Mandatory Conditions for a Partnership Firm in India

A Partnership Firm in India is governed by the Indian Partnership Act, 1932. While registration is not mandatory, certain legal and operational conditions must be met for a valid partnership.

1. Minimum Two Partners (Section 4)

• A partnership must have at least two persons to form a firm.
• The maximum number of partners is:
  • 50 (as per Companies Act, 2013).
  • No limit for professional firms (e.g., chartered accountants, lawyers).

2. Valid Partnership Agreement (Partnership Deed)

• A written or oral agreement between partners is necessary.
• A written Partnership Deed is recommended for clarity and legal proof.
• Essential contents of a Partnership Deed:
  • Name of the firm and partners
  • Capital contribution
  • Profit-sharing ratio
  • Rights and duties of partners
  • Dispute resolution mechanism

3. Profit Motive

• The partnership must be formed for lawful business with the intent to earn profit.
• Non-profit organizations cannot be partnerships.

4. Shared Responsibility & Liability (Section 25)

• Partners have unlimited liability, meaning personal assets can be used to pay business debts.
• Each partner is jointly and severally liable for the firm’s liabilities.

5. Mutual Agency (Section 18 & 19)

• Each partner can act as an agent of the firm and bind other partners.
• Any act done by a partner in the ordinary course of business is binding on the firm.

6. Registration (Optional but Recommended) – Section 58

• While registration of a partnership firm is not mandatory, an unregistered firm:
  ❌ Cannot file legal suits against third parties
  ❌ Cannot claim set-off in court
• Registration requires filing with the Registrar of Firms in the respective state.

7. PAN & Bank Account

• A partnership firm must obtain a PAN (Permanent Account Number) from the Income Tax Department.
• A separate bank account in the firm’s name is required for transactions.

8. Taxation & Compliance

• A partnership firm must file Income Tax Returns (ITR-5) annually.
• GST registration is required if turnover exceeds ₹40 lakh (₹20 lakh for services).
• TAN (Tax Deduction & Collection Account Number) is needed if TDS is applicable.

Final Answer

For a valid Partnership Firm in India, these conditions must be met:
✅ Minimum two partners
✅ Partnership Deed defining terms
✅ Profit-sharing agreement
✅ Unlimited liability & mutual agency
✅ Optional but recommended registration
✅ Compliance with tax laws (PAN, ITR, GST, TAN, etc.)