The partners have the sole authority to decide whether to register their partnership. The Partnership act does not make registration a requirement that must be followed. However, it is always better to register the company under the act because it grants the company numerous benefits that imply that the statute favors registered firms over unregistered firms exclusively registered businesses as opposed to unregistered business as opposed to unregistered. Only lawfully operating businesses are those that are registered.
Before or after the partnership’s continuation the company may be registered at any moment. However, a business must wait until the partnership deed has been registered before taking legal action to assert a right resulting from any legal document. Another situation when filing for incorporation is required is when a company wants to switch to a more convenient organizational structure, like an LLP or company.
Statutory requirements for registering a business in India
Section 56 through 71 of chapter vii addresses the registration of partnership firms. The partnership act does not make the registration of a firm mandatory. The registration process is fairly simple, thus partners of a firm typically prefer to register the firm because, without registration, they would encounter numerous difficulties.
The steps to register a partnership firm
Step 1 Application for registration
The registrar of firms in the state where the company is located must receive an application form and the required fees. The registration application must be signed and verified by all partners or their representatives.
The following are included in the application-
- The company’s name
- The company’s primary business location
- The location of any more locations where the company does business
- The day each partner first joined
- The duration of the firm
Step 2 choice of the partnership firm’s name
A partnership firm can be referred to by any name. But when choosing the name, some requirements must be met.
- The name shouldn’t be too similar to or identical to another company already operating in the same industry.
- The name shouldn’t contain any words that indicate the government’s endorsement or sanction, such as “emperor”, “crown”, “empress”, or “empire”.
Step 3 Registration certificate
If the registrar is satisfied with the registration application and supporting papers, the company will be registered in the register of firms and handed the registration certificate. Anyone can view the register of firms, provided they pay specific fees, and it provides the most recent information on every firm. The registrar of firms in the state where the company is located must receive an application form and fees. All partners, or representatives of each partner, must sign the application.
In Ghanshyam Vijay Oil Mills & Others v. Thacker Ranchhordas Ratanshi& Other (AIR 1984 NOC 17 Guj ), it was observed that after one of the partners retired, the surviving partners continued to run the business and kept it intact; as a result, a lawsuit brought by the remaining partners against a third party was banned by Section 69(1).
The significance of registering a partnership firm-according to the Indian partnership act, registering a partnership firm is not required. It is optional and up to the partnership’s discretion. The registration of the company may be done at the time of incorporation or formation, as well as throughout the operation of the partnership.
Benefits of a partnership company
In contrast to other business entities, establishing a partnership company just requires the creation of a partnership deed and the signing of a partnership agreement. Other than the partnership deed, no more paper work is required. It is not required to even have it registered with the enterprise registrar. A partnership firm can decide to incorporate and register at a later date because registration is permitted but not necessary.
- Less compliance
Compared to a business or an LLP, the partnership firm has a much lower compliance burden. The digital signature certificate (DSC) and director identification number (DIN) that are necessary for the company directors or designated partners of an LLP are not required for the partners. Any changes to the company can easily be made by the partners. They are subject to legal limitations on what they can do. Compared to a company or an LLC, it is more affordable and the registration process is more efficient. The dissolution of the partnership firm is simple and doesn’t necessitate a lot of paperwork.
- Rapid decision
Due to the lack of distinction between ownership and management, decision-making in a partnership firm is swift. All decisions are made jointly by the partners and are instantly operatives. On behalf of the company, the partners have extensive authority. They are always permitted to carry out specific transactions on behalf of the partnership firm without the other partners’ approval.
The negative aspect of the partnership firm
- Unlimited liabilities
The major drawback of a partnership firm is the partners’ unrestricted responsibility .the partners must use their state to cover the loss of the company. Whereas in a corporation or LLP, the responsibility of the partners or shareholders is constrained to the number of their ownership interests. All partners in a partnership firm are responsible for the liabilities caused by one partner. The partners will be required to repay the debt from their personal property to creditors if the firm’s assets are insufficient to cover it.
- No perpetual succession
Unlike a company or LLP, the partnership firm does not have perpetual succession. As a result, a partnership firm will dissolve upon the death of a partner, or the insolvency of all but one of the partners notifies the other partners that the firm is being dissolved. As a result, the partnership firm may dissolve at any time.
Case laws about a firm’s lack of registration
An unregistered firm may submit a petition for eviction, but the Indian partnership act section 69 does not apply in this case, the court stated because it is a statutory right rather than the execution of a contractual right that is prohibited to unregistered firms.
In this instance, it was determined that because the lawsuit was brought by partners who were hired after the firm’s registration and whose names appeared in the register of incorporation, they were not authorized to do so. Section 69(2) said that it is permissible for a third party to sue; their name must be listed in the company registration. That being the case, the complaint was not held accountable.
The registrar of firms affects a firm’s registration by entering the statement provided to him regarding registration in the register of firms. It does not make registration of the firm mandatory, but the repercussions of not registering are so severe that it is practically necessary to register the firm at some point.
Author(s) Name: Bharti Kumari (Chotanagpur Law college, Ranchi University, Jharkhand)