Proprietorship Firm
In the case of proprietorship firm, there is no registration required. As there is no procedure to make application for availability of name (as in the case of companies) applicable, you simply have to open a bank account with the name & style you want to work. Further, for sole proprietorship, no separate income tax PAN is required. The PAN of the proprietor will be the PAN of the firm and proprietor will have to file income tax return in his personal name.
Partnership Firm
A Partnership is defined by the Indian Partnership Act, 1932, as ‘the relation between persons who have agreed to share profits of the business carried on by all or any of them acting for all’. This definition gives three minimum requirements to constitute a partnership, viz.
- there must be an agreement entered into orally or in writing by the persons who desire to form a partnership;
- the object of the agreement must be to share the profits of business intended to be carried on by the partnership; and
- the business must be carried on by all the partners or by any of them acting for all of them.
A partnership firm is required to be registered under sections 58 and 59 of the Partnership Act, though not compulsory. The main handicap being that a partnership firm or its partner cannot file a suit against a third-party.
Every change in the constitution of a partnership is also required to be registered. But if it is not registered, then there are certain handicaps stated in section 69 of the Act.
For the purpose of income tax benefits it is necessary to register a partnership with the Department under S. 184 and S.185 of the Income Tax Act, 1961.