Partnership Firm

Advantages of Starting Up as a Partnership Firm

Starting a new business can be exciting yet nerve-wracking. However, choosing a partnership structure can save you some hassle as it is simpler to set up.

Waiting to start up a business but not sure which structure to choose? If a partnership firm is in your consideration, then read this article to know about the advantages of this structure.

While partnership structure is great, you have to understand that each structure comes with its own pros and cons. Different business structures will be suitable for different people based on their goals and the ideas they have for their business.

The most popular business structure is a private limited company. So, many people end up opting for this type of business without much research. However, private limited companies have a lot of formalities involved and might not be suitable for certain small businesses and businesses at the early stages.

Advantages of Partnership Firm

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.

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. You need to keep up with all the compliances throughout the year. 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. So, if you start to grow and need the benefits enjoyed by private limited companies like limited liability or the ability to get investors, you can convert your business.


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 ₹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? Instead, a partnership will only cost you around ₹2000.

Fund Raising:

Partnership firms can easily raise funds when compared to a proprietorship firm. 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 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. 

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. 

These are the major advantages of a partnership firm.

The other significant pro of a partnership firm is that there is no need for Statutory 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 sceptical about starting a partnership business, then you would have got more clarity from the content above. A partnership firm is one of the easiest to set up and if you want to make it easier, you can use Vakilsearch’s partnership firm registration service. Our experts will draft the partnership deed for you and guide you throughout the process.

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