Partnership Firm- Registration Procedures and Rules

Partnership Firm- Registration Procedures and Rules

Introduction

A Partnership Firm is a popular form of business constitution for businesses that are owned, managed and controlled by an association of people for profit.

Partnership firms are relatively easy to start and is prevalent amongst small and medium sized businesses in the unorganized sectors. Though with the introduction of Limited Liability Partnerships in India, Partnership Firms are fast losing their prevalence due to the added advantages offered by a Limited Liability Partnership. 

Types of Partnership Firm

There are two types of Partnership firms, registered and unregistered Partnership firm. It is not compulsory to register a Partnership firm, however it is beneficial to register a Partnership firm due to the advantages available to registered firm. Partnership firms are created by drafting a Partnership deed amongst the partners.

Reasons to Register a Partnership:-

1.Easy to Form

 A Partnership is easy to form as no cumbersome legal formalities are involved. Its registration is also not essential. However, if the firm is not registered, it will be deprived of certain legal benefits. The Registrar of Firms is responsible for registering partnership firms. 

2.Business Name

Since the name of a Partnership firm is not registered, a Partnership firm can choose to have any name - as long as it does not infringe on a registered trademark. However, since the name is not registered, any other person can also use the same business name unless trademark registration is obtained and no infringement of rights of other firms.

3.Annual Filing NOT Required

A Partnership firm is not required to file its annual accounts with the Registrar each year unlike a Limited Liability Partnership or Company. Limited Liability Partnership and Company are required to file their annual accounts with Registrar of Companies each year.

4.Partnership Deed

In a Partnership firm, the partnership deed will determine the ownership of the firm, profit sharing ratio, rights and responsibilities of each of the Partner. A partnership deed can be registered with the Registrar.

5.Bank Account 

Bank account can be opened in the name of a Partnership firm. To open bank account, the partnership deed copy and KYC documents of the Partner must be submitted along with any other document as required by the Bank. 

Partnership Deed

• A partnership deed is a written legal document underlining the rights and responsibilities of members of a partnership.
• A partnership firm is not legally bound to register, however, the registration confers certain benefits which can be used to the firms advantage. 
• The Indian Partnership Act of 1932 governs partnerships in the country. The registration of Deeds of Partnership (Indian Registration Act 1908) is salient in order to promote mutual understanding and trust among the partnership members.
• It stands as a testimony to the terms and conditions on which the business is founded and therefore is of grave importance in case of disputes. 

Benefits for the registered firms:-  

1. Right to file a lawsuit

Registration allows the firm to file a lawsuit against a third party. If an unregistered firm wishes to file a case, it needs to register itself under the Indian Partnership Act prior to filling of lawsuit. 

2. A co-partner’s right to protection 

In case of dispute between partners, an unregistered partner cannot sue its counterpart if he or she is not registered. 

3. Protection of property 

The property of a retired or deceased partner continues to be liable for the acts of firm even after the partner’s death or retirement until public notice is served for the change to registrar. But in case of an unregistered firm, the property will be considered to charge the debts in spite of death or retirement. 

4. Protection of creditors

A registered company has to keep its records up to date. This protects the creditors from evasion of liabilities on part of the partners. 

5. Government facilities 

Registered firms work under the rules and regulations of the government and also enjoy protection in business and production. 

6. Public confidence

People lay their trust in registered companies more than unregistered companies since they fall under the government.  

7.Rights of unregistered firms

Non registration allows the following rights to be exercised by unregistered firms:-         

• To bring a lawsuit of the firm’s dissolution or for settlement of accounts.
• The unregistered firm or its partners may use or claim a set-off where the subject matter of the suit does not exceed Rs. 100 in value.
• Third parties can always use a firm whether it is registered or not.

Registration process

The registration of the partnership firm can be done before starting business or during continuance of partnership. However, as mentioned earlier, for filing lawsuits a partnership firm needs to be registered. 

• The process of registration involves two steps-filing an application and submission of required documents. 
• The first step is registering a partnership firm and filing an application with the Registrar of Firms. 
• The partnership agreement must be printed on a Non-Judicial Stamp Paper according to Indian Stamp Act 1899. 
• The partnership agreement is usually signed in the presence of all the partners and each of the partners would retain a signed original for his/her records.  

The application should contain the following information:

• The name of the firm.
• The principal place of business of the firm.
• The names and addresses of partners and the dates on which they joined the firm.
• If the firm is started for a particular period then that period should be mentioned.
• If the firm is started to achieve a specific objective then it should also be mentioned.
• Application for registration of partnership in Form 1.
• ID and Address Proof of Partners like Pan Card/Passport/Voter ID/Aadhar Card/Driving License Copy of the Partners.
• Address proof of business place– if property is rented:- Rent Agreement and NOC from Landlord - if property is own:- Electricity Bills or any other Address Proof.

Once the procedure for application is fulfilled, the Registrar of Firms makes an entry in the Register of Firms and issues a Certificate of Registration. 

LLP vs Partnership Firm in India

Partnerships registered under the Partnership Act, 1932 used to be a very popular form of Business Entity in India due to the simplicity of registration and ease of maintenance. With the introduction of the Limited Liability Partnership (LLP) in India through the Limited Liability Partnership Act, 2008, the prominence of Partnership’s has been replaced by the LLPs. 

LLPs are easy to register & offer a range of benefits to the promoters and is easy to maintain, making it ideal for many small and medium sized business that would  otherwise opt to start as a Proprietorship or a Private Limited Company.

Number of Partners & Requirement 

Partnership- Any Indian Citizen residing in India can be a Partner in a Partnership Firm including minors. A Partnership Firm must have a minimum of 2 Partners and can only have a maximum of 20 Partners. The Partnership Deed defines aspects such as management of the firm and one or more partners can be designated to manage the Partnership Firm. 

Limited Liability Partnership- Any Indian Citizen residing in India can be a Partner in a LLP. Foreign Direct Investment is allowed in a LLP with prior RBI approval. Minors are however not allowed to be part of a LLP. A LLP must have a minimum of 2 Partners and is allowed to have unlimited Partners. The LLP Agreement governs aspects of management of a LLP and one or more Partners can be designated to manage the activities of the LLP.

Transferability or Conversion 

Partnership- The share in a Partnership can be transferred to another person after obtaining the permission of all the Partners in a Partnership. The transferability of a Partnership is cumbersome. Partnership can be converted into a LLP or a Private Limited Company, through a lengthy process.

Limited Liability Partnership-The share of a LLP can be transferred. However, the Transferee is not allowed to become a Partner automatically. The share of a LLP can be transferred to another person more easily. A LLP can be converted into a Private Limited Company or a Limited Company easily. 

Compliance & Taxation 

Partnership- The Profits of a Partnership firm are taxed at 30% + educational cess. There are no annual return filing requirement for a Partnership firm.

Limited Liability Partnership- The Profits of a LLP are taxed at 30% + educational cess. 

LLP must file annual return with the Ministry of corporate affairs (MCA). 

Registration 

Partnership- Partnership firms are registered with the Registrar of Firms. A Partnership Deed must be drafted for registering the Partnership firm with the Registrar of Firms.

Limited Liability Partnership- LLPs are registered with the Ministry of Corporate Affairs. LLP registration process is similar to that of a Private Limited Company Incorporation  process, viz. obtaining Digital Signature Certificate for the Partners, obtaining Designated Partner Identification Number (DPIN) for the Partners, obtaining name approval from MCA, obtaining Incorporation Certificate and filing LLP Agreement.

PPF (Public Provident Fund) Account , Rules, Provisions, and Guidelines.

What is PPF (Public Provident Fund) Scheme ?

The full form of PPF is Public Provident Fund Scheme. Public Provident Fund scheme of the Central Government was framed under Public Provident Fund Act, 1968. PPF is a government backed, long term small savings scheme, which was initially started by the Government to provide retirement security to self employed individuals and workers in the unorganized sector. However, at present PPF is considered as the best tax saving scheme across all sections of the people who needs to invest to save some tax.

Who are eligible for Public Provident Fund Scheme ?

Individuals who are residents of India can open an account under the scheme.Only one PPF account can be maintained by an Individual, except an account that is opened on behalf of a minor. Thus, PPF account can also be opened by either parent under the name of a minor. However, each person is eligible for only one account under his/her name. Mother and Father both cannot open Public Provident Fund (PPF) accounts on behalf of the same minor.Thus, in case a couple has two children, they can maximum open four accounts i.e. two in their own accounts and two in the name of their children under guardianship of either of the parent. Non-resident Indians (NRIs) are not eligible to open an account. However a resident who becomes an NRI during the tenure prescribed under Public Provident Fund Scheme has to close his account. Read- PPF account deemed to be closed on Resident A/c holder becoming non Resident Since 13th May 2005, Hindu Undivided Family can not open an account under the scheme. However, accounts opened prior to that date may continue subscription to their account till maturity. They can not extend the account any further.

Where Can One open a PPF Account ?

The PPF account can be opened at either of the following :

1. Branches of State Bank of India and its subsidiaries,
2. Other designated nationalised banks,
3. Selected Post Offices across India.

Documents required for Opening of PPF Account :-

Following documents are usually required for opening a PPF account :-

• Account Opening Form (Form A)
• Copy of PAN Card
• Copy of Aadhar Card
• Residence proof – Passport / Electricity Bill / Aadhar Card

Public Provident Fund Rules :

It’s a 15 years scheme. Thus, as per normal rules, Public Provident Fund (PPF) account gets matured after the completion of 15 years from the end of the year in which the account was opened. However, on maturity this period can be extended any number of times for a block of 5 years each time. Application for extension must be submitted within one year from the date of maturity. No premature closure of the account is allowed except in certain special cases.

In case of the death of a customer, their nominee /legal heir can close the account by submitting the required documents as provided, premature closure of PPF accounts shall now be permitted in cases such as serious ailment and higher education of children. However, 1% of the interest earned on deposits, charged as a penalty for premature closure (not applicable in case of death). Every Individuals shall have only one PPF account in their name (except in case account opened on behalf of minor). If at any time it is found that more than one account in the name of same person then second account will be immediately deactivated, and only principal amount shall be payable).

A person cannot open a PPF account, if any joint account already exist with minor. A minimum yearly deposit of Rs. 500/ is required to open and maintain a PPF account, and maximum deposit of Rs.150000/ shall be made in a year. A person having PPF account shall not get any interest on the amount which exceeds Rs-150000/. The investments can be made in multiples of Rs. 500/ either as a whole sum, or in instalments (maximum instalments should be 12 in a year). The entire balance can be withdrawn on maturity and Interest received is tax free. Deposit to PPF is eligible for tax deduction u/s 80C of Income Tax Act, 1961.

What are the benefits of PPF Account ?

Deposits upto Rs 1,50,000 p.a. into your PPF account are deductible under Section 80C of Income Tax Act 1961. Even contributions to PPF accounts of spouse and or children are also eligible for tax deduction maximum upto 150000/- in totality. The balance in PPF account cannot be attached to any claim in case of debt or liability.

What is the biggest draw back of the PPF Scheme ?

It is a long term investment, and thus people who are ready to block the funds for longer tenure should opt for this scheme. Although part withdrawals and loans are allowed but these are available only as a small percentage of the total balance. The rate of interest allowed on PPF account has been less than the inflation rate for number of years and thus some consider these to be negative returns.

NOTE- In spite of these drawbacks PPF is considered as the top scheme for the investors who wish to save tax through Section 80C or earn tax free interest.

What is the rate of interest on PPF Account?

The rate of interest payable on PPF balances is now fixed on quarterly basis from 1st April 2016 onwards (previously it was fixed on yearly basis) current interest rate is 7.9% from April 2017 onwards. The rate of interest has fluctuated a lot during last few years. The details of the rate of interest paid during last few years is given below:-

Interest on PPF is calculated on the minimum balance in your account between the 5th and the last day of every month. Therefore deposit shall be made on or before the 5th of that month, so that interest for the entire month shall be received.

Eligibility for Loan from PPF Account ?

A person having PPF account can avail the loan facility from third financial year upto end of fifth financial year. The loan amount shall be limited to 25% of the balance outstanding to the subscriber’s credit at the end of the second year immediately preceding the financial year in which the loan is requested.

Repayment of Loan Amount : The loan repayment is required to be made in one lump sum or in two or more monthly instalments within 36 month period. After the principal amount of the loan is fully repaid, the subscriber shall pay the interest amount in not more than two monthly instalments. Interest is calculated at 2% on the amount for the period commencing from the first day of the month following the month in which the loan is availed upto the last day of the month in which the last instalment of the loan is repaid.

What is the schedule for withdrawals from PPF account?

One can make one withdrawal per year starting from seventh year. The first withdrawal can be done after the expiry of 5th financial years from the end of the year in which initial subscription was made. The amount of withdrawal will be limited to 50% of the outstanding balance credit at the end of the fourth year immediately preceding the year in which the amount is to be withdrawn, or the balance at the end of the preceding year, whichever is lower. Thereafter one withdrawal per year. The withdrawal amounts are not repayable.

Example- An account opened in April 2009 shall be eligible for partial withdrawal from 1st April, 2015. For a partial withdrawal requested in April 2015, the amount of withdrawal will be limited to 50% of the lower of the balances standing to his / her credit as on 31st March, 2012 or as on 31st March, 2015.

What will happen if minimum subscription in one particular financial year not made in PPF Account?

In case minimum subscription amount of Rs 500/ not made in a financial year then, such PPF account is marked as deactivated account and shall be again activated by paying a nominal penalty of 50/- and minimum subscription amount for each year in which minimum subscription amount not made. The account will only be closed after maturity and will continue to earn interest till it is closed. The facility of loan or withdrawal will not be allowed from such account. Moreover, such a subscriber can not open another PPF account in addition to the deactivated account,at any other office.

What are the Rules for Non Resident Indians for Opening / Continuing PPF account opened before they became NRI?

NRIs are not eligible to open fresh PPF account. However, those NRIs who already had a PPF account, when they were resident in India, but became NRI during the tenure of the PPF account, then they are allowed to continue their existing PPF accounts till maturity but such funds on maturity will not be eligible to be repatriated abroad and needs to be used in India only.(Abolished with effect from 3rd October 2017)

Amended with effect from 3rd October 2017 by notification from Central Government in the official Gazette. A person having PPF account shall be termed as inactive from the date on which the person becomes NRI , and the amount so deposited shall earn Post office savings bank rate till the time money is completely withdrawn.

What are the options available to the subscriber on maturity of the PPF account?

A subscriber has three options at the maturity of the PPF account :-

1. He / she can withdraw the maturity amount,
2. he / she can extend the account by a 5 year block, as many times as he / she wants and make fresh contributions every year,
3. he / she can extend the account without making any further contributions, and continue to earn interest on it every year.

What are the rules for transfer of PPF account from one bank to another bank?

In terms of PPF scheme subscribers can transfer their PPF account from one authorised bank or Post office to another. The subscriber should approaches the bank / Post office where he /she has current PPF account and makes an application for transfer of PPF account to the Bank Branch / Post Office where he intends to transfer the same. The existing bank/Post office will process the application and send the original documents such as a certified copy of the account, the account opening application, nomination form, specimen signature etc. to Bank branch / Post office where the account needs to be transferred, along with a cheque/DD for the outstanding balance in the PPF account.

What are the rules for nomination in PPF account ?

PPF Scheme allows nomination of one or more persons to receive the amount standing to the subscriber’s credit in case of death. However, no nomination is possible in case of minor account.