What is Partnership Firm?

A partnership firm is a business owned by two or more people under a partnership deed, in which the partners share profits and bear unlimited joint liability for the firm's debts.

Registration with the Registrar of Firms is optional but heavily advisable: an unregistered firm cannot sue to enforce a contract, though it can still be sued.

The deed governs profit sharing, capital, admission and retirement of partners. Without one, the Indian Partnership Act's default rules apply, including equal profit sharing regardless of capital contributed.

Why it matters

Unlimited liability is joint and several — one partner's business debt can be recovered in full from another partner's personal assets.

The statutory position

Each figure with the provision it comes from, so it can be checked.
What	Position	Source
Governing statute	Indian Partnership Act 1932	Act IX of 1932
Registration	Optional, but an unregistered firm cannot sue to enforce a contract	Section 69, Indian Partnership Act 1932
Maximum partners	50	Rule 10, Companies (Miscellaneous) Rules 2014
Income tax rate	30% plus surcharge and cess	Finance Act, rates for firms
Partner remuneration ceiling	₹3,00,000 or 90% of the first ₹3,00,000 of book profit, then 60% of the balance	Section 40(b), Income-tax Act 1961

Not to be confused with

These get used interchangeably, including by tools that should know better. They are different things.

LLP

An LLP is a body corporate with limited liability and MCA filings. A partnership firm is not a separate legal person, and each partner is liable for the whole of the firm's debts.

Joint venture

A joint venture is a contractual arrangement for a specific project. A partnership is an ongoing business carried on in common, and the Act applies to it whether or not anyone intended that.

Questions people ask

Is an unwritten partnership valid?

Legally yes — but it is then governed by the Act's defaults, which share profits equally regardless of what anyone contributed and dissolve the firm when any partner leaves. Almost no set of partners actually intends either outcome.

What does section 69 really prevent?

An unregistered firm cannot file a suit to enforce a contractual right against a third party, and a partner cannot sue the firm or the other partners. It can still be sued. The disadvantage runs entirely one way.

What usually goes wrong

Operating on an oral understanding until there is money to argue about
Not registering, and losing the ability to sue on the firm's own contracts
Paying remuneration above the section 40(b) limit, so the excess is disallowed
Omitting the retirement and death clauses, so a partner leaving dissolves the firm