The Adventure of Entrepreneurship and its Legal Aspects – II

Kickstarting a Partnership Firm

Now that we have a clear understanding of what a sole proprietorship is, let’s explore the concept of a partnership and registering it with MSME. 

Historically, partnerships were quite common and continue to thrive today. In the past, it was typical for family members, especially brothers, to join forces in business ventures. This practice eventually expanded to include friends as well. In legal terms, this arrangement is referred to as a partnership firm, which is governed by the Indian Partnership Act of 1932. The individual responsible for overseeing the operations is known as the Managing Partner, while the other individuals involved in the business are simply called Partners.

A partnership firm can be established for any type of business or trade. Once the partners choose a name for the firm, they will create a partnership deed and register it with the local Registrar of Firms in the state where they conduct their business. While registering the firm is not compulsory, it can be done at any point in the future if the partners decide to do so. To register a partnership firm, the following documents are necessary: a partnership deed that is properly signed and executed by all partners, and a PAN card in the firm’s name.

A partnership firm requires a minimum of two partners, with a maximum limit of 20, each contributing either capital or expertise to the business operations. Profits generated by the firm are allocated among partners according to a pre-established agreement regarding the distribution ratio.

After successful registration, the firm should apply for a Permanent Account Number (PAN) and a Tax Deduction and Collection Account Number (TAN) from the Income Tax Department.

 It is mandatory for the firm to file an annual Income Tax Return, with a standard tax rate of 30% applied to the Net Profit, along with any relevant surcharges.

Any partnership firm with a turnover exceeding Rs. 40,00,000/- (or Rs. 20,00,000/- for northeastern states) must register for Goods and Services Tax (GST), and those involved in e-commerce or similar activities must do so at the commencement of operations. Additionally, it is compulsory for every partnership firm to register with the Employees’ State Insurance Corporation and submit an annual return.

Registering with MSME (Udyam)

On formation of the Partnership firm, the partners can choose to have the firm registered with MSME (Udyam) which provides for additional benefits. 

A brief overview of MSMEs reveals that they stand for Micro, Small, and Medium Enterprises, which are typically characterized by their smaller operational scale and limited financial resources in comparison to larger companies.

The classification of these enterprises is outlined as follows: a micro enterprise is defined as one where the investment in equipment and machinery does not exceed one crore, and the annual turnover is capped at five crores.

A small enterprise is identified by an investment limit of ten crores in plant and machinery, alongside an annual turnover that must not surpass fifty crores.

In contrast, a medium enterprise is characterized by an investment threshold of fifty crores for plant and machinery, with an annual turnover limit of two hundred fifty crores.

Each category requires adherence to both investment and turnover criteria to qualify as an MSME. 

How to register?

To register a partnership firm with MSME, one must access the designated link and complete the Udyam Registration application by providing the following information:

• Name of Applicant: Enter the name as it appears on the Aadhaar card, along with the corresponding number.
• Types of Organization: Select the appropriate type of organization from the dropdown menu.
• Name of the Business or Enterprise: Input the official name of the business.
• Address of Business: Provide the full address details.
• PAN Number: Enter the PAN number as indicated on the business PAN card.
• Date of Incorporation or Registration: Specify the date when the business commenced operations.
• Mobile Number: Input the mobile number of the business or applicant, as an OTP will be sent to this number.
• E-mail ID: Provide the email address of the applicant.
• Upload Aadhaar Card: Applicants are required to attach or scan a copy of the front side of their Aadhaar card.
• Upload PAN Card: Applicants should also scan and upload a copy of their PAN card. Make an online payment of the registration fees for the application to be processed. If the authorities are satisfied a certificate will be sent to the registered mail.

Benefits of registration: The registration of a partnership firm in MSME offers several advantages, including:

• Discounts on electronic billing services.
• Eligibility to engage in international trade.
• Safeguards against overdue payments.
• Access to online government tenders.
• Opportunities for collateral-free loans from banks and financial institutions.
• Access to lower interest rates on bank loans.
• Companies registered as Udyam MSMEs are entitled to tariff subsidies.
• Various reservation policies are available for the production and manufacturing sectors.
• The Credit Linked Capital Subsidy Scheme (CLCSS) is applicable for MSME or Udyam Registration.
• Udyam registration facilitates expedited processing of registrations, permissions, and permits.
• A 15% import subsidy is available for the purchase of fully automated machinery financed through bank loans.

In the upcoming blog, we will explore the potential for transforming a partnership firm into a Limited Liability Partnership (LLP). This discussion will encompass an explanation of what an LLP is, the process of converting a partnership into an LLP, the advantages associated with LLPs, and the necessary steps for the conversion and registration of an LLP with the MSME