Tuesday , 11 December 2018

Partnership firm – Agreement, Features, Registration, Dissolution [Full Guide]

A detailed guide on How to Register Partnership firm & everything about its Agreement, Dissolution, Definition, Meaning, Advantages, Disadvantages, Need, Importance Elements, Registrar of Firms, Process & procedure of forming a Partnership firm, Audit & Conclusion of a Partnership firm Business features and much more…


Partnership firm – Definition & Meaning

According to Partnership act 1932, A partnership firm is  –

the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all.

According to J. L. Hanson

a partnership is a form of business organisation in which two or more persons up to a maximum of twenty join together to undertake some form of business activity

The above definitions itself describes each and everything about a Partnership firm. In simple words – when two or more person come together to carry on a business, they are called Individually called as Partners and Collectively they are known as Partnership Firm.

Let me explain it with an Example……. This site – CommerceVilla, is being managed by two friends, i.e. Pravin and Abhishek, we are agreed to share the profit earned from this site, we have shared all the expenses related to this site. Hence it is an example of Partnership.

Partnership firm - Agreement, Features, Registration, Dissolution

Partnership firm – Agreement, Features, Registration, Dissolution


Definition of Partners & Partnership Firm

The persons who own the partnership business are individually called ‘partners’ and collectively they are called as ‘firm’ or ‘partnership firm’. The name under which partnership business is carried on is called ‘Firm Name’.

I hope, the above definition must have made you clear about what actually Partners and Partnership firm is….. So let’s proceed.

Elements of Partnership Firm

Elements are the Essentials which are required to form a Partnership firm. In simple words, you can call them as the Pillers without which it is not possible to form a Firm. There are various Elements of a Firm. Few of them are as follows –


  • Contractual Relationship

It is essential that a Partnership should be in the form of a Contract. In simple words, it can be said that a Partnership is itself a Result of a contract. Hence it is suggested that it must be properly written and registered so as to bind the Partners in a legal manner. It can also be oral in nature, but it is recommended to keep the same in writing so as to avoid chaos during dissolution or profit sharing.


  • Number of Partners

The term “Partner” means a group of 2 or more people. So the name of Partnership firm itself says much about the minimum number of Person who are required to form a partnership firm.

According to the Companies Act 2013, the minimum number of partners who are required to form a partnership firm is 2. There are some limitations imposed on the maximum number of partners in a firm which are as –

The Maximum number of partners for a banking business is 100.

If the number of partners increases beyond the limit as specified above, the firm ceases to be a Partnership firm.


  • Mutual Agency

As per Partnership firm – “A Partner is both an Agent and Principal of himself and other Partners.”

In the definition of a firm, it is stated that a Partnership is a Business which must be carried by all or any 1 (single partner) acting for all. Thus Mutual Agency is one of the most important elements of a Partnership firm. It is essential that there should be mutual consent between all the Partners.


  • Sharing of Profits & Losses

It is essential that a Partnership firm should be formed for the Purpose of carrying out business and that profit/loss should be divided among the partners as per the Agreement between them. If the agreement does not provide for the profit sharing ratio, the whole profit/loss is divided among the partners equally.


  • Existence of Lawful Business

It is essential that a Partnership firm should be formed for conducting a Lawful business. The term “Business” includes all types of trade and Profession which are considered as Lawful in India.

A firm which is formed for conducting any unlawful business or a firm which is formed for Charitable purpose, can not be considered as a Partnership firm in the Eyes of Law.


Partnership Firm Features

A firm possesses N number of feature. We can say that a partnership firm is mainly known for the amazing features it Possesses! Few of them are as follows –

  • Unlimited Liability of Partners
  • Division of Profit and Losses

In order to avoid this unlimited liability risk, one can consider the option of Limited Liability Partnership, as per LLP Act 2008.

Partnership Deed / Partnership Agreement

A partnership deed is nothing but an agreement between all the partners related to their duties, their rights, mutual consent and many other things….. In simple words, Partnership deed is the relationship between partners.

Few of the most important clauses that a partnership deed contains are as –

  • Name and address of the firm
  • Date on which the firm has commenced its business
  • Nature of Business
  • Duration of the firm
  • Capital sharing ratio
  • Profit sharing ratio etc

These clauses are of utmost importance. Even if a single clause is missing, it will create huge problem while registering a firm.


Partnership firm Registration

Previously there were no restrictions on the registration of a Partnership Firm except in the state of Maharashtra. But, now it is mandatory to Register a Partnership firm with the Registrar of Firms.

A registered firm enjoys many benefits as compared to that of a non-registered firm. As there is no time frame listed in the act for the registration of a partnership business, you can register it at any time.

Registering a Firm has many advantages. The overall Registration Process quite simple as compared to that of a company…..

Now, you may be thinking that what is the exact procedure which should be adopted for the Registration of a Partnership Firm…… So, let’s have look at the process involved in a Partnership firm Registration or the Process and Process involved in Registration of a Partnership firm –

Partnership firm Process and Procedure

A Partnership deed is necessary for forming a partnership firm. The registration of a firm requires the basic details like the Name of the partners and their residential address, Name of the firm and the address of the registered office, Date on which each partner joined the firm, Duration for which the firm is being formed etc. These details must be provided by the partners with the Registrar of the firms ( Registering Authority).

It is to be noted that a firm name should not contain the words like – “King” “Queen” “Royal” etc. However, with the approval of the Government of the Government, these names can be used.

All the necessary documents with the legal fees must be submitted to the Registrar of the firms. After reviewing the application, if the Registrar is satisfied with the documents, he issues a Certificate of Incorporation and that results in the formation of a Partnership firm.

Need & Importance of a Partnership Firm

There are many advantages of registering a Partnership firm, few of them are as follows –

  • It is very easy to form a Partnership firm
  • Availability of more Capital
  • Availability of Managerial Skills
  • Division of Risk


Disadvantages of a Partnership Firm

Just like a coin has two sides, along with the various advantages, there are few of the disadvantages of a firm, which mainly includes –

  • Unlimited Liability of Partners
  • Restriction on number of Partners
  • It is not a legal Person
  • It can be dissolved at any time by any partner


Partnership firm Dissolution

Dissolution of Partnership firm

Dissolution of Partnership firm

Dissolution of a Partnership and Dissolution of a Partnership firm are 2 Different things. In case of Partnership dissolution, the agreement of Partnership is terminated.

Whereas Dissolution of a Partnership means the closing down or the Dismissal of the firm.

Just like the formation, dissolution of Partnership firm is quite easy. There are various ways in which a Partnership Business can be dissolved. Few of them are as follows –

  • Dissolution of a firm by the order of the court

Dissolution order is issued by the court in the circumstances like – If a Partner becomes of unsound mind, or if he is unable to perform his duties or if he is found guilty of misconduct etc.

The court can also issue a dissolution order if it satisfied that the firm cannot be carried except with a loss.


  • Dissolution of a firm without the order of the court

In all the other cases like – If all the partners agree to dissolve the Partnership or the happening of a certain contingencies like – death of a partner or in the case if a Partner gives his assent in writing to all the other partners of his intention to dissolve a firm, a court’s order is not needed to dissolve the firm.

Upon dissolution, the assets are sold, the liabilities are paid off, and the account of the partners are settled.


Audit of a Partnership Firm:

Though it is not mandatory for any firm to get its accounts audited under Partnership Act, 1932, but other Acts like VAT, Excise or Income tax act may require the firm to get its accounted audited under the applicable act.

Although it is always recommended to get the accounts audited for each financial year so as to maintain the integrity and avoid issues on profit sharing and dissolution.


So, friends, that was all about a firm. I think I have made all the points clear related to a Partnership firm and its Agreement, Features, Registration, Dissolution etc. If you still think that I have missed any point or if you have any Question or Suggest

If you still think that I have missed any point or if you have any Question or Suggestion related to this post, feel free to share it in the comment box provided below.

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About Pravin Vijay

Co-founder & Developer at CommerceVilla. I am a 21-year-old guy from Pune (Maharashtra). I love helping people and providing free education especially if it is related to Commerce Field.....


  1. Nice Post….. Can you tell me the Registration fees which is required while forming forming a Partnership firm, Thank you in Advance

  2. Hey buddy would you pls help me to provide the aims and objective also method and methodology about partnership firm process and procedure

  3. Please can you get information about any partner ship firm

  4. I do not want to register my partnership right now because it is not mandatory and it is within my family. Then how to get my firm name registered for getting a bank current account and PAN no.
    Please reply ASAP.

  5. Can I run a Network Marketing Business through “Partnership Firm Registration”?

  6. If i started a partnership firm only 2 person including me then Which document required to all registration and start firm i dont have idea about pls suggest us

  7. want to start ayurvedic toothpaste ,hairoil trading business.we are 3 of us..whether to form firm or llp

  8. Can anyone tell me what to write in Presentation of Data and Information of Partnership firm. The information should be more than 4 pages.

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