In this article, Jeevan John Varghese pursuing Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, discusses Registration of Firms under the Indian Partnership Act.

Introduction

The fundamental premise of understanding of the statutory provisions associated with the area of partnership is principally derived from the understanding of the Indian Partnership Act 1932. This was one of the earlier precedent set in the Indian statutory history which fundamentally evaluates and analyses the critical junctures associated with the process of partnership in India. However this is essentially a relic of our colonial past which is undoubtedly a no forged one. The fundamental notion of partnership as an act of mutual trust is essentially not codified.

However, the principle notion associated with the development of such is act is critically evaluated as major milestone in the statutory history of Indian jurisprudence which undoubtedly requires major changes in its modus operandi. Although many judicial precedents have been in resolute, however none of them have critically made a justification. The fundamental notion of this understanding is based on the fact that partnership as an act is invariably based on the fact that partnership as an act requires a factor of mutual trust and dignity in an amicable manner which is needed in an amicable manner and can’t be forfeited. However a codification of such a document requires an invariable amount of flexibility as it necessitates a laudable amount of combination of statutory compliance and values. However the law of the land necessarily needs a value phase but in a case of fact value conjectures the fact and the matter of compliance always presides over the value. However in a rapidly changing business environment where the impersonal business entity such as a company are in prominence, the concept of partnership as a business needs much modification to gain legitimacy and value in changing business environment.

Having said that, among the number of pros and cons, the legitimacy of the partnership as a business entity needs particular speculation and analysis of the business environment as a new form of business known as the “Limited Liability Partnership” has evolved into a mainstream business establishment model where the concerned business developers can opt for a relative term of risk and liability which was fundamentally missing in the partnership agreement and was a much needed change, which is particularly appreciated by the business communities across the world for the amount of flexibility it provides for the new business commodities such as startups and other ventures. However an exclusive understanding of the registration of the firms under the Indian Partnership Act, 1932.

Partnership firms in India are administered by the Indian Partnership Act, 1932. While it is not necessary to enter one’s partnership firm as there are no fines for non-registration, it is appropriate since the certain rights are denied to an unregistered firm.

Fundamentals Problems Faced By Not Registering a Firm

The following can be understood as the principle disadvantages faced by a partner if he/she does not register the firm under Indian Partnership Act, 1932:

(1) A partner is not entitled to file a suit in any court of law against the other partners or the firm for the execution of any right emerging from any undertaking or right bestowed by the Partnership Act.

(2) A right evolving from an undertaking cannot be implemented in any Court of law by or in support of one’s firm against any other firm.

(3) Moreover, the firm or any of its associates cannot assert a set off (i.e. fundamental negotiation of debts possessed by the argufied parties to one another) or other actions in a disagreement with a third party.

The Process of Registering a Partnership under Indian Partnership Act, 1932

The primary initiative regarding the process of registration or incorporation of partnership firm is to forward an application filling Form No. 1. As per the provision of section 58 it should include following details:

1. The name of the firm.
2. The full names and permanent resident address of the partners.
3. The timespan of the firm.
4. Business the date when each partner effuse to the firm.
5. The principal place of business transaction of the firm.
6. The names of any other places where the firm carries its functional obligations.

This undertaking is needed to be signed by all the associate partners, or by their respective agents principally given authority in their behalf.

Secondly, all partners should necessarily solicit their signature application form or their authorised agents in their behalf in the occupancy of a witness who must be Advocate, Gazetted Officer, Vakil or Magistrate of Registered Accountant. If a partner declines to sign the application form, registration cannot happen unless that partner’s name is dribbled.

The application as mentioned above has to be sent to the Registrar at the enumerated address along with the prescribed fees. As per section 71 of Indian Partnership Act, states are authorized to make their own regulations with respect to prescribe the fee structure for registration or incorporation of partnership. However, Schedule I of Indian Partnership act states the at most or maximum prescribed fees that can be charged by the states. As per Schedule I, the maximum registration fees for a statement under section 58 is Rs.525.

When is Partnership Registered

As provided in the Section 59, a partnership is said to be registered when a registrar is well pleased with the fidelity of application filed according to section 58 and an entry of statement in the register known as Register of Firms is recorded.

Proof of Registration

According to Rule 9 under Indian Partnership Act, a documented proof of registration or incorporation for that matter is a registration certificate signed by Registrar.

Business Name of the Firm

Alteration of Particulars

Whenever an amendment or change is made in any of the understated particulars then it should be conveyed to the Registrar of firms and a satisfactory alteration is rendered in the register. The change to be rendered is sent in a stipulated form and with the stipulated fees. Following amendments or alterations are to be sent to the Registrar:

1. Any alteration in the name of the firm.
2. Any alteration in the principle place of business transaction. The alteration in name or principle place of business transaction almost requires a fresh new registration. These alterations should be sent in a stipulated form and should be rendered signature by all the partners.
3. Whenever the constitution of the firm is altered i.e., an old partner may retire or a new partner may be added.
4. Any alteration in the name of a partner or his residential/official address.
5. When a minor partner gains the age of maturity and he is left to the discretion whether to elect to become or not to become a partner.
6. When the firm is subjected to dissolution.

Advantages of Registration

The registration of a firm is done not only towards the benefit of the firm but also for those who deal with it. The following benefits are obtained from the registration of a firm:

(i) Benefits to the Firm

The firm gets an unmitigated right towards the third parties in civil suits for getting its rights discharged. In the non-existence of registration, the firm is not entitled to sue outside partners in courts.

(ii) Benefits to Creditors

A creditor can employ any partner for recuperating his money due from the firm. All partners whose names are set in the registration are personally accountable to the unknowns. So, creditors can restore their money from any partner of the firm.

(iii) Benefits to Partners

The partners can seek the help of a court of law against each other in case of disagreement among partners. The partners can sue external parties also for restoring their amounts, etc.

(iv) Benefits to Incoming Partners

A new partner can contest for his rights in the firm if the firm is registered. If the firm is not registered then he will have to rely upon the trustworthiness of other partners.

(v) Benefits of Outward-bound Partners

The registration of a firm acts as an advantage to the outward-bound partners in numerous ways. The outward-bound partners may be divided into two categories:

(i) On the demise of a partner,

(ii) On the superannuation of a partner.

On the demise of a partner his heirs are not accountable for the obligations acquired by the firm after the date of his demise. In case of a superannuation partner, he remains to be accountable up to the time he does not give public notice. The public notice is not recorded with the Registrar and he terminates his liabilities from the date of this notice. So, it is vital to get a firm registered for getting this benefit.

Challenges Faced By Every Business Partnership

1) Problems with Partnerships

With all partnerships originate potential glitches. We all recall when Enron recognized that the partnerships they shaped were used unsuitably, expanding the company’s financial reports which depositors and thousands of Enron staffs trusted on in pivotal to buy or sell its stock. These partnerships, fixed with other major accounting errors, ruined the public’s assurance in the company and Enron sank into insolvency.

2) Liability

Commonly partners are 100% liable for the activities of other partners. If one general partner marks a blunder, all general partners are responsible for that error and any supplementary debt or other responsibilities that go along with that error.

3) Raising Capital

It is problematic to elevation capital in general partnerships since all common partners have unrestrained liability. Selecting an LP or LLP may be more striking to investors, as it allows a limited partner to participate without taking on any accountability. As stated above, however, there are limitations to LPs and LLPs that must be taken into thought. Moreover, LPs and LLPs are more affluent to form than a general partnership.

4) Protecting Your Stake in a Partnership

There are several benefits to forming a partnership, but also numerous entities to watch out for when acquiring on a partner. In all cases, partners must have a legal covenant that places limitations on each partner’s decision-making abilities. The agreement must condition, among more things, how choices will be made, profits will be allocated, and disagreements will be determined. If in case the partnership does not work out, the legal covenant should also designate in facts how partners can be credited out, how fresh partners will be acknowledged to the partnership, or what steps would be taken if the partnership wants to be suspended.

Conclusion

On a concluding note it can be observed that the essential notion associated with the partnership and its associated statutory provision needs an essential visitation as the relics of the colonial past are fundamentally needed to be polished to accommodate them to our social realities which requires a visitation to our social realities.

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References

• Benjamin Gerald A and Margulis Joel (2001): The Angel Investor & Handbook: How to Profit from Early-Stage Investing, London: Bloomberg Press.
•  T, Michale (2005): Hands –On Partnership, London: University Press London.
•  In focus Institute: Page on Partnership in India.
•  Business Standard Article Dated: 18/05/2016
•  Indian Partnership Act, 1932