Partnership Firms are a very old concept of doing business. There are various advantages and disadvantages of a partnership firm. This type of business model can be suitable for the businesses that are working in a particular locality without any plan for expansion. If you have confusion regarding anything with respect to partnership firms, you must read this blog till the end. This will not only help you out to understand the concept of partnership firms but also give you clarity whether you should choose it for your business entity or not.
What is a Partnership Firm?
Section 4 of the Partnership Act of 1932 talks about partnership firms. As per this section an association of persons to do any kind of business which must be lawful, is called a partnership firm. To get this firm minimum two members are required. Without two members this firm cannot be formed. Partnership firms can be formed very easily. There is nothing tough in the incorporation of the partnership firms. One can simply contact a profession and with the help of him or her needs to draft a partnership agreement. Once the agreement is done you can register it with the registrar on whose jurisdiction your firm falls in. Although Partnership firm registration is not compulsory, it is always suggested to register your partnership firm.
What are the Advantages and Disadvantages of a Partnership Firm?
There are multiple advantages and disadvantages of a partnership firm. Out of those advantages and disadvantages of a partnership firm, we will discuss some of them which are crucial for both the business as well as business owner. Some of the crucial advantages and disadvantages of a partnership firm are discussed below:
Advantages of Partnership Firm
- They can form very easily just with a agreement for partnership
- All the partners of the partnership firm can participate in the management of the partnership film
- Unregistered partnership firms are not illegal
- Can start with minimum two partners
- Easy management of the firm
- Easy windup process is one of the key advantage out of the advantages and disadvantages of a partnership firm
- Decision making is easy as it is in the hands of the partners only
- There is no compliances like private corporations
Disadvantages of Partnership Firm
- Their registration is not compulsory
- Limitation on maximum number of partners
- It has no legal existence except his partners
- This type of firms are not distinct person
- Firm is just a convenient way in order to address the partners
- There is unlimited liability of partners in a partnership firm
- Partners are jointly as well as severally liable against the debts of the firm
- Creditors of a partnership firm are the creditor of the partners
- Creditors can sue the partners of the partnership firm
- No partner can sell the shares without obtaining the consent of the other partners
- Monopoly of the partners they can do whatever they wants to do
- Every partner is the agent of the partnership firm
- A partner is liable for the act done by the other partners
Partnership Act of 1932
With the knowledge of the advantages and disadvantages of a partnership firm it’s crucial to known about some of the key provision of the Partnership Act of 1932 are mentioned below:
- Partnerships that are not based on status are covered in Section 5.
- Referring to Section 6 of the legislation is necessary to ascertain the form of the partnership’s existence.
- Partnership-At-Will granted in accordance with Act Section 7.
- Section 9 of the law lists the fundamental responsibilities, or more accurately, the general duties of the partners in partnership firms.
- Sections 10 and 11 of the legislation, which deal with determining the rights and duties of partners through contracts, also mention the duty to indemnify for losses caused by fraud.
- The act’s Section 13 addresses the reciprocal rights and obligations.
- The assets of the company as specified in Section 14 of the Partnership Law
- Section 19 mentions a partner’s implied authority as the firm’s agent.
- Section 20 of the Act specifies how partners’ implied authority may be extended or restricted.
- Section 45 addresses a partner’s accountability for actions taken after the partnership dissolves.
- Section 47 of the Act grants partners continuing authority for the purposes of winding up.
- The procedures for settling partner accounts and paying separate and business debts are outlined in Sections 48 and 49, respectively.
Limited Liability Partnership Firm V/S Partnership Firm
As mentioned above, the concept of partnership firm is a very old and traditional way of doing a business whereas Limited Liability Partnership Firm Registration is a modernized version of the same. Lets understand the same with the comparison of both of them in the given below table:
| Limited Liability Partnership Firm | Partnership Firm |
| They are the modern form of doing business in the partnership | They are the traditional method of doing business in the partnership |
| They are governed by Limited Liability Partnership Act of 2008 | They are governed by Partnership Act of 1932 |
| They are incorporated just like the corporated bodies through Ministry of Corporate Affairs | They need to get registration with the local registrar |
| Minimum two partners are required | Minimum two partners are required |
| They are having all the advantages of a corporate bodies | They do not have any advantage of corporate bodies |
| They are having separate legal personality | They do not have separate legal personality |
| Here the liability of members is limited | Here the liability of members is unlimited |
| They are having perpetual succession | They can dissolve as per the partners |
| They are legal personality just like a human | They are not having legal personality like a human |
| They cannot dissolve easily once formed. There is a proper procedure for the dissolution of such entities | Their dissolution is easy and simple |
Conclusion
As discussed above there are both advantages and disadvantages of a partnership firm. Now it depends on the business owner whether they want to register their form as a partnership firm or not. Just like any other corporation there are both advantages and disadvantages of a partnership firm but it does not mean they are lesser or better than anything. It completely depends on the type of business, whether they are suitable for the business or not. In 2008 a new and modernized version of partnership firm came through the LLP Act of 2008. Many people got confused between them as well, that is why we have compared both of them above so that you can easily differentiate between them as well. A partnership firm is mostly for those businesses which are either small or midsize. Hope this blog has clarified many aspects of Partnership firms. In case you are having any doubt you can feel free to contact us.
