Registration of Partnership Firm: A Detailed Analysis

CS Krishne Gowda C

Evolution of the concept of Partnership & enactment of law:-

Until the Indian Law of Partnership came into force, the Indian Courts used to deal with disputes between business partners in accordance with the customs and usages then prevalent in the country.

PRIOR TO 1932, the law of partnership was contained in Chapter XI of the Indian Contract Act, 1872.  The provisions contained in this Chapter was subsequently found to be inadequate and led to the enactment of the INDIAN PARTNERSHIP ACT which became the foundation of innumerable enduring business partnerships in the country.

THE INDIAN PARTNERSHIP ACT was passed in the year 1932 and came into force with effect from 1^st day of October 1932, except Section 69 (effect of non-registration), which came into force with effect from 1^st day of October 1933.

Considering the year in which it came into force, the Indian Partnership Act, 1932, is now running in its 91^st year.

Presently, there are 74 (Seventy Four) Sections, divided into 8 Chapters and 2 (Two) Schedules in the Indian Partnership Act, 1932.

The Indian Law of Partnership is based on the English Law of Partnership Act of 1890, or popularly called Partnership Act 1890.

Concept of Partnership:-

Partnership involves a contract between the partners to engage in a business with a view to earn profit.  As agreed each partner contributes either in cash or in kind.

To put in simplest form, a partnership is an agreement between two or more persons.  It need not be in writing or registered and may be oral.  (It is always advisable to have a written partnership deed to avoid many legal constraints and to enjoy the legal position, as discussed herein under).

However, the consequences of non-registration are laid down under Section 69 of the Partnership Act which are discussed under commentary to that Section.

Concept of Partnership Firm:-

The Collective name for the individuals, who constitute the partnership and the name & style under which they carry on business activities of the partnership.

Concept of Partnership Deed:-

Partnership Deed is the first written document of any partnership firm.

The Partnership Deed is considered as the MAGNA CARTA of the Partnership Firm as it contains all the details, specifications, roles, responsibilities, duties of each partner, profit sharing ration, nature of the work, etc., are embedded in the Partnership Deed itself.

Essentials of a Partnership:-

a) There must be two or more individuals/persons;

b) There must be an AGREEMENT entered into by all the parsons concerned;

c) Such agreement must be to share the profits of the business; and

d) Such business must be carried on by all or any of them acting for all.

e) It need not be in writing or registered and may be oral.

Once again hereby reconfirming that;

– A partnership NEED NOT BE IN WRITING;

– A partnership NEED NOT BE REGISTERED; and

– A partnership may be ORAL.

If any agreement is there, such agreement in any partnership is called “Partnership Deed” or “Deed of Partnership” which must be in writing.

It is always advisable to have a written partnership to avoid many legal constraints and to enjoy the legal position, as discussed herein under.

Now, the main topic of my discussion is REGISTRATION OF PARTNERHIP FIRM.

REGISTRATION OF PARTNERSHIP FIRM:-

Registration of Partnership Firm means Registration of Partnership Deed with competent authorities (usually REGISTRAR OF FIRMS) of the respective State(s) in which the said partnership deed is executed on requisite stamp paper or payment of stamp duty.

Presently, there are 74 (Seventy Four) Sections in the Indian Partnership Act, 1932.

Sections 56 to 70 deals with Registration to Partnership firm under the Chapter VII and the said sections are presented here for easy and quick understanding:-

Types of Partnership:-

Partnership on the basis of GENERALITY:-

1. Partnership at Will: In this case, the Partners of the firm can dissolve the firm at any point of time, after following the due course of the Act.

2. Particular Partnership: A Partnership is established with a motive to carry out a specific and explicit undertaking. Further, whenever a partnership firm is established for a contract-based project or for one particular business only, then they are known as the particular partnership. Moreover, this type of partnership comes to an end once the objective for which it was made is achieved. However, it is noteworthy to note that the discretion of the partners also plays a significant role here. This means if the partners want to continue the said partnership, they can modify and extend the agreement between them for the same.

Partnership on the basis of REGISTRATION:-

1. Registered Partnership: The Partnership that is registered by the Registrar having jurisdiction under the provision of the Indian Partnership Act, 1932, is considered the Registered Partnership.

2. Unregistered Partnership: An unregistered partnership firm is formulated just by executing an agreement among the partners. Further, obtaining Registration of a partnership firm is optional. However, it is always advisable to get the said partnership firm registered, as in the case of an unregistered partnership, partners are not to sue the third party but are eligible to get sued.

REGISTRATION OF A PARTNERSHIP FIRM:-

Meaning of the registration:-

As stated hereinabove, registration of a Partnership Firm means Registration of Partnership Deed with competent authorities.

Time limit within which a Partnership Firm needs to be registered:-

U/s 58 of the Indian Partnership Act, 1932, a firm may be registered AT ANY POINT OF TIME during the continuance of partnership (not necessarily at the time of its formation) by following the procedure herein under given.

Requirement of Registration; whether it is Compulsory or Voluntary:-

The registration of a partnership firm is not compulsory under Part VIII of the Indian Partnership Act, 1932.  Its purely an optional for partners to get the firm registered.  Further, there are no penalties for non-registration of firm.

Law(s) governing the Registration of a Firm:-

The registration of a firm is guided & governed by the Indian Contract Act, 1872 and the India Partnership Act, 1932.  The reason why the Indian Contract Act, 1872 guide the registration of a partnership firm is where the firm intends to file a case in the court to enforce its rights arising from a Contract, the registration SHOULD be done before filing the case.

Status of Registered Firm:-

A registered firm enjoys legal position (brings many advantages) in comparison to un-registered firm.

DOCUMENTS REQUIRED FOR PARTNERSHIP FIRM REGISTRATION

Following are very important documents required for Partnership Firm Registration:

1. An Application in Form-1for Registration (in two sets, duly signed by all the partners & witnessed by an Advocate, or a Company Secretary, or a Chartered Accountant or a Notary);

2. A Partnership Deed (True copies in two sets, as “drafted by me” by an Advocate, or a Company Secretary, or a Chartered Accountant or a Notary or a registered Deed Writer);

3. Address proof (self-attested copies of Aadhaar card & PAN Card of the partners);

4. Principal place proof of business of the Firm (Lease/Rental Agreement or Ownership Documents & ensure the correct stamp duty is paid ad valorem on rent & advance mentioned in the rental/lease agreement); and

5. Specimen of an affidavit certifying all the details mentioned in the Partnership Deed & Documents are correct (as demanded in few States);

Note: In case the Registrar is satisfied with the documents, he or she will register the Firm in the Register of Firms & issue a Certificate of Registration.

PROCEDURE FOR REGISTRATION OF A PARTNERSHIP FIRM:-

Section 58: Application for Registration:-

STEP:1: Application to Registrar:-

An application in Form-1 (in few States its Form-A), duly signed by all the partners (or their authorized agents), and all other prerequisite documents shall be made before the Registrar of Firms of the respective State in which the registered office of the firm situated along with prescribed fees.

The application can also be sent to the Registrar of Firms through post.

It may be noted, many State Governments have made the process of submission of application in Form-1, online.

The main contents of the application in Form-1 are;

a) The firm name;

b) The place or principal place of business of the firm;

c) The names of any other places where the firm carries on business;

d) The date when each partner joined the firm;

e) The names in full and permanent addresses of the partners; and

f) The duration of the firm.

STEP: 2: Selection of Name of the Partnership Firm:-

The firm name given to the Registrar of Firms, should not be too similar or identical to an existing firm doing the same business.  The name should not contain words like emperor, crown, empress, empire or any other words which show sanction or approval of the Government.

STEP: 3: Certificate of Registration (a conclusive proof):-

If the Registrar is satisfied with the registration application and the documents, he will register the firm in the Register of Firms and issue a Registration Certificate. The Register of Firms contains up-to-date information on all firms.

Section 66:- INSPECTIONS OF REGISTER AND FILED DOCUMENTS:- 

Once the name of a partnership firm entered into the Registrar of Firms, all the documents submitted to the Registrar of Firms become PUBLIC DOCUMENT and anybody can inspect/view them upon payment of certain fees.

IMPORTANCE OF REGISTERING A PARTNERSHIP FIRM:-

Under the provisions of the Indian Partnership Act, 1932, the registration of a partnership firm is optional and not compulsory.  It is at the discretion of the partners. The firm’s registration can be done at the time of its formation or incorporation or during the continuance of the partnership business.

However, it is always advisable to register the partnership firm as a registered firm enjoys certain special rights and benefits as compared to the unregistered firms. The benefits that a registered partnership firm enjoy are:

(1) Power to file case in a Court by a partner against the firm or other co- partners:-

A partner can sue against any partner or the partnership firm for enforcing his rights arising from a contract against the partner or the firm. In the case of an unregistered partnership firm, partners cannot sue against the firm or other partners to enforce his right.

However, a criminal proceeding can be brought by a partner of an unregistered firm against the other partner(s). Thus, if a partner steals the property of the firm or puts fire to the buildings of the firm, any partner can prosecute him for the same.

(2) Power to file case in Court by firm against 3rd parties:-

The partner(s) of a registered firm can file a suit against any third party for enforcing a right from a contract.  In the case of an unregistered firm, it cannot file a suit against any third party to enforce a right.

It should, however, be noted that although an unregistered firm cannot file case against 3rd party, the 3rd party always has the power to file a case against both registered as well as unregistered firm.

(3) Power to claim set-off:-

A registered firm can claim set-off or other proceedings to enforce a right arising from a contract. The unregistered firm cannot claim set off in any proceedings against it.

Keeping the above benefits/advantages in registering a partnership firm it is always advisable to get a partnership firm registered.

Section: 69:- EFFECT OF NON-REGISTRATION:-

1) No suit against partners and firms:-

Unregistered firm cannot sue the firm or any partner(s) of the firm to enforce a right arising from the contract or conferred by the Partnership Act.  He can do so only if the firm is registered and the person suing is shown as a partner in the register of firms.

2) No suit against any third party:-

An unregistered firm cannot sue a third party to enforce a right arising from a contract. The firm can only do so if the firm is registered and the person suing is shown as a partner in the register of firms.

3) No right to counter claim or to claim set-off:-

An unregistered firm or any partner thereof cannot claim set-off in the proceedings instituted against a firm by a third party to enforce a right arising from a contract. Set-off means a claim by the firm which would reduce the amount of money payable to the claimant.

REGISTRATION OF PARTNERSHIP FIRM UNDER DEFFERENT ACTS:-

For the easy and quick understanding, hereby an attempt has been made to put the things in a tabular form.

PROCEDURES FOR ALTERATION TO THE REGISTERED PARTNERSHIP FIRM:-

A partnership firm registered as per section 59, may come across, during the continuance of the business, for any alterations to the registration details.  In such circumstances, the following are the procedures to be followed.

For the easy and quick understanding, hereby an attempt has been made to put the things in a tabular form.

Note:

√ The Fees payable for registration & alteration, at the Office of the Registrar of Firms varies from State to State, as the stamp duty falls under the State List of the Indian Constitution.

√ Application for recording changes in the register of firm can be sent by post – M/s. Harijan Book House Vs Registrar of Firms, AIR 1988 Guj. 188 1988 Guj L. R. 11. 1988 (1) GLH 1.

Biblography:-

1. The Indian Partnership Act, 1932, Bare Act with short comments, by Professional’s [Professional Book Publishers], 2022.

2. Law of Partnership in India, By Sri S D Singh & Sri. J P Gupta [Puliani & Puliani].

3. Formation, Management & Taxation of Partnership Firms & Partners, 2022, by Sri. Ram Dutt Sharma,Commercial Law Publishers (India) Pvt. Ltd.

4. https://igr.karnataka.gov.in/new-page/Registration%20of%20Firms/en

5. https://rera.karnataka.gov.in

6. https://www.indiacode.nic.in/handle/123456789/2394?view_type=search&sam_handle=123456789/1362

7. https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf