If you’re looking for a new, creative way to grow your business, then partnership firm registration might be the perfect option. However, before committing to the process of filing with the government and preparing yourself for taxes and other challenges that come along with this type of enterprise, it’s essential to get familiar with some of its most important lessons. In this post, we’ll break down five things you should know before registering your own company or partnering up with someone else’s.
Let’s take a look at these five lessons.
1. Never choose a partner impulsively
When you choose a business partner, make sure you know them well and spend enough time with each other. Of course, there is no such thing as knowing everything about someone after spending just a few hours or days, but still, it’s better to be cautious before making the final decision on partnership. It takes even more than that when we talk about family members because if something happens between both of you, then another person who has nothing to do with your life will be dragged into trouble. The good news is that there are ways to determine the compatibility of two people by following some simple steps which will help you figure out if they’re right for each other or not before spending time, money, and energy on them. Make sure that you go through all the compatible tests before starting a partnership with someone.
2. Partnership Registration Is Necessary
Partnership registration is necessary for carrying out routine business activities. It offers protection from liability and helps gain the credibility of the firm at the regional and national levels.
The below are the fundamental elements of a well-drafted and balanced deed:
- The partnership’s name should ideally be distinctive and creative to stand out among the target audience/market.
- Contribution of Partners: It might be in the form of real estate, services, or money. Their estimated value, as well as the partners’ ownership percentages
- Allocation of profit and loss: Information about the profit and loss divisions
- The Authority of Partners: It addresses many elements of decision-making and specifies who has the last say. If any decision requires a majority vote or unanimous approval, the deed should state so.
- Management responsibilities: Splitting up duties between me is an ideal action.
Conflict settlement: Precise details on dispute resolution systems must include ADR or court-ordered resolution.
3. Consider forming an LLP
Before you go forward with your LLP, it is essential to consider the kind of business run. It will help you understand if this form fits best for your company or not. If a partnership firm has more than two partners, there must be an agreement among them about how much each partner can invest in the company and what would happen if one leaves before allocating their share of the equity. The same case goes for those who have invested money into buying assets for the firm as well. Legal requirements:
In India, any LLPs should have at least two partners, which makes it very different from a Company where typically do need a minimum of three people to register themselves as Director/Manager/Incharge, etc. for the company. You can also opt for LLP if you want to maintain the privacy of your business since it is not mandatory in LLPs to name each partner and share their details with all other partners or any third-party companies, whereas Company needs this information.
Legally binding agreements between firm’s owners that will be considered proof by law during disputes among LLC members or external investors.
4. Wisley Decide The Capital Distribution
Before you start to form your business, the share of capital between partners must be clarified. It would be best to decide how much money each partner will contribute and what percentage of income they receive from the company in return for their investment. The share of capital is usually based on the amount each partner invests, including profit sharing and contribution to company expenses.
Suppose you haven’t already determined how much money will be invested into your business. In that case, it should take priority over other decisions that must be made before registration (such as what type of partnership firm to form).
5. Plan An Exit Strategy
First and foremost, you need to plan an existing strategy before registering a firm. This means that if, for some reason, your business fails, what will happen? What assets are available in the business name, and what needs to be done with them? You must also know how much money is required or can be made from the sale of these assets. If there is no existing strategy, you might lose everything left after paying off all debts, which may include unsecured loans.
The Bottom Line
If you are considering opening a business, it’s essential to know your first step. While there is no single correct answer for everyone, here are some things that will help guide you as you make this significant decision.