How to register a Partnership Firm?

November 8, 2021

The Partnership is an aspect of ‘right of association’ guaranteed under Article 19(1)(c) of the Constitution of India, 1950. When sole proprietorship proved unsatisfactory to ever-expanding business a kind of stimulation was given to associations among individuals in the form of Partnerships. The partnership is the most popular form of business organization, which is a logical extension and an improvement over the sole proprietorship.

A partnership arises from a contract, and therefore, such a contract is governed not only by the provisions of the Indian Partnership Act, 1932 in that regard but also by the general law of contract in such matters, where the Partnership Act does not specifically make any provision or is silent.

The contract of partnership is a special contract where two or more persons join together to jointly carry on some business activity. They become partners by contributing money, effects, and skill to a lawful business in conduct of each shall not only act for himself but as an agent of all and wherein shares in the profits and losses.

It is a relationship that arises from the partnership agreement and not by status or law of inheritance. The persons who have entered into a partnership with one another are called ‘Partners’ individually and ‘Firm’ collectively.

Being one of the oldest forms of a business relationship, the partnership is still preferred by professionals and small trading and business enterprises in India and abroad but the companies have replaced partnerships in complex businesses.

However, it is the most suitable form of business organization than a company because a company has to go through a lot of procedural formalities and a partnership is created just by an agreement.

Also, for the day-to-day running of the business and maintenance of accounts, a company is subject to a lot of statutory control, whereas the partners are their masters for regulating their affairs.

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Process of registering a Partnership Firm

The procedure for registering a firm has been mentioned under sections 58 and 59 of the Partnership Act, 1932.

  1. Application for Registration: The first step for registering a partnership firm, is to apply to the Registrars of Firms in the prescribed form and accompanied by the prescribed fee. The Registrar of Firms is appointed by the State Government and the areas within which the Registrars shall exercise their powers and perform their duties have been also defined by the State Government.

    Similarly, the State Government has been authorized to make rules prescribing the fee but such fee shall not exceed the maximum fees specified in Schedule 1, i.e. Rs. 3/- for the registration of a partnership firm. This registration application has to be signed and verified by all the partners and their agents for authentication. The application must state the following details:
  • The name of the firm
  • The principal place where the firm will carry on the business.
  • The name of any other places where the firm’s business can be carried on.
  • The date of joining of each partner in the firm.
  • The full name and permanent residential address of each partner.
  • The duration by which the firm will exist.

This application for registration can be sent to the Registrar of Firms through post or by physical delivery.

  1. Selection of Name of the Partnership Firm: The next step is to decide the name of the Partnership Firm. While selecting the name, the following considerations must be kept in the mind:
  • The decided name should not be identical to an existing firm doing the same kind of business.
  • The name should not contain the words such as Crown, Emperor, Imperial, King, Queen, Express, Royal, or other words expressing the sanction, approval, or patronage of the Government except in the case of State.

3. Certificate of Registration: When the Registrar is satisfied that all the requirements have been complied with and all the documents required are correct and true, he will record an entry of an application in the register called the Register of Firms and file the statement. After recording the statement in the Register of Firms, he issues the certificate of Registration. This amounts to the Registration of Firms.

This Register of Firms must be up-to-date and open to inspection by any person on the payment of the prescribed fees.  A person can also have a certified copy of any entry or portions in the Register of Firms after the payment of a prescribed fee.

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What are the documents required for registering a partnership firm?

Following are the documents that are required to be submitted to the Registrar for the registration of partnership firms:

  • Application form for registration of partnership firm i.e. Form 1.
  • Certified original copy of the Partnership Deed. A Partnership deed can be both oral or written but it is always advised to have a written partnership deed to avoid conflicts. It is created on a judicial stamp paper obtained from the respective State Registrar Office and has to be signed by all partners.
  • An affidavit specimen certifying all the details mentioned in a partnership deed and other documents are correct and true.
  • PAN Card/ Passport/ Aadhar Card/ Driver License/ Voters ID and Residential proof of the partners.
  • PAN Card of the firm i.e. partners have to apply for PAN Card of the firm (Form 49A has to be filled for the same).
  • Address proof of principal place of the firm. For the same, rental/lease agreement or ownership documents can be shown.
  • GST Registration of the Firm.
  • Details of the Current Bank Account of the partnership firm.

After satisfying the documents, the Registrar will register the partnership firm in the Register of Firms and issue a Certificate of Registration.

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Can we do changes after registering the partnership firm?

After the registration of the firm, there may be a possibility of some changes in the name of the firm, or principal place of the business, or in the name and address of the partners, or closing or opening of branches by the firm, etc. Such alterations may have to be recorded by the Registrar and the following alterations or changes in this connection are:

Alteration in the name of the firm and the principal place of the business

In this case, the same kind of formalities which are mentioned above have to be taken into the consideration and when the Registrar is satisfied that all the necessary formalities have been complied with, he will amend the entry in the Register of Firms.

Change in the closing and opening of branches of the firm

An intimation of such change can be made by any partner or an agent of the firm to the Registrar.

Changes in names and address of partners

If the name or the permanent address of any partner of a registered firm changes, then an intimation of the same shall be given to the Registrar.

Alteration in the constitution of the firm or on dissolution

Constitution of the firm can be affected by the introduction of a partner to the firm, or when a partner ceases to be a partner by expulsion, retirement, insolvency, or death. However, no fresh registration of the newly constituted firm is required but a public notice is necessary otherwise the liability of the outgoing partner for the act of each other continues to exist.

Rectification of mistakes

The Registrar is empowered to correct any mistake which has been made in the Register of Firm while entering the name of the firm for registration and such entry must conform with the documents filed for registration.

Sometimes there may be a mistake in the documents filed with the Registrar or an error in the records of the Registrar. Such mistakes can be rectified by the Registrar through an application made by all the parties who have signed the documents relating to a firm.

Amendment of Register by order of Court

The Court deciding any matter relating to a registered firm has been given the power to direct the Registrar to make any amendment in the entry of the Register of Firms which is necessary in the eyes of law.

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When a partnership firm should be registered?

A partnership firm should be registered at any time after the creation of a partnership. The Partnership Act does not mandate the time limit within which the firm should be registered. Hence, there is no period of limitation either for the original registration of a partnership firm or subsequent changes.

If any legislation by the State Government lays down any time limit for registration of the firm whether original or subsequent, then such will be ultra vires the Partnership Act and will not be applicable.

Consequences of Non-registration of Partnership Firm

Though Registration of Partnership Firms is not compulsory in India and thus no penalty is imposed for non-registration. However, consequences or disabilities of non-registration have persuasive pressure for their registration. The following consequences are:

  1. The firm or any partner of the firm cannot bring legal action against a third party for the breach of contract.
  2. If any suit is filed by a third party against a firm, then neither firm nor partner can claim any set-off if a suit is valued for more than Rs. 100/-.
  3. A partner of an unregistered firm cannot bring legal action against another partner or the firm. However, such a person may sue for dissolution of the firm or accounts and realization of his share in the firm’s property when the firm is dissolved.

Conclusion

The Registration of a Partnership Firm in India can take up to 12 to 15 working days and is subject to Government processing time which varies from state to state. The incorporation of a partnership firm is much more convenient as compared to other forms of business organizations because the firm can be formed by drafting the partnership, entering into an agreement, and getting it registered though there is no prescribed time limit on the registration of a partnership firm. Also, apart from a partnership deed, no other documents are required for its registration.

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About Author

Shaily is a law student, pursuing B.Com LLb. (Hons) from University Institute of Legal Studies, Panjab University.

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