In this blog post, Gurshabad Singh Sandhu, from Rayat and Bahra University School of Law, Mohali and pursuing Diploma in Entrepreneurship Administrative and Business Law from NUJS, Kolkata describes the registrations required for a law firm in India. 

Registration Of A Law Firm

The first thing that a person requires to set up a Law firm is that he be at least 21 years old and a Law degree from any University of India or a Foreign University, recognised by the Bar Council of India. Every state has a Bar Council. After getting a degree, you need to register yourself with any of the State Bar Councils of India.

What Do You Need To Consider Before Registration?

There are some factors which a lawyer needs to take into consideration before he plans to set up a Law Firm and wants to register it. These factors are considered essential from the lawyer’s point of view as they describe the work, Management and establishment of the Firm.

• Limited Liability: Limited Liability Partnership has a benefit over Sole Proprietorship because in an LLP the personal Assets of the Partners cannot be used to pay off the debts of the business, but in the case of a Sole Proprietorship, the individual’s personal assets are used to repay the debts of the business.
• An number of lawyers and their roles: If a sole proprietorship is chosen by a lawyer then all the functions of management, decision making, financing, record keeping, tax bearing shall be done by the single person but if there are partners in a firm then work would be assigned as per the specialization and tax would be borne by all the partners.
• Financing: In a sole Proprietorship, there is a single person who is the owner, all funds are raised by him alone, and even the loan taken by the sole proprietor for setting up the firm has to be repaid by him alone, and his personal assets can also be used for settling the loan amount. Hence the entire burden of taking the loan and repaying it back lies entirely on the sole proprietor and his personal assets. In a case of Partnership and LLP, the personal assets of person cannot be sold for repaying back the loan amount.
• Management: If a Firm is a sole Proprietorship then the entire management of the firm would be taken up by the single person, he shall take his own decisions and shall act as per that only. If there are two or more partners in the firm, then all the Partners can take give their personal opinions as different people are specialised in different fields. Hence opinions taken by different lawyers shall lead to specialisation of work, but at the same time, this can also lead to conflicting decisions.
• Taxes: One of the biggest concerns for every business entity is how it will be taxed. If the Firm is a Sole Proprietorship firm, then one must report all business income or losses on your personal income tax return. But if the firm is a Partnership firm or an LLP then a Flat Tax rate of 30% is levied on partnership firm.

Types of Legal Structures and their Registration

• Sole Proprietorship
• Partnership
• Limited Liability Partnership

Sole Proprietorship

Sole Proprietorship is the simplest and a straightforward form of structure as the firm is managed and operated by a sole proprietor, who does not get the benefit of Limited Liability as in case for the recovery of the Loan amount the personal assets of the sole Proprietor can be used and in addition to this the Income from the business is reported on your personal income tax return.

There is no formal procedure for registration of a sole proprietorship Law Firm in India; this can be done only through the opening of a bank account in the name of the Proprietorship Firm or obtaining licenses required for conducting the business. If you want to open a current bank account, you will need couple of things –

1. Service tax registration.
2. Letter from your CA regarding the nature of your business.
3. Letterhead with the firm’s name and address.
4. Stamp in the name of the Proprietorship.
5. Address and ID Proof of the proprietor. If proprietorship address is different, then you will also need office premise address proof.

Partnership

The partnership consists of two or more people who own and run the firm. The partnership may be general or limited and is governed by an agreement that sets forth the partners’ responsibilities and obligations. Partnership firms in India are governed by the Indian Partnership Act, 1932. While it is not compulsory to register your partnership firm as there are no penalties for non-registration.

A partnership firm can be registered whether at the time of its formation or even subsequently. You need to file an application with the Registrar of Firms of the area in which your firm is located. Application for partnership registration should include the following information:

• Name of the firm
• Name of the place where the firm is situated
• Date of partners joining the firm
• Full name and permanent address of partners.
• Duration of the firm

Ensure that the following documents and prescribed fees are enclosed with the registration application:

• Application for Registration in the prescribed Form – I
• Specimen of correctly filled Affidavit
• Certified copy of the Partnership deed
• Proof of ownership of the place of business or the rental/lease agreement thereof

Once the Registrar of Firms is satisfied that the application procedure has been duly complied with, he shall record an entry of the statement in the Register of Firms and issue a Certificate of Registration. The Register of Firms maintained at the office of the Registrar contains complete and up-to-date information about each registered firm. This Register of Firms is open to inspection by any person on payment of the prescribed fees

Any person interested in viewing the details of any firm can request the Registrar of Firms for the same, and on payment of the prescribed fees, a copy of all details of with Firm registered with the Registrar would be given to the applicant

Limited Liability Partnership

LLPs are a very common way for partnerships of all sizes to operate in a more protected manner than a general partnership. The advantage of incorporating an LLP is that it would protect your personal assets in the event of a dispute. Most law firms have moved to this model after it was introduced in India. The name indicates, Limited Liability Partnership limits the liabilities of its partners to their contributions to the business and also offers each partner protection from the negligence, misdeeds or incompetence of the other partners.

To register an Indian LLP, one has to first apply for a Designated Partner Identification Number (DPIN). Then one needs to acquire Digital Signature Certificate (DSC). As soon as the DSC is applied, then a unique name for the LLP Firm would be asked for, these will be used to file for incorporation with the MCA. The Certificate of Incorporation will be approved at the end of this process. Thereafter, it is a need to get the LLP name approved by the Ministry of Corporate.

Every LLP needs a registered Permanent Account Number (PAN) and Tax Account Number (TAN).

Conclusion

While Registration is not mandatory but registering, a firm generates a few rights on the Firm and on its Partners, which a non-registered firm does not have. Each structure has a different procedure for Registration, and essential factors need to be taken into consideration while choosing the Legal structure of a Firm.