Partnership Firm
A partnership firm is a business structure formed by two or more people who agree to share profits and losses from a business venture. It’s a popular choice for small and medium businesses, especially in India. Here’s a closer look at partnership firms:
Key features:
- Number of owners: Minimum of two partners required.
- Profit and loss sharing: Partners share profits and losses according to a predetermined agreement, which can be equal or based on factors like investment or effort.
- Formation: A partnership deed outlining the rights and responsibilities of each partner is recommended, though not mandatory in all jurisdictions.
- Liability: In a general partnership (the most common type), partners have unlimited liability. This means each partner is personally responsible for the debts and obligations of the business, even if they exceed the amount they invested.
Advantages of a partnership firm:
- Easy to set up: Compared to a corporation, forming a partnership is relatively simple and inexpensive.
- Shared skills and resources: Partners can bring complementary skills and resources to the table, strengthening the business.
- Flexibility in management: Partners can share management responsibilities as they see fit.
- Tax benefits: Partnership profits or losses pass through to the individual partners’ tax returns, avoiding double taxation (taxed at the business and owner level) that corporations face.