Partnership Firms Registration process related to Indian Partnership Act
A Partnership is among the most significant kinds of business entities. A partnership company is when two or more people join to form an organization and share the profits according to an agreed proportion. The partnership business covers all kinds of trades or occupations and professions. A partnership company is simple to create and has fewer requirements than corporations.
The Indian Partnership Act, 1932 regulates and governs partnership companies in India. The people who join to form a partnership firm are referred to as partners. Partnership firms are created by a contract signed between the partners. The agreement between the partners is referred to by the name of a partnership agreement that regulates the relationship between the partners and the partnership's firm.
Advantages of Partnership Firm
Easy to Incorporate
Incorporation into a partnership company is relatively simple compared to other forms of business entities. The partnership company can be formed by creating the partnership deed and entering a contract for partnership. In addition to the act of collaboration, no other documents are needed. The association does not have to register by the Registry of Firms. A partnership can be formed and written later, as registration is not required.
The partnership firm must follow a limited set of compliances compared to a business or LLP. Partners do not require to obtain a Digital Signature Certificate (DSC) or director identification number (DIN), which is necessary for company directors or the designated members for an LLP. Partners can make modifications to the business quickly. However, they are subject to legal limitations regarding their business activities. The cost is low, and registration is lower than that of the company or LLP. The dissolution of a partnership firm is straightforward and does not require legal requirements.
Making decisions in the partnership company is fast since there is no distinction between management and ownership. All partners take all decisions in a group and are immediately implemented. Partners have broad capabilities and tasks they can carry out for the company's benefit. They may even conduct certain transactions for the partnership firm without the approval of the other partners.
Sharing of Profits and Losses
The partners share in the loss and profits of the business equally. They are also in charge of deciding on the profits and losses ratio within their partnership company. Because the firm's profit and turnover depend on their efforts, they feel ownership and responsibility. Any loss to the firm will be shared by them in equal proportion or following the deed ratio for the partnership, reducing the financial burden on the partner or one of them. They are both liable in a joint and severally for the company's operations.
Disadvantages of Partnership Firm
The main drawback of a partnership company is the unlimited liability for the partners. Partners are responsible for any losses of the business through their estates. In a corporation or LLP, the partners or shareholders have only the liability of their share. All partnership members share the risk incurred by a partner in the partnership company. If the company's assets are not enough to cover the debt, the partners have to settle the obligation using their assets to creditors.
No Perpetual Succession
The partnership company does not have perpetual successions like an LLC or LLP. The partnership will end at the death of any partner or the insolvency of the exclusive collaboration except one. So, the association could be dissolved at any moment. It can also be dissolved when a partner notices dissolution to the company to other partners.
There is a maximum amount of partnership partners that a company is 20. There is a limit on how many partners which means that the amount of capital invested in the company is also limited. The company's capital is the amount of money invested through each partner. The firm's resources are limited and means that the partnership company cannot undertake large-scale businesses.
Difficult to Raise Funds
Because the partnership company is not a perpetual succession or an independent legal entity, it is challenging to obtain capital. The company doesn't have many options to raise money or grow its operations compared to a corporation or LLP. Since there aren't any rigid legal regulations and no strict legal compliances, the public has less trust in the company. The company's accounts are not necessary to be disclosed. This action makes it difficult to obtain money from a third party.
Importance of Registering a Partnership Firm
A partnership's registration as a company is not mandatory according to the Indian Partnership Act. It is the choice of the partners, and it is voluntary. The firm's registration could be completed during the creation or incorporation of the partnership's business.
But, it is recommended to register the partnership company since a registered company has certain advantages and rights compared to unregistered businesses. The benefits that a partnership firm receives are:
A partner may sue any partner or partnership firm to enforce his rights under an agreement with the partner or firm. In the event of a non-registered partnership, partners can't sue the partnership firm or other partners to enforce their rights.
A registered business can file a lawsuit against any third party in the enforcement of a right arising from an agreement. However, if it is an unregistered company, it cannot bring a lawsuit against any third party to make a claim. However, anyone else can bring a suit against the firm that isn't registered.
The registered firm can claim set-off or other actions to enforce rights arising from the contract. A non-registered company cannot assert set-off in any legal proceeding against it.
Procedure for Registering a Partnership Firm
Step 1: Application for Registration
A registration form needs to be sent to the Registrar of Firms in the State where the company is located, along with the prescribed fee. The application for registration must be signed and confirmed by all partners or agents.
The application can be delivered to the Registrar of Firms all the way through post or via delivery to the physical address, which includes the subsequent information:
Step 2: Choice of Name related to the Partnership Firm
Any name can be assigned to a partnership company. Certain conditions must be considered when selecting the name:
The name shouldn't be too like or the same as an existing business doing the same thing.
The name shouldn't contain words such as emperor, crown imperial, empress or any other words that indicate approval or sanction from the government.
Step 3: Certificate of Registration
Suppose the Registrar has been pleased with the application for registration and the supporting documents they have submitted. In that case, he'll add the company to the Register of Firms and issue the Registration Certificate. This Register of Firms contains up-to-date details on all firms, and anyone can access it for free after paying specific fees.
The application form and the fees must be sent to the Registry of Firms of the State where the company is located. The partners or their representatives must sign the application.
Documents for Registration of Partnership
The documents that must be presented to the Registrar to be considered to register the Partnership Firm include:
Name Given to the Partnership Firm
Any name may be assigned to a partnership company if you satisfy the following requirements:
The title shouldn't be similar or similar to an existing business operating in the same field,
The name should not contain words like emperor imperial, empress, crown or any other words that indicate approval or sanction from the government.
The partnership deeds a contract between partners that outlines the rights and duties, shares of profits, and other obligations for each of the partners are stated. The partnership deed may be written or verbally; however, it is recommended to draft an agreement to avoid conflicts later.
Details Required in a Partnership Deed
In addition, specific clauses can be included to prevent any conflicts in the future:
Stages for Partnership Firm Registration
The registration process for a partnership firm takes about 10 days, dependent on departmental permission, and returns to the department that approved it.
Checklist intended for Partnership Firm Registration
FAQs on Partnership Firm Registration
What is the time it will take to sign an association?
Incorporating a Partnership Company in India may take between twelve to fourteen working days. The time it takes to issue an official certificate of incorporation could differ according to the particular State's rules. Registration of Partnership Company is subject to government processing time, which is different for every State.
Do you know of any reason for my partnership that could make it unenforceable?
In most cases, if the partnership agreement is not legally registered, the court could declare that the partnership is unenforceable. If the purpose of the business is unlawful or illegal, the court can declare the association unconstitutional or dissolve it.
If all partners would like to terminate the relationship, what do they do?
If a partnership member wants to terminate their collaboration, they may dissolve the partnership through notification if it's a will-based partnership. The association can be ended following provisions within the Partnership Deed, or they could do so by signing an independent agreement.
My certificate of registration can be revoked?
In a particular sense, the partnership certificate of incorporation can be revoked and is often referred to as dissolution. A dissolution could be brought about automatically if any of the partners except one partner is declared insolvent. Otherwise, an annulment is sought if the company is engaged in illegal actions, i.e., trading in drugs or other illicit products, corporate fraud or commercial agreements with countries that could be detrimental to the interests of India.
What is the definition of liability for partnerships?
Each partner is jointly responsible together with the other partners and independently for any actions or activities of the company during any period, while the partner is in charge. Suppose an injury or loss results from a third party or any penalty is imposed in business. In that case, the partners are all responsible, regardless of whether the injury or loss was the fault of an individual partner.