A to Z of Partnership Firm | Registration, Compliances, Partnership deed | Business Basics #3

Summary

In this episode of Business Basics, the host introduces the foundational differences between a sole proprietorship and a partnership, explaining their respective benefits, challenges, and legal requirements. The host also emphasizes the importance of understanding these business structures for aspiring entrepreneurs. The episode guides viewers through the complexities of registering and maintaining these entities while discussing practical insights for new business owners. Additionally, the host invites viewers to engage with the content and vote on the next episode's topic, promising to continue offering valuable business knowledge in future episodes.

Takeaways

• 😀 Business Basics Episode 3 focuses on choosing between an LLP and a Private Limited Company.
• 😀 The speaker emphasizes the importance of understanding legal structures before starting a business.
• 😀 A Private Limited Company (Pvt. Ltd.) is seen as a more formal and structured business model.
• 😀 An LLP (Limited Liability Partnership) offers flexibility with a simpler legal structure than Pvt. Ltd.
• 😀 The episode covers the advantages of both business structures to help viewers make informed decisions.
• 😀 Pvt. Ltd. is ideal for those seeking more control and formal management of their business.
• 😀 LLP is beneficial for smaller businesses or partners who prefer a flexible, informal structure.
• 😀 The speaker discusses the importance of liability protection in both models, especially for the business owner.
• 😀 In terms of taxation, both models have distinct rules and benefits, making tax planning essential.
• 😀 The next episode will discuss either LLP or Pvt. Ltd., based on the viewers’ feedback in the comments section.
• 😀 Viewers are encouraged to check out timestamps in the description for easier navigation of the episode.

Q & A

What is the maximum number of partners in a non-banking partnership firm in India?

A non-banking partnership firm in India can have a maximum of 20 partners.

Can an HUF (Hindu Undivided Family) form a partnership firm?

No, an HUF cannot directly form a partnership firm. Only individuals, legal entities, or companies can be partners in a partnership.

What is the benefit of registering a partnership firm?

The main benefit of registering a partnership firm is the legal ability to file lawsuits in the firm's name. However, many firms choose not to register due to other advantages of unregistered firms.

Is it mandatory to use 'Pvt. Ltd.' or 'LLP' as part of a partnership firm's name?

No, it's not mandatory to use 'Pvt. Ltd.' or 'LLP' in the partnership firm's name unless you are forming a private limited company or LLP. The use of '& Company' is more common.

What is the maximum interest on capital that can be paid to a partner in a partnership firm?

A partnership firm can pay up to 12% per annum interest on capital to its partners.

How is profit distribution decided in a partnership firm?

Profit distribution in a partnership firm is decided based on the partnership agreement (Partnership Deed). The profit-sharing ratio is agreed upon by the partners.

Can a partner withdraw money from the partnership firm? How?

Yes, a partner can withdraw money from the partnership firm through interest on capital, remuneration, or commission. However, the total of these must not exceed the partnership's profits.

What legal compliances are required for a partnership firm in India?

A partnership firm must comply with various regulations such as the Shops and Establishment Act, Professional Tax, Income Tax filings, PAN application, and GST registration if applicable. A tax audit is also required for businesses above certain turnover limits.

What happens if a partnership firm stops its operations but doesn’t formally close?

If a partnership firm stops its operations but doesn’t formally close, it may receive legal notices in the future and could be liable for certain legal obligations.

What is the tax implication of the profit share for a partner in a partnership firm?

The profit share received by a partner in a partnership firm is not taxed in their hands, as the firm itself is responsible for paying taxes on the profits.

What happens when a silent partner withdraws from a partnership firm?

When a silent partner withdraws, the remaining partners must agree on how to handle the withdrawal, including the valuation of the firm’s assets and liabilities. The partner’s exit doesn’t involve shares or a share value like in private companies.

Can partners claim deductions on loans given to a partnership firm?

Yes, partners can claim deductions on loans given to the partnership firm, and interest on such loans is taxable separately from the firm’s profits.

What is the process to close a partnership firm?

To close a partnership firm, partners need to give formal intimation to the concerned authorities. A formal process must be followed to dissolve the firm and handle any pending legal or financial obligations.