AGRAWAL // February 10, 2009 at 7:42 am |
Dear Shilpi,
As per my opinion you can become partner in that firm, but you should open a Branch Office , where you are residing, in USA.
CA. Sunita
Amar // February 27, 2009 at 6:20 pm |
Dear Mr. Raj,
We are 3 partners, interested in setting up a ‘Partnership Firm’ in Mumbai, Maharashtra. Scope of our services would include providing market information and partner selection for overseas clients. Our queries are as follows: a] Is opening a bank account for a partnership as easy as for a Proprietorship; b] Do we need to register our company; c] Are we liable for service tax and d] would a new PAN no be required or one of the 3 partners no. could be used?
Awaiting your advice.
Thanx and rgds,
Amar
Muqaddam sheriff // July 13, 2009 at 3:06 pm |
Sir,
I would like know as to how to retain the title/name of the proprietorship without letting any other business man copy the same?
What are the legal formalities to retain our own business title in sole proprietorship?
Your quick reply will be appreciated.
Thanks
Muqaddam
Rajendra // September 16, 2009 at 4:39 pm |
Hi,
We have sign a deed for partnershhip farm among 3 friends.We have got PAn no,Service tax ,looking for VAt.No one of the partner is not interested.What action we should do.Do we required new partnership deed and go for fresh PAN and Service tax .
Or we can take only resignation of one and submit to PAN and servce tax office.
Please send me in my mail
jisha chetty // February 25, 2010 at 2:24 pm |
Hello Sir,
I have just started my business in the month of november, i.e. proprietorship firm. If i am making po or invoice do i need to add 4% vat. I am having my own garment manufacturing unit. And do i required to registered my company. how i will get vat and tin number?
Thnks,
jisha
mukeshrajco // February 27, 2010 at 10:23 am |
You have to register yourself with State VAT authorities. That’s all.