A Partnership Firm is a business structure where two or more persons or an association of people own, manage & operate a business in accordance with the terms and objectives stated in the Partnership Deed. It is thought to have lost its relevance since the introduction of the Limited Liability Partnership (LLP) because in partnership, the partners are liable for the debts of the business due to unlimited liability. However, being inexpensive, the ease of setting up and fewer compliance formalities make it a practical option for some.
A partnership firm is considered ideal for micro and small-scale business which have multiple promoters.
Also, General Partnerships can be either registered or unregistered. Though it is not mandatory to register a Partnership firm, it is preferred to register a Partnership firm due to the added benefits.
The registration of the partnership firm is not mandatory, hence making it easy to start business as there are no legal formalities involved. However, an unregistered firm will lack certain legal benefits. The Registrar of Firms is responsible for partnership firm registrations.
The appointment of an auditor or if the partnership firm is unregistered, filing annual accounts with the registrar is not required. General Partnerships need not file Income Taxes & depending on its turnover, service and sales tax is also not required. Compliances are much fewer as compared to a LLP.
A partnership firm is less inexpensive to start unlike LLP, and even in the long run, due to the lesser compliance requirements, is inexpensive, i.e. an auditor may not be hired. Despite its severe shortcomings (unlimited liability), small businesses may go for it.
A Partnership firm need not file its annual accounts with the Registrar of Companies unlike a LLP or a Company each financial year.