Business Registration (Proprietorship & Partnership)
For new entrepreneurs, the simplest business structures are the Sole Proprietorship and the Partnership Firm. These are easy to establish and have fewer regulatory burdens.
Sole Proprietorship:
An unincorporated business owned and run by a single individual. There is no legal distinction between the owner and the business.
- Benefits: Easy to form, complete control for the owner, fewer compliances, and privacy.
- Registration: A proprietorship's legal existence is established through other registrations like GST, Shop and Establishment Act, or Udyog Aadhaar.
Partnership Firm:
A business where two or more individuals agree to share profits. It is governed by the Indian Partnership Act, 1932.
- Key Features: Formed through a "Partnership Deed," registration is optional but highly recommended, and partners have unlimited liability.
- Registration Process: Involves drafting a Partnership Deed and submitting an application to the Registrar of Firms.
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Do You Have Any Questions?
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What is the main disadvantage of a Partnership Firm?
The biggest disadvantage is “Unlimited Liability.” This means that partners are personally responsible for all business debts, and their personal assets can be used to pay them off.
How is a Partnership Firm different from an LLP?
A Partnership Firm has unlimited liability and is not a separate legal entity. An LLP (Limited Liability Partnership) offers limited liability to partners and is a separate legal entity.
Is registration of a Partnership Firm mandatory?
No, registration is optional in most states. However, an unregistered firm cannot sue third parties and has other legal disadvantages, so registration is highly recommended.
What is a Partnership Deed?
It is a legal agreement between partners that outlines the terms and conditions of the partnership, such as profit/loss sharing, roles, capital contribution, and dispute resolution.