Partnership firm registration: the deed, the process, and whether to choose an LLP instead

Under the Indian Partnership Act, 1932 a partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. The firm is not a separate legal person: the partners are the firm, each is an agent of the others, and each is personally liable without limit for the firm’s debts, including those another partner ran up.

A firm needs at least two partners and may have at most fifty. Individuals, companies and LLPs can be partners; a minor can only be admitted to the benefits. A firm has its own PAN and is taxed separately from its partners.

The partnership deed is the constitution of the firm. It can be oral in law; nobody should rely on that. A workable deed covers:

• The firm name, the business, the principal place of business and the date of commencement.
• Each partner’s capital contribution, and whether further capital can be called.
• The profit and loss sharing ratio.
• Interest on capital and on partners’ loans, and remuneration to working partners. These are deductible for the firm only if the deed authorises them, within the limits of section 40(b).
• Who operates the bank account, who can borrow, and the decisions that need every partner’s consent.
• Admission, retirement, expulsion and death of a partner, the valuation of the outgoing share and goodwill, and how it is paid out.
• Non-compete and confidentiality obligations during and after the partnership.
• Dispute resolution, usually arbitration, and the process of dissolution.

The deed is executed on stamp paper of the value the state’s Stamp Act prescribes, usually linked to the capital, and signed by all partners. If the deed is silent, the Act fills the gaps: equal profit shares whatever the capital, no salary, no interest on capital, and 6 percent interest on partners’ loans.

The Act does not require a firm to be registered. Section 69 makes the choice for you: an unregistered firm cannot sue a third party to enforce a right arising from a contract, a partner of an unregistered firm cannot sue the firm or the other partners, and the firm cannot claim a set-off above ₹100. Third parties can still sue the firm. In practice, banks, large customers, government tenders and many licences ask for the certificate of registration, and a firm can register at any time, including before filing a suit.

1. Apply to the Registrar of Firms of the state where the firm has its principal place of business, in the state’s prescribed form (Form 1 in most states), online in states that offer it.
2. Attach the certified deed, the partners’ identity and address proofs and photographs, and proof of the place of business.
3. The application is signed and verified by all partners and the fee, which is nominal, is paid.
4. The Registrar enters the firm in the Register of Firms and issues the certificate of registration.

Later changes in the name, the place of business or the partners are intimated to the Registrar. Separately, the firm applies for a PAN and TAN, opens a current account, and takes GST, Shops and Establishment, professional tax and Udyam registration as the business requires.

A firm pays income tax at 30 percent, plus a 12 percent surcharge where total income exceeds ₹1 crore, plus 4 percent cess. There is no slab and no basic exemption. The partners’ share of the firm’s profit is exempt in their hands.

Interest on partners’ capital is deductible up to 12 percent a year. Remuneration to working partners is deductible up to the limits of section 40(b), raised from assessment year 2025-26: on the first ₹6 lakh of book profit, ₹3 lakh or 90 percent of the book profit, whichever is higher, and 60 percent on the balance. Both are taxed in the partner’s hands as business income. From April 2025 the firm must also deduct tax at 10 percent on salary, remuneration, interest, bonus or commission to a partner above ₹20,000 a year, under section 194T.

The firm files ITR-5 by 31 July, or by 31 October where a tax audit applies, and can use presumptive taxation under sections 44AD and 44ADA if it is a resident firm other than an LLP.

A firm suits a small, low-risk business among people who trust each other and want the lightest compliance and presumptive taxation. An LLP suits anything where a customer, an employee or a lender could bring a claim large enough to reach the partners’ homes. The process and cost are in our LLP registration guide, and a firm can convert to an LLP later.

Our partnership registration service drafts the deed, registers the firm and obtains the PAN.