partnership firm

Is registration of a partnership firm important or not?[2021]

In order to understand whether the registration of a partnership firm is important or not, let’s first understand the basics of partnership firm. 

What is a partnership?

A partnership is an arrangement between two or more parties in which they mutually negotiate and discuss how to operate a business while also safeguarding their interests. The partners discuss profits and losses and also incur the same. A partnership usually has a profit motive. Different types of businesses partner up to earn a profit. A partnership comes with rights of ownership along with a sense of responsibility to run it smoothly. 

A partnership can be divided into the following types:

  • General partnership
  • Limited partnership
  • Joint venture

1. General partnership

It is the type of partnership in which all partners have an equal share, responsibility and ownership. The partners agree to the partnership as individual entities.

2. Limited partnership

It is the type of partnership in which people can own parts of a business however, their role in it is limited. They might not have the right to play a part in the decision making process or have full ownership of shares. 

3. Joint venture

It is the type of partnership in which more than one entity enters as one unit for a profit motive. 

What is a partnership deed?

A partnership deed is a legally outlined document. It is also called a partnership agreement which states an agreement between two firms or individuals. It keeps in mind the interests of the parties and safeguards them through mutual discussion and agreement about profits, losses, capital, etc. The partnership deed is secured under the Indian Partnership Act, 1932. It provides clarification about the role each partner needs to play and the contribution of everyone. 

It plays an important role in any partnership due the following reasons:

  • It secured everyone’s rights as it is a legal document
  • It helps sort any future disputes that may take place
  • It lays out all terms and conditions beforehand for future references
  • It helps identify the roles and contributions of everyone
  • After mutual discussion and agreement, it can be edited and altered.

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What is a partnership firm?

A partnership firm is a collective name given to partners working on a project together. It is called so only when two or separate entities act as a single unit however it is not a company. A partnership firm cannot own property or hire employees. It can also not act as a debtor or creditor. Hence a partnership deed only suggests that two or separate entities are working together to act as a single unit but do not possess the same liberties as a company.

What is the registration of a legal document?

Registration of any documents means having them recognized by a state or central authority. Not all documents are required to be registered. Though the ones which are registered and done so under The Registration Act, 1908. Registration of documents is important as it protects them and avoids fraud of any kind. It also brings validity to the document which can later be presented in court if needed. It is also important in certain transactions and avoiding the proceeding of any fake documents.

Is registration of a partnership firm important?

Under the partnership deed act of 1932, it is stated that the firm may or not be registered. It is not compulsory. If the parties wish to do so they can however if they decide not to, they are under no obligation to do so. 

A partnership deed is a notarized document, that is the parties sign the document hence proving the satisfaction by the terms and conditions of the deed. Despite the notarization, it is not required to be registered. Though it is advised to have the firm registered as it helps solve the larger disputes with legal support. Without a registered firm, the resolution of the disputes is only in the hands of the terms and conditions laid out in the beginning. 

Conclusion

A partnership is an arrangement between two or more parties where everyone is entitled to shares and is part of the decision making process discussing the profits and losses. It is categorised into general partnership, limited partnership and joint venture.

A partnership deed is a legal document which is notarised and clarifies the roles and contributions of the parties. It also protects the rights of the partners. 

A partnership firm may or may not be registered, though it is advised it is done so since it provides for legal support during larger disputes. However, the partners are under no obligation to have the firm registered. Simple notarization will also work. 

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