Requirements and Procedure for Registration of Partnership Firms under Partnership Act

INTRODUCTION

As per Section 4 of the Indian Partnership Act, 1932 partnership is the relation between persons who have agreed to share profit of a business carried on by all or any one of them acting for all. Persons who have entered into partnership with each other are individually called partners and collectively they form a firm. The name under which their business is carried on is called the firm name.

When more than one person wants to do a business together, they can start their business by creating a partnership firm. Registration of partnership firm means filing of partnership deed with registrar of firms. To get a partnership firm registered is optional except for the states of Gujarat and Maharashtra. Partnership firm is registered with registrar of firms who is appointed by state government. Different states impose different stamp duty on partnership deed and therefore, partners must purchase stamp paper of appropriate value as may be applicable in respective state. The stamp duty on the deed is based on the capital of the firm. A registered firm is a legal person. Minimum 2 persons are needed to become partners of the firm and maximum 100 persons are permitted. Capital is based on the business requirement therefore; no minimum capital is required in a partnership firm.

In case of the dissolution, the whole firm is dissolved. The partnership terminates between each and every partners of the firm. But when only one or more partners retire or become incapacitated from acting as a partner due to death, insolvency or insanity, the partnership between such partners and other is dissolved but others may decide to continue. It is called dissolution of partnership. Dissolution of partnership does not affect continuation of business. It involves only re-constitution of the firm and requires re-evaluation of asset and liabilities of the firm. Dissolution of partnership does not involve final closure of the books.

STEPS/PROCEDURE FOR REGISTRATION OF PARTNERSHIP FIRM

Section 58 states that-

1. an application should be submitted in a prescribed form to the registrar of firms. The submitted application should contain the following particulars-

1. Name of the firm
2. Location of the firm
3. Name of all other places where the business is carried out by the firm
4. Names and addresses of the partners in the firm
5. Duration of partnership
6. The date of joining of each partner of the firm

The application should be signed by all the partners.

2. The required fee is to be deposited to the registrar of firms.
3. After approval of the application, the registrar issues certificate of registration.

However, registration is deemed to be completed as soon as an application with the prescribed fee and in prescribed form with necessary details concerning the particulars of the partnership is delivered to the registrar. The recording of an entry in the register of firms is a routine duty of registrar. Registration may also be effected even after a suit has been filed by the firm but in that case, it is necessary to withdraw the suit first and get a firm registered and file a fresh suit.

Section 59- If registrar thinks that the provisions of section 58 have been duly complied with, he shall record an entry of the statement in a register called register of firms and shall file the statement. If the statement of any firm is not sent to the registrar within specified time as specified in sub section (1A) of section 58, the firm may be registered after payment of penalty of rupees hundred per year for the delay of its registration.

ESTABLISHMENT OF PARTNERSHIP FIRM

To establish a partnership firm, partnership deed in writing is to be created. Though as per the partnership act, the partners may also orally enter into partnership agreement. But in my opinion, it would be better to note down the terms and conditions and get the partnership firm registered on a stamp paper. Partnership deed is the constitution of the firm which determines the relationship of the partners with the firm as well as relationship of the partners amongst themselves.

CONTENTS OF PARTNERSHIP DEED

1. NAME OF FIRM-

The name of the firm should not be similar to the name of the other firm or company. So, we must be cautious while deciding the name of the firm and the nomenclature must be unique. If the name of the firm is similar to the firm which already might have got its trademark registered may file a suit in future claiming that you cannot run the business with the same name because in such a case the business of the claiming firm might be hampered. Name of the firm shall not contain any of the following words- King, Queen, Emperor, Royal, Empress, Crown etc. or words implying the sanction, approval or patronage of the government except when the state government signifies it’s consent to the use of such words as part of the firm name by order in writing.

2. OBJECT OF THE FIRM-

All the business or object which the firm enters into or deals with will have to be specified and should be clearly mentioned in the partnership deed.

3. PLACE OF BUSINESS-

The address of the office of the firm has to be clearly mentioned in the deed.

4. NAMES AND ADDRESSES OF PARTNERS-

Names and addresses of all the partners working with the firm are needed to be mentioned.

5. DATE OF COMMENCEMENT-

The date on which business is going to commence is also required to be mentioned in the deed.

6. DURATION OF PARTNERSHIP-

It can be defined on the basis of the will of the partners. Till the time partners of the firm want to continue with the firm they can do so as per their own choice. Duration of partnership also depends on the completion of the project for which the partnership is created, if so created.

7. CAPITAL CONTRIBUTION-

Initial capital contribution by each partner is to be stated in the partnership deed. If the partners have equally contributed then all the partners will be entitled to receive equal profits and if any of the partner contributes more capital to the firm then such partner is entitled to receive more profits as compared to other partners of the firm.

8. PROFIT & LOSS SHARING RATIO-

The profit and loss sharing ratio as decided amongst the partners is to be mentioned means in what proportion the profit earned by a firm is divided amongst the partners or in what proportion the loss occurred is shared by the partners. Generally, the partner who invests more capital is entitled to more profit.

9. RATE OF INTEREST ON CAPITAL INVESTMENT-

The rate of interest on capital investment should be specified and the rate of interest charged on withdrawal of amount should also be specified.

10. SALARY, COMMISSION TO PARTNERS-

Salary and commission provided to the partners of the partnership firm have to be specified in the partnership deed.

11. RESPONSIBILITY AND DUTIES OF PARTNERS–

Responsibilities and duties of the partners working with the firm is to be defined clearly as per the departments allotted to them so that there is no confusion regarding the roles of the partners.

12. METHOD OF PREPARING ACCOUNTS AND AUDIT–

This is also required to be stated in the deed.

13. RULES OF DEATH, RETIREMENT OR ADMISSION-

Rules regarding death, retirement or admission of any partner are to be specified in the deed.

Section 70- PENALTY FOR FURNISHING FALSE PARTICULARS

If the information provided to the registrar is incomplete and misleading than in this penalty under section 70 may be imposed on the partnership firm for making false declaration and such penalty may include punishment which may extend to imprisonment for 3 months or with fine or with both.

CONSEQUENCES OF NON-REGISTRATION OF PARTNERSHIP FIRM

1. As per section 69 unregistered firm cannot file any case in any court.
2. No relief is available to the partners for set-off of claim.
3. Aggrieved partner cannot bring legal action against the firm or other partner of the firm if the firm is not registered.
4. The third party can file a suit against an unregistered firm.

EXCEPTIONS IN WHICH RIGHTS ARE NOT AFFECTED ON NON-REGISTRATION OF FIRM-

1. The right of partners to sue for the dissolution of the firm or for settlement of the accounts of a dissolved firm or for realization of a property of the dissolved firm.
2. The right to claim a set-off or sue if value of suit does not go beyond rupees hundred in value.
3. The right of third parties to sue the partner or any firm.
4. The power of receiver of court to release the property of the insolvent partner and the power of official assignees to bring an action.

CASE LAWS-

1. SHARAD VASANT KOTAK & OTHERS V. RAMNIKLAL MOHANLAL CHAWDA & ANOTHER

It was held that on the induction of the second respondent, the existing firm was only reconstituted as per the facts of this case and therefore, it is not necessary to get a fresh registration.  The suit in question was not hit by section 69(2A) of the Act and the Appeal was dismissed. There was no order as to the cost.

2. V. SUBRAMANIAM VS. RAJESH RAGHUVANDRA RAO, 2009

Sub-section 2A of Section 69 as introduced by the Maharashtra Legislature clearly violates Articles 14, 19(1) (g) and 300A of the Constitution; it is in our opinion ultra vires and is hence declared unconstitutional. Consequently this appeal is allowed and impugned judgment of the Bombay High Court is set aside. The suit can now proceed ignoring sub-section 2A which we have declared invalid. No costs.

3. NEELAKANTAN OMANA V. NEELAKANTAN RAVEENDRAN

The suit by partners demanding rendition of accounts is not maintainable if the firm is not registered.

4. ORIENTAL FIRE & GENERAL INSURANCE CO. LTD. V. UOI

The insurance claim under insurance policy arises out of insurance contract and therefore, the same cannot be enforced while filing a suit if the firm is unregistered.

5. SALEM CHIT FUNDS V. STATE OF TAMIL NADU

In this case Madras High Court held that the requirement of registered firms for filing the declaration with the registrar regarding the return every year is valid.

6. GANDHI & CO. V. KRISHNA GLASS PVT. LTD.

In this case it was held that if the name of one of the partners is not shown in the register of the firm, the suit filed by the firm must fail.

7. State Bank of India Vs M/s. Simko Engineering Works, 2005

It was held that a partnership firm has no independent entity of its own and all the liabilities against the firm or all acts done by any one of its partners for and on behalf of the firm shall also bind on all other partners. Section 20 is an exception to the implied authority. Partners extend or restrict the implied authority of any partner by entering into a contract between themselves. However, notwithstanding any such restriction, any act done by a partner on behalf of the firm, which falls within his implied authority will bind the firm, unless the person with whom he is dealing knows about the restriction or does not believe that partner to be a partner. Liability to prove that such authority of partner is restricted is upon the person who claims such a restriction.

Section 68 states about the evidentiary value of entries in the register of firms and section 60-65 deals with subsequent changes and alterations. Section 71 deals with power to make rules.

BASIC DOCUMENTS TO START A PARTNERSHIP FIRM IN INDIA

1. Proof of registered address
2. Notarised partnership agreement
3. Self attested document of all partners of the firm which shall include copy of PAN card and two photographs.

NOTARY OF PARTNERSHIP DEED

The signature of the partners should be made on the agreement in the presence of witnesses before a notary. The partnership deed needs to be well drafted.

NO FOREIGN DIRECT INVESTMENT

Only Indian citizens can become a partner in the partnership firm. Foreign direct investment is not allowed in a partnership firm.

MERITS OF PARTNERSHIP FIRM-

• Partners in a partnership firm are not required to take Director Identification Number. In case of a private limited company or LLP, the directors have to obtain a digital certificate but not in case of a partnership firm. Therefore, digital signature is not required in case of partnership firm.
• If there is no requirement for text audit in a partnership firm, there is no need for the firm to get its balance sheet audited as it is not mandatory.
• Filing of balance sheet or final accounts is also not required in case of partnership firm.
• There is no requirement for minimum paid up capital in case of partnership firm. Profit of partnership firm is directly distributed among the partners.

• Low compliance of procedures and low cost is involved in partnership firm.

• Winding up is easy and the partners can wind up their partnership firm without taking prior permission of any other person or authority.

LIMITATIONS OF PARTNERSHIP FIRM-

1. Potential investors are not easily available for future investments in partnership firms as in case of private limited company and limited company because such investors may not be sure of the safety and security of the amount which they might invest in a partnership firm after due diligence or we may say that if potential investors are not sure of high rate of return by investing in partnership firm, they might be reluctant to invest in partnership firm. The partnership firm can be converted into private limited or limited company if the partners of the partnership firm are willing to do so and if the partners of a partnership firm are interested to raise more capital by attracting more potential investors.
2. Liabilities of partners in a partnership firm is unlimited. So, if a partnership firm borrows a loan or if any other liability occurs on the partnership firm, the partners themselves have to bear such joint and several unlimited liability. And the partners might require to meet such liability even by selling their personal property.

CONCLUSION

Name of the partnership firm should be cross checked with the trademark registry to avoid any infringement of someone else’s brand name or trademark. All the partners must sign each page of the partnership deed. Last page of the deed must be signed by two witnesses. KYC of partners along with the signed partnership agreement and premises proof is filed with the concerned registrar of firms, for its registration. It is not mandatory that the firm should be registered from the very beginning. One partner cannot compel another partner to join in the registration of the firm when the partners decide to get the firm registered as per the provisions of section 58 of the Indian Partnership Act, 1932, they have to file the statement in the prescribed form.

For More Articles On Partnership Act, Click Here.

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For Case Briefs And Analysis, Click Here.

Author Details: Harshraj Singh Rathore (Student, School of Law, UPES, Dehradun)