What is partnership firm and process to register it in India

What is partnership firm and process to register it in India

When an organization is formed with two or more than two people to run a particular business then it would be known as a partnership firm. These firm are been registered under the partnership act, 1932. It is a popular form of business constitution for businesses that are owned, managed and controlled by an Association of People for profit.

As per the Indian Contract Act, 1872 Partnership is the relation which subsists between persons who have agreed to combine their property, labour or skill in some business and to share the profits there from between them.

The Indian Partnership Act, 1932 defines partnership as “the relation between persons who have agreed to share the profit of the business carried on by all or any one of them acting for all.”

As partnership is an agreement between two or more people to share the profits of a business the business can be carried on together by all the partners or any one partner representing the others. A partnership can be for a fixed period of time or it may be limited to a specific project or it may be dissolved at will.

The merits of Partnership Firm are:

• Ease of formation and closure
• Balanced decision making
• More funds
• Sharing of risks
• Secrecy

While the demerits are:

• Unlimited liability
• Limited resources
• Possibility of conflicts
• Lack of continuity
• Lack of public confidence

It is optional for a partnership firm to get registered. In case a firm does not get registered, it is deprived of many benefits. The consequences of non-registration of a firm are as follows:

1. A partner of an unregistered firm cannot file a suit against the firm or other partners,
2. The firm cannot file a suit against third parties, and
3. The firm cannot file a case against the partners.

In view of these consequences, it is therefore advisable to get the firm registered. According to the India Partnership Act 1932, the partners may get the firm registered with the Registrar of firms of the state in which the firm is situated. The registration can be at the time of formation or at any time during its existence.

Also Read: What are a Company registration and its categories

Information/Document required for preparation of partnership agreement and registration of partnership firm:

ID and Address Proof of Partners (such as Pan Card / Passport/Voter ID / Aadhar Card / Driving License Copy)

• Business Place Address proof (Rent Agreement and NOC from owner if rented / Electricity Bills or any other Address Proof if owned)
• Name of the proposed partnership firm
• Brief details of Business Proposed by the said partnership
• Details w.r.t. contribution, ratio of contribution and Profit sharing
• The tenure of partnership firm (Partnership firm may be for any definite or indefinite duration. If no duration is mentioned, it shall be at `will’)

Application for Registration

The registration of a firm shall be affected by sending by post or delivering to the Registrar of the area in which place of business of the firm is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed fee and a true copy of the deed of partnership stating:

1. The firm-name, the nature of business of the firm;
2. The place or principal place of business of the firm,
3. The names of any other places where the firm carries on business,
4. The date when each partner joined the firm,
5. The names in full and permanent addresses of the partners, and
6. The duration of the firm.

The statement shall be signed by all the partners, or by their agents specially authorized in this behalf and shall be sent or delivered to the Registrar within a period of 1 year from the date of constitution of the firm

Detailed Procedure:

1. Partnership name: same as other companies, this firm also needs name and partners are free to choose any name for their firm. It should not be identical which means there should not be any other firm registered on that name previously, to make sure the copyright issues in future.
2. Partnership deed: partnership firm has to write the obligation of the members, it could be written or oral. Some essentials would be name and address of firm and partners, date of establishment of business, working of business, capital invested by each one of the partners, profit sharing basis, and duration of the partnership.
3. Some additional clauses: it better to have everything discussed before establishment and to make in writing for good business, some of the examples are:
   1. Salaries and payable method as well as commission if any should be discussed earlier for rescuing further argument.
   2. Partner ‘loan, capital, and interest should be mentioned to remember the figures.
   3. Rules in case of retirement, want to change the partner in future.
4. The deed should be done professionally: partnership deed should be done in a clean and professional manner, to do so it should be written on stamp paper by both of the partners. All the partners to have a copy of the deed.
5. Register partnership business into firm: for doing so Indian government has Indian partnership act, 1932. According to which it is not compulsory to register the firm it totally depends on partners whether they want to register the agreement or not.
6. Partners looking to register need to submit an application and prescribed fees to the registrar office of the state. The document required for this procedure would be:
   1. Form No-1 application
   2. Duly filled affidavit
   3. True and certified copy of partnership deed.
7. The application should be signed by each member of the firm.
8. After application, it goes to the registrar and when they are satisfied with all the terms and condition they mention the firm name into the register of the firm and then issue a certificate of registration.
9. The firm, which is registered, shall use the brackets and word (Registered) immediately after its name.

The process of registration is simple and hassle free.