Partners in Business
by Unity is Strength, sometime our business demands a joint effort which we can’t accomplish alone,but there is a dark side of the story which most of us keep away from partnership. understanding the relation, the taxes, the laws all is there to be understand,here we made a effort to make it more clear,advice are welcome.
PARTERS IN GAIN OR LOSS
deLLITTE EXPLAINS THE TAX LAWS OF PRARTNER SHIPS, THE SIMPLEST OF BSINESS AGREEMENTS
tHERE GOES A SAYING uNITY IS sTRENGTH, mANY A TIMES, BUSINESS DEMANDS A JOINT VENTURE OR JOINT EFFORT AND SO AN INDIVIDUAL MAY CONSIDER FORMING A PARTNERSHIP AN UNINCORPORATED JOINT VENTURE LIMITED LIABILITY PARTNERSHIP OR A COMPANY. iN THIS ARTICLE WE WILLL DISCUSS SALIENT FEATURES OF PARTNERSHIP ACT 1932.
A partnership firms in India is governed by the the Partnership Act 1932. A partnership is defined as a relation between persons matually agreeing to share the profits of business carried on by all or any of tem for all.
Invdividually each person a regarded as a partner is regarded as a partner.Any person who is is legally competent to enterinto a contract can enter intgo partner ship, the partnership firm is required to be registered with Registrar of Firms but is is not cmpulsory But non registration has its drawbacks.
The firm cannto take any action in a court oflaw against any third party in a court of law for settlement of claims,
It may not be possible to settle disputes among the partners in a court of law a partner will have unlimited liability ina court of law.
A pertnership can be minumum two and maximum 20 members due to probhibition under the companies Act . A partbnership can be formed for utally agreed duration or unlmited duration.
Partnership at will or for a specific venture with the end of the venture the partnership also ends.
TAXATION OF FIRMS
The income Tax Act 1961 recognise a partenership firm as aseparte person and naot as a passthorough entity, The net income of firm, ccomputed in accordence with the provision of the Act, is taxed at the rate of 30-90 percent, the I-T Act requires the partnership agreement ot specify the profit sharing ratio as well as interest and remuration payable to workng partner, the deduction for such payments is allowed in computiong income of the firm, subject to the specified lmits in the IT Act, the pofit share of parteners is exempt from tax,
Any capital assets contributed by a partner is considered as transfer and subjected to capital gain tax int he hansds of the parner, rfor the same, the amount recordde int eh firm’s hook towards the value of such assets i sdeemed as considetration of the assets,
On disslution, if any asset is distributed to a partner, it si subjected to tax in the frirm’s hand as capital gain and considered ads consideation of the asset distributed, Besides,any change in the consitution of the firm on retirement death or susccccccession will disentitile the firm to set off the loss proportionate to the shar of the outgoing parner, In effect, every partner is jointly and severally laiable towards any tax liability of the firm.
Partnership vs LLP
LLP is governed by the LLP act, 2008 its most important feture is that its members have limited liability towards the LLP, Besides, it is also regarded as a legal entity since it si incorporated under the LLP ACtr, The IT Act Treat an LLP as a partnership firm, the only difference being that an LLP amy be subject to alternate minimum tax tax if ti claims any tax holidday or deduction from growss total income.
Under Proposed Dtc
The direct Tx code (DTC) bill 2010 states that an LLP will regarded as a firm and taxed atg the rate of 30 percent to. BUt DTC does not prescibe any limit for deduction of apyment to a working partner towards interestor remuneration.
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