This article is written by Haridya Iyenger,  a student of JGLS.

This article will tackle the procedures to create a partnership deed and register a partnership firm. Partnership firms are relatively easy to set up compared to LLP’s and Companies.

Partnership Firm Name

The first step in creating a partnership firm is choosing a good name. Partners are free to choose any name they like as long as it follows these rules:

• The name must not be too similar or identical to another existing firm which is involved in the same business. This is to prevent confusion and protect the goodwill or reputation of the already existing firm.
• The firm must not contain words like emperor, crown, imperial or words implying or expressing patronage, sanction or approval of the government. However, if the state government signifies its consent in writing to use such words as part of the firm’s name it can be done[1].

Creating a Partnership Deed

The partnership deed is the most vital document while establishing a partnership firm. This document has all the respective right and obligations of each partner.

While a partnership deed can be an oral or written agreement for tax purposes the partnership agreement needs to be written. The minimum essential requirements of a partnership deed are:

• Name and address of all the partners and the firm
• Nature of the business carried on
• Date of commencement of the business
• Duration of the partnership
• Capital contribution and share ration of each partner
• Duties, powers and obligations of each partner

Apart from the above clause partners may also put in additional clauses. Some of the additional clauses usually put in are:

• Salaries, commission for payable partners
• Interest on partner capital and partner’s loan
• Arrangement of audit
• Rules to be followed in case of retirement or death of partner

The partnership deed created by the partners should be on stamp paper in accordance with the Indian stamp act and each partner should have a copy of the deed. A copy of the partnership deed should be filled with the registrar of the firm if the firm is being registered.

Why Register a Partnership?

While it is not compulsory to register partnerships firm it is beneficial since, the following rights are provided only to registered firms:

• The right to file a suit in any court against the firm or other partners for enforcement of any rights arising from the partnership act or any contract.
• A right arising from any contract cannot be enforced in any court by the firm.
• The firm or any of its partners cannot claim any set offs or other proceedings in a dispute arising with a third party.

Registration procedure

Partnership firms in India are governed by the Indian Partnership Act, 1932. A partnership firm can be register at the time of creation or after.

To register a firm in India, an application and the prescribed fees is to be submitted to the registrar of the firm of the state in which the firm is situated. The following documents are also supposed to be submitted with the application:

• Application for registration of partnership in Form No.1
• Duly filled specimen of affidavit
• Certified true copy of the partnership deed
• Ownership proof of the principal place of business. This could be a lease or rental agreement as well.

The application must be signed by all partners or agents authorised by the partners in this behalf. If the registrar is satisfied with the partnership deed then he shall record an entry of the statement in a register called the Register of Firms and issue a Certificate of Registration.

The registrar of firms maintained at office has a complete and up to date information of all registered firms. This register of firm is open to inspection by any person on payment of the prescribed fees. On payment of the prescribed fee a copy of all the details of the firm registered with the registrar will be given to the applicant.

It should be noted that registration with the registrar of firms is different from registration with the income tax department. Registration with the income tax department is mandatory while, registration with the registrar of firms is optional. It is also mandatory for all firms to have a pan card.

After obtaining the pan card the firm will have to open a current account in the name of the partnership firm and operate all its transactions through this bank account.

[1] Section 58(3) of the Indian Partnership Act, 1932