How to Register a Partnership Firm in India (Process and Fees)

A Partnership Firm is one of the most popular business structures in India for two or more people who want to run a business together. Governed by the Indian Partnership Act 1932, a partnership is based on a mutual agreement between partners to share the profits and losses of a business carried on by all or any of them acting for all. It is widely used by professionals, traders, family businesses, and small to medium enterprises across the country.

Unlike a Private Limited Company or LLP, a partnership firm is relatively easy to set up, requires no registration with the Ministry of Corporate Affairs, and has lower compliance requirements. However, registering the firm with the Registrar of Firms is strongly recommended to gain the legal right to file suits and enforce contractual rights. This guide explains the complete process of setting up and registering a Partnership Firm in India in 2026, including the partnership deed, stamp duty, registration process, PAN and GST application, and ongoing compliance.

What is a Partnership Firm

A Partnership Firm is a business entity formed by an agreement between two or more individuals (called partners) who agree to carry on business together and share its profits and losses. The legal framework for partnerships in India is the Indian Partnership Act 1932.

Key Characteristics

• Formed by agreement: A partnership is created by a contract between partners, either written (partnership deed) or oral. A written deed is strongly recommended for legal clarity and dispute resolution
• Minimum 2, maximum 50 partners: A partnership requires at least 2 partners and can have up to 50 partners (10 for banking businesses)
• Mutual agency: Every partner is both a principal and an agent of the firm. Each partner can act on behalf of the firm and can bind other partners through their actions in the ordinary course of business
• Unlimited liability: Partners are jointly and severally liable for the debts and obligations of the firm. If the firm's assets are insufficient, creditors can claim against the personal assets of any or all partners
• Not a separate legal entity: Unlike a company or LLP, a partnership firm does not have a separate legal identity from its partners. However, it can own property, open bank accounts, and file tax returns in the firm's name
• Profit sharing: Profits and losses are shared among partners as agreed in the partnership deed. If no ratio is specified, profits are shared equally
• Based on trust: The essence of partnership is utmost good faith (uberrima fides). Partners owe fiduciary duties to each other and must act honestly and transparently in all firm matters

Registered vs Unregistered Partnership - Why Registration Matters

While registration of a partnership firm is not legally mandatory in India, operating as an unregistered firm comes with significant legal disadvantages that can seriously impact your business.

Types of Partners in a Partnership Firm

The Indian Partnership Act recognizes different categories of partners, each with distinct rights and liabilities.

Documents Required for Partnership Firm Registration

Before starting the registration process, gather the following documents for all partners and the firm.

Step 1: Choose a Name for the Partnership Firm

Select a meaningful and unique business name for your partnership firm. While there is no formal name approval process like there is for companies and LLPs, following certain guidelines ensures your name is legally safe and professionally appropriate.

Naming Rules and Guidelines

• The name should not be identical or deceptively similar to any existing registered company or LLP on the MCA portal
• Do not use restricted words like Private Limited, Limited, LLP, Corporation, Government, Reserve Bank, Insurance, or words that imply government connections
• Check the trademark registry at ipindia.gov.in to avoid trademark infringement
• The name can include the partners' names (like Sharma and Associates, Kumar Brothers, Patel Trading Co.) or be a standalone brand name
• Choose a name that is easy to pronounce, spell, and remember for better brand recognition

Step 2: Draft the Partnership Deed

The partnership deed is the most critical legal document in a partnership firm. It is the written agreement between all partners that governs every aspect of the firm's operations, decision-making, profit distribution, and dispute resolution.

Essential Clauses in a Partnership Deed

1. Name and address of the firm: Full legal name and registered office address
2. Names and addresses of all partners: Full legal names, father's names, addresses, and PAN details of each partner
3. Date of commencement: When the partnership business officially begins
4. Nature and scope of business: Detailed description of the business activities the firm will undertake
5. Duration of partnership: Whether the partnership is for a fixed term (partnership at will) or for a specific duration or project
6. Capital contribution: How much each partner is contributing in cash, kind, or both, and the terms for additional capital calls
7. Profit and loss sharing ratio: The agreed ratio for dividing profits and losses among partners. If not specified, profits and losses are shared equally under the Act
8. Interest on capital: Rate of interest (if any) payable on partner capital contributions. Usually set at 6 to 12 percent per annum. Under Section 40(b) of the Income Tax Act, interest up to 12 percent is allowed as a deduction for the firm
9. Interest on drawings: Rate of interest charged when partners withdraw money beyond their entitlement
10. Salary and remuneration: Monthly salary or annual remuneration payable to working or managing partners. Must comply with Section 40(b) limits for tax deductibility
11. Duties and responsibilities: Specific roles and responsibilities assigned to each partner in managing the firm
12. Banking authority: Which partners are authorized to operate the firm's bank accounts and to what extent (jointly, singly, or either/or)
13. Decision-making process: How business decisions are made - unanimously, majority vote, or specific partner authority for different matters
14. Admission of new partners: Process and conditions for admitting new partners, including capital requirements and profit-sharing adjustments
15. Retirement, death, or expulsion: Procedure for a partner's retirement, handling a partner's death, and grounds for expulsion. How the retiring or deceased partner's share will be calculated and settled
16. Non-compete clause: Restrictions on partners from engaging in competing businesses during and after the partnership
17. Dispute resolution: Arbitration clause specifying how disputes between partners will be resolved, preferably through mediation or arbitration before approaching courts
18. Dissolution terms: Conditions under which the partnership can be dissolved and how assets, liabilities, and goodwill will be distributed

Step 3: Pay Stamp Duty and Execute the Deed

The partnership deed must be printed or written on non-judicial stamp paper of the value prescribed by the Stamp Act of your state. Stamp duty makes the deed a legally valid document that is admissible as evidence in court.

Stamp Duty Rates by Major States

Execution Process

1. Purchase non-judicial stamp paper of the applicable value from an authorized stamp vendor or through the e-Stamp facility available in most states
2. Print the partnership deed on the stamp paper or attach the stamp paper to the deed document
3. All partners must sign the deed on every page and on the last page in full with date
4. Two independent witnesses must also sign the deed with their names, addresses, and dates
5. Get the deed notarized by a Notary Public. Notarization typically costs 200 to 500 rupees and provides additional legal validation

Step 4: Register with the Registrar of Firms

After executing the partnership deed, apply for registration with the Registrar of Firms (RoF) in the state where the firm's principal place of business is located. Registration is done under Section 58 of the Indian Partnership Act 1932.

Registration Process

1. Fill Form 1 - Application for Registration with details of the firm including name, address, date of joining of each partner, duration of the firm, and principal place of business
2. Attach the executed partnership deed (original or certified copy)
3. Submit an affidavit from all partners certifying that the information in the application is true and correct
4. Attach PAN and Aadhaar copies of all partners
5. Attach address proof of the firm (rent agreement, NOC from landlord, utility bill)
6. Pay the prescribed registration fee (varies by state, typically 500 to 2,000 rupees)
7. Submit the application online (if your state offers online filing) or physically at the office of the Registrar of Firms
8. The Registrar verifies the documents and enters the firm's details in the Register of Firms
9. A Certificate of Registration is issued, typically within 7 to 15 working days

Online Registration Portals by State

Several states now offer online partnership firm registration. Check your state's commercial tax or labour department website for the online portal. For example, Delhi offers registration through the Department of Revenue, Maharashtra through the Inspector General of Registration, and Karnataka through the Department of Stamps and Registration.

Step 5: Apply for PAN and TAN of the Partnership Firm

A partnership firm is treated as a separate assessable entity under income tax law and requires its own PAN card, distinct from the personal PAN cards of individual partners.

How to Apply for PAN

1. Visit the NSDL portal at onlineservices.nsdl.com or the UTIITSL portal
2. Select New PAN - Indian Citizens (Form 49A)
3. Choose the Category of Applicant as "Firm"
4. Fill in the firm's name, date of formation, address, and details of all partners
5. Upload partnership deed, registration certificate (if registered), and identity and address proofs
6. Pay the fee of 107 rupees (for Indian communication address)
7. Submit the application. PAN is issued within 7 to 10 working days

TAN Application

If the partnership firm will be deducting TDS on salary payments to employees, payments to contractors, professional fees, rent, or other specified payments, apply for a TAN (Tax Deduction and Collection Account Number) using Form 49B on the NSDL portal. The fee is 65 rupees. TAN is essential for filing quarterly TDS returns.

Step 6: Register for GST

GST registration is required when the firm's annual aggregate turnover exceeds the prescribed threshold or when the business falls under mandatory registration categories.

When GST Registration is Required

• Annual turnover exceeds 40 lakh rupees for goods or 20 lakh rupees for services (10 lakh in special category states)
• The firm makes inter-state supply of goods or services
• The firm sells through e-commerce platforms
• The firm is required to deduct TDS or collect TCS under GST

GST Registration Process for Partnership Firms

1. Visit gst.gov.in and select Register Now
2. Choose PAN type as "Not Individual" and enter the firm's PAN
3. Complete OTP verification using the authorized partner's mobile and email
4. In Part B, select Constitution of Business as "Partnership"
5. Enter business details including trade name, business activity, HSN/SAC codes, and principal place of business
6. Add details of all partners with their PAN, Aadhaar, photographs, and designations
7. Upload partnership deed, address proof of premises, NOC, utility bill, bank details, and authorization letter designating the authorized signatory
8. Submit the application using Aadhaar-based OTP or DSC of the authorized partner
9. The GSTIN is allotted within 3 to 7 working days

Step 7: Open a Bank Account and Start Operations

Open a current account in the partnership firm's name to start conducting business transactions. A dedicated firm bank account separates personal and business finances and is essential for financial credibility.

Documents for Bank Account Opening

• Partnership Deed (notarized original)
• Certificate of Registration from the Registrar of Firms
• PAN Card of the firm
• PAN and Aadhaar of all partners
• GST Registration Certificate
• Address proof of the firm (rent agreement + utility bill)
• Passport-size photographs of all partners
• Board resolution or authorization letter specifying which partners are authorized to operate the account

Account Operation Modes

When opening the account, decide on the operation mode:

• Jointly: All authorized partners must sign for every transaction
• Either or Survivor: Any one authorized partner can independently operate the account
• Singly: One designated partner operates the account individually

Most partnership firms choose Either or Survivor for flexibility, while keeping checks through the partnership deed's provisions on expenditure limits and reporting.

Tax Structure for Partnership Firms

Understanding how partnership firms are taxed helps you plan your finances, set partner remuneration, and minimize tax burden legally.

Firm-Level Taxation

• Partnership firms are taxed at a flat rate of 30 percent on net taxable income
• 4 percent health and education cess is added, making the effective rate 31.2 percent
• If income exceeds 1 crore rupees, a surcharge of 12 percent applies
• The firm files its return using ITR-5

Partner Remuneration (Section 40(b) Limits)

Working partners can receive salary, bonus, commission, or remuneration from the firm. This is deductible for the firm (reducing its tax) and taxable in the partner's hands. However, the deduction is subject to the following limits under Section 40(b):

Interest on Capital

Partners can earn interest on their capital contributions at a rate agreed in the deed. Under Section 40(b), interest up to 12 percent per annum is allowed as a deduction for the firm. Any interest exceeding 12 percent is disallowed.

Share of Profit

Each partner's share of profit from the firm is exempt from tax in the partner's hands under Section 10(2A) of the Income Tax Act. This is because the firm has already paid tax at 30 percent on its total income before distributing profits.

Annual Compliance Requirements

A registered partnership firm must maintain regular compliance to avoid penalties and maintain its legal standing.

Cost Summary: Registering a Partnership Firm in 2026

Partnership Firm vs LLP vs Pvt Ltd Company

Common Mistakes to Avoid

1. Operating without a written partnership deed: While oral agreements are legally valid, they lead to disputes over profit sharing, capital, and responsibilities. Always execute a comprehensive written deed on stamp paper
2. Not registering with the Registrar of Firms: An unregistered firm cannot sue third parties or enforce its rights through courts. Registration is a one-time process and costs only 500 to 2,000 rupees - there is no reason to skip it
3. Vague partnership deed clauses: Generic or vague clauses about profit sharing, dispute resolution, capital, and exit create problems during disagreements. Be specific about every term and condition
4. Setting partner remuneration above Section 40(b) limits: Excess remuneration is disallowed as a deduction, increasing the firm's tax burden without reducing the partner's tax. Structure remuneration within the prescribed limits
5. Not maintaining separate books of accounts: Mixing personal and firm finances makes tax filing difficult, triggers scrutiny, and creates accounting nightmares. Maintain dedicated books from day one
6. Ignoring changes to the deed and Registrar notifications: When partners join, retire, or when the firm address changes, the deed must be amended and the Registrar of Firms must be notified using the appropriate forms. Failure to update creates legal complications
7. Not considering limited liability alternatives: If the business involves significant financial risk, client-facing liability, or you want to attract external investment, consider an LLP or Pvt Ltd Company instead. A partnership's unlimited liability means your personal assets are at stake
8. Missing advance tax payments: If the firm's tax liability exceeds 10,000 rupees, advance tax must be paid in installments. Missing deadlines attracts interest under Sections 234B and 234C

Dissolution of a Partnership Firm

A partnership firm can be dissolved in the following ways:

• By agreement: All partners agree to dissolve the firm
• Compulsory dissolution: If all partners except one become insolvent, or if the business becomes unlawful
• On happening of an event: If the deed specifies conditions for dissolution (expiry of term, completion of project)
• By notice: In a partnership at will, any partner can dissolve the firm by giving written notice to all other partners
• By court order: A court can order dissolution on grounds of partner insanity, permanent incapacity, misconduct, persistent breach of agreement, or when the business can only be carried on at a loss

Upon dissolution, the firm's assets are sold, liabilities are paid off, and the remaining amount is distributed among partners according to their capital contributions and the terms of the deed. The Registrar of Firms must be notified using Form 5 within 14 days of dissolution.

Conclusion

A Partnership Firm remains one of the most practical and straightforward business structures in India for two or more people who want to run a business together. The registration process involves drafting a comprehensive partnership deed, paying stamp duty, filing with the Registrar of Firms, obtaining PAN and GST registration, and opening a bank account - a process that typically takes 7 to 15 days and costs between 2,000 to 5,000 rupees if done independently.

The most critical step is the partnership deed. Invest time and professional guidance in drafting a thorough deed that covers all scenarios including profit sharing, decision-making, dispute resolution, exit procedures, and dissolution terms. A well-drafted deed prevents future conflicts and protects all partners' interests.

While a partnership firm offers simplicity, low cost, and flexibility, remember that unlimited personal liability is its biggest risk. As the business grows and the financial stakes increase, consider upgrading to an LLP or Private Limited Company for limited liability protection and better fundraising capability.

Need help drafting your partnership deed, registering your firm, or setting up your first business compliance system? Our team at IncorpX can guide you through the entire process and ensure everything is done correctly from the start.