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Clear Comparison between Partnership Firm and Proprietorship in India

Clear Comparison between Partnership Firm and Proprietorship in India

In India, the two most popular and common form of performing business is through a partnership or a proprietorship firm. The Proprietorship Compliance in India is the simplest form of performing business with minimum paperwork and is perfect for businesses that are in initial stages or need less capital. On the other Partnership Firm Compliance is slightly advanced but has a host of benefits on offer compared to proprietorship, which is worth the little extra effort of setting up the partnership.

Key Benefits of a Partnership Firm over a Proprietorship

•          More people mean more capital to function. 2 or more people may fund more money than a single individual.

•          Allows for pooling resources of different individuals with respect to cash, assets, knowledge, labor, etc.

•          The income from the partnership is directly reported on the personal income tax return and does not require a host of compliance at the partnership level

•          Risk and profits are diversified. One individual is not solely held responsible for the losses or profits.

Disadvantages of Considering a Partnership Firm over a Proprietorship

•          Decentralized control with many partners and lesser ability to make quick decisions

•          Conflicts with respect to profit allocation as there is a very slim chance of people contributing equally towards profit generation

•          It does not give protection from unlimited liability and the partners may be responsible for errors committed by one of the partners or for contracts undertaken by the Partnership Firm. This makes it like proprietorship and not much advantageous in case of suits

•          Suitable for young people who are willing to take high risk for high profits

•          We need to register as per the partnership act and need to keep a partnership agreement in place for disputes.

Proprietorship Compliance in India

Proprietorship Compliance is very simple and the least complicated compared to various other alternatives of setting up a business today. It is also the most common way of starting a business in India. Depending on the success and growth, the business transforms into different forms of business entity. There is no need to have a statutory audit if the turnover of a service-focused sole proprietorship is below the threshold Rs 50L. The same threshold of turnover is Rs 100L for businesses focused on goods or tangible products/assets.

The proprietorship does not create any legal entity and hence, all the assets, accounts, etc., are to be held by the sole proprietor. The same should be reported on the individual’s income tax return. Income is taxed at the rate of the pertaining Individual income tax return. GST filing, TDS reporting / return filing, CA Audit, bookkeeping/accounting, personal income tax return filing, etc., could be some services included in Proprietorship Compliance in India.

Partnership Firm Compliance

The Compliance of the Partnership Firm is like the sole proprietor. Except there is some additional effort in accounting and bookkeeping to determine the profit or distribution share. Maintaining / creating or updating the partnership deed based on the changes in the partnership arrangement or setup. The income tax return filing would be for all partners unlike one in proprietorship.

Neusource Startup Minds is a Business Management Consultant Company, offers the best business services like Startup Compliances Package, Bookkeeping and Accounting Services, Limited Liability Partnership Compliances and many other business services.

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