Advantages of Starting Up as a Partnership Firm

Last Updated at: Oct 30, 2020
Advantages of Starting Up as a Partnership Firm
On 22nd September, 2020, the Indian parliament passed a bill to amend the Companies Act, 2013. Among other provisions, this amendment seeks to decriminalise various compoundable offences by small companies, partnership firms, and LLPs. This is expected to reduce the litigation burden on them. However, it says matters related to fraud, deceit, and injuries to the public interest will be dealt with ever so firmly.


If you want to start a business, then you might have many ideas. But not all these business ideas will work out and turn successful. And, in some cases, you might need financial support to start a private limited company. In that case, you can opt for a partnership business and here you will get to know the advantages of doing so.

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As an entrepreneur, you will have many ideas for a business. You won’t try all of them, and there’s a good chance some of them won’t even get off the ground. So while there needs to be room for optimism while starting all businesses, it is sometimes naive to simply go ahead and start that private limited company. If you believe this is the situation you and your partners are in, a partnership may just be the right move. Let’s list the reasons:

Easy to Start: 

A partnership doesn’t require all the formalities needed when starting a private limited company or limited liability partnership. It just needs the partnership deed on stamp paper; you can register it, which is only a day’s work, but even this is optional and honestly unnecessary this early in your business.

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Power to Make Decisions:

Decision making is one of the most important and powerful aspects of running an organisation. With multiple perspectives and excessive knowledge, making decisions in a partnership firm can be very effective. The decision making also extends to transaction-related ones. One can decide on behalf of the partner or vice versa. 

Convenient to Dissolve: 

A private limited company can only be closed after a full year is up. Does any business follow this logic? And it takes over a year to then close a company. A partnership can be closed very easily through dissolution.

Conversion to Private Limited: 

Starting out as a partnership doesn’t mean you can’t switch. There are specific procedures to enable conversion to a private limited company or any other type of business entity.

No Compliances: 

At the start of your business, you don’t want to be saddled with compliance work. You just want to focus on your business. With a private limited company, there’s always something else in the way (unless you hire someone to handle this for you). With a partnership, you don’t have this hassle.

Cheap to Set-up: 

A private limited company will cost you Rs. 15,000 just to start, and then there are compliance and auditor’s fees. Do you want all this baggage when you’re just starting out? If you’re only experimenting, you wouldn’t. Instead, a partnership will only cost you around Rs. 2000.

Fund Raising:

Partnership firms can easily raise funds when compared to a proprietorship firm or others. Multiple partners mean multiple sources of contribution. Furthermore, banks also have a favourable viewpoint toward partnership during the credit sanctioning process.  

Ownership and Accountability:

In spite of sharing the ownership with multiple parties, every individual partner is an owner. They own and manage the firm and its activities. They might have varied tasks but they all work for a common cause. Their tasks might be varied in nature but people in a partnership firm are united for a common reason. Also, the owners get to share their work burden with one another. Being in a group, people tend to work together and diligently. The sense of accountability is also highly witnessed in this situation.  

Sharing Risks:

With partners on board, it becomes easier to share the risks, if any. Not only does the risk get equalised between each partner but also, the trouble of handling it becomes balanced among individuals.

No Annual Returns and Statutory Audit:

A partnership firm need not submit an annual return to the Ministry of Corporate Affairs. The firm does have to fulfil various compliance requirements in the Limited Liability Partnership. 

The other significant pros of a partnership firm are that there is no need for Statuary Audit. Hence the firm need not get its account audited. Whereas the same book could be required by the Income Tax Department to fulfil the requirements of the Income Tax Act. 

If you were skeptical about starting a partnership business, then you would have got more clarity from the content above. Well, it will be easy to start the business as there are not many formalities involved in starting the company as a limited liability or private limited company. If you have more doubts, then you can approach aa legal expert to get your doubts answered.