Partnership Firm Registration in India
A partnership is a widely used form of business in India in which two or more persons agree to carry on a business and share its profits. The principal central legislation is the Indian Partnership Act, 1932. Registration of a partnership firm is generally dealt with by the Registrar of Firms under the applicable State or Union Territory procedure.
Meaning of Partnership under Section 4
Section 4 of the Indian Partnership Act, 1932 defines partnership as the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who enter into partnership are individually called partners, collectively a firm, and the name under which their business is carried on is the firm name.
The expression business is defined in Section 2(b) to include every trade, occupation and profession. Partnership therefore depends on an agreement and on the relationship of mutual agency between the partners.
Essential Features of a Partnership Firm
A partnership ordinarily requires at least two persons, an agreement between them, a business, an agreement to share profits, and the essential element that the business is carried on by all or any of the partners acting for all. Section 6 requires the real relationship between the parties to be considered when determining whether a partnership exists.
Under Section 7, where the partners have made no provision for the duration of the partnership or for its determination, the partnership is a partnership at will. Under Section 11, subject to the Act, the partners may determine their mutual rights and duties by contract.
Mutual Agency and Liability of Partners
Section 18 provides that, subject to the Act, a partner is the agent of the firm for the purposes of the business of the firm. Under Section 19, an act of a partner done to carry on, in the usual way, business of the kind carried on by the firm can bind the firm within the partner's implied authority, subject to the statutory limitations.
Section 25 provides that every partner is liable jointly with the other partners and also severally for all acts of the firm done while that person is a partner. This unlimited personal liability is an important distinction between a traditional partnership and a limited liability partnership.
Maximum Number of Partners
The old rule commonly described as a maximum of 20 partners is no longer the current general rule. Section 464 of the Companies Act, 2013, read with Rule 10 of the Companies (Miscellaneous) Rules, 2014, provides that an association or partnership formed for carrying on a business for gain cannot consist of more than 50 persons unless it is registered as a company under the Companies Act or is formed under another law for the time being in force.
Official corporate-law rules and notifications are available from the Ministry of Corporate Affairs.
Partnership Deed
A written partnership deed is strongly advisable even though the relationship of partnership is founded on agreement and the Partnership Act does not make a written deed the sole method by which partnership can arise. A properly drafted deed provides documentary evidence of the partners' agreed rights, duties and commercial terms.
A deed commonly addresses the firm name and business, principal place of business, commencement and duration, capital contributions, profit and loss sharing, drawings and remuneration where applicable, operation of bank accounts, books and accounts, authority of partners, admission or retirement of partners, dispute resolution, death or insolvency, and dissolution.
The deed should comply with the stamp law applicable in the relevant State or Union Territory. Tax treatment of remuneration, interest and other payments to partners should also be considered separately under the applicable income-tax law.
Registration of a Partnership Firm
Chapter VII of the Indian Partnership Act deals with registration of firms. The Registrar of Firms and filing process are administered at State or Union Territory level, so the exact portal, form, supporting documents, stamp requirements and fees depend on the jurisdiction in which the firm is registered.
As a practical matter, applicants generally prepare the partnership deed and prescribed registration statement, obtain the partners' signatures and supporting documents required by the relevant Registrar, pay the applicable fee, and submit the application through the procedure prescribed for that State or Union Territory.
Section 58: Application for Registration
Section 58 provides the statutory basis for registration by delivery or sending to the Registrar of the area in which a 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. The statutory particulars include the firm name, principal place of business, other places where the firm carries on business, dates on which partners joined, partners' full names and permanent addresses, and the duration of the firm, subject to applicable State amendments.
The statement must be signed and verified in the manner required by the Act. Applicants should check the current rules and State amendments applicable to their jurisdiction before filing.
Section 59: Registration of the Firm
Under Section 59, when the Registrar is satisfied that the requirements of Section 58 have been duly complied with, the Registrar records an entry of the statement in the Register of Firms and files the statement. Registration therefore involves the statutory registration process, not merely signing a partnership deed.
Section 69: Effect of Non-registration
Although registration is not expressed as universally compulsory under the central Act, Section 69 creates important disabilities for an unregistered firm and its partners in enforcing certain contractual rights through court proceedings.
In broad terms, Section 69 restricts a partner from suing the firm or another partner to enforce a right arising from a contract or conferred by the Act unless the statutory registration conditions are satisfied. It also restricts a firm from suing a third party to enforce a contractual right unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners. The section contains specific exceptions, including certain rights connected with dissolution and realization of property of a dissolved firm.
Because the consequences depend on the nature of the claim and the statutory exceptions, Section 69 should be considered carefully when deciding whether to operate an unregistered partnership.
Minor Admitted to Benefits of Partnership
Under Section 30, a minor cannot be a partner in a firm, but with the consent of all partners may be admitted to the benefits of partnership. The section separately regulates the minor's share, rights and liabilities and the consequences when the minor attains majority.
Property of the Firm
Section 14, subject to the contract between the partners, describes property of the firm to include property and rights and interests in property originally brought into the stock of the firm or subsequently acquired by or for the firm for the purposes and in the course of its business, and also includes goodwill.
Reconstitution of the Firm
A partnership may change when a partner is admitted, retires or otherwise ceases to be a partner. The legal effect of such a change depends on the Act and the partnership agreement. Appropriate notices and changes in the Register of Firms should be made where required under the applicable provisions and State procedure.
Dissolution of a Partnership Firm
Section 39 states that dissolution of partnership between all the partners of a firm is called dissolution of the firm. The Act provides different modes of dissolution, including dissolution by agreement under Section 40, compulsory dissolution under Section 41, dissolution on specified contingencies under Section 42, dissolution by notice in a partnership at will under Section 43, and dissolution by the court on grounds specified in Section 44.
On dissolution, the firm's affairs must be wound up and accounts settled in accordance with the Act and the partners' applicable agreement. Section 55 addresses sale of goodwill after dissolution, subject to contract between the partners.
Partnership Firm Registration Services
Businesswonder.com provides assistance relating to drafting partnership deeds and partnership registration documentation according to client requirements and the procedure applicable in the relevant jurisdiction. Government fees, stamp duty, documentation and processing time can vary by State or Union Territory and by the facts of the application.
For details about partnership deed and registration assistance, email contact@businesswonder.com.