Partnership Firm Registration: Definition, Regulations, and Registration Procedure

Partnership firm registration in India is provided as per the Partnership Act, 1932. Partnership firms are registered with the registrar of firms of your respective state. Also, you need to form a partnership deed between the partners of the firm to determine the responsibilities, profit share, rights, etc. of each member. The partnership act also provides other regulations for the registration of partnership firms in India. This article covers all the aspect of Partnership Firm Registration in India.

What is a Partnership Firm Registration?

When two or more people come together to form an entity with mutual consent and divide profits in an agreed ratio is called a Partnership Firm. The most important thing to be noted while choosing partners for a partnership firm is that it should not be comprised of members of a Hindu Undivided Family, or a Burmese Buddhist member. Also, two people holding the status of husband and wife cannot be called a member of a partnership firm.

Definition of Partnership, Partner, Firm and Firm name according to the Partnership Act, 1932

The Partnership Act of 1932^[1] has laid down all the regulations for the incorporation, functioning, decision making, dissolution, detention/ expulsion of a partner, etc. Also, the act provides the definition of various terms used or necessary in a partnership firm. 

“Partnership” is the relationship between individuals who have agreed to share profits of a business carried on or acting on by the members.

People that have come together to form such entity is called “partners”. The partners of the firm collectively are called “a firm”. Additionally, the name under which the partners carry on the business of the firm is called the “firm name”.

Need for registering a partnership firm

Partnership firms in India are registered, regulated and governed under the Partnership Act, 1932. The registration of a partnership firm is not obligatory; however, forming a Partnership Deed is beneficial and gives the power to sue and be sued by other members. Also, you can register your partnership firm at any point in time, but it is advisable to register your firm before starting its operations.  

Requirements for registering a Partnership Firm

The minimum number of members in a Partnership Firm should be two, and the maximum should be one hundred according to the new amendment in the act.

What are the Advantages of Partnership Firm?

1. Easy Formation: It is not mandatory to register the partnerships firm and also it does not involve any formalities. Hence, the business can start on the mutual understanding of the partners. Therefore, it is very economical and easy to form.
2. Larger Resources:  the partnership firm having larger resources due to more number of human resources involved in it for their business operations in comparison with the sole proprietorship firms.
3. Flexibility in operation: the partnership firm has the benefit of flexibility as they can take decision and amend in accordance with the dynamic situation easily.
4. Better Management: It is because of the ownership, administration and profit in the partnership firm that the business can be well managed.
5. Sharing of Risk:  In the partnership firm the loss is shared individually by all the partners that reduces the burden and make the process at ease. 
6. Partnership firm protects the interest of all partners.

How to form an agreement between the partners?

The agreement between the partners stating all responsibilities, rights, duties, profit shares, and other details of each partner should be formed at the beginning. Such an agreement is called a Partnership deed. Furthermore, the Partnership deed can be written or oral, but it is always advised to form a written agreement to use it as proof of partnership. 

Details included in the Partnership Deed

The following information should be included in the partnership deed of a firm;

General Details:

• Address and name of the firm and of all the partners
• Kind of business
• The Date of starting of business 
• The Capital contributed by each partner
• The ratio of Profit and loss sharing among the partners

 Specific Details:

Also, apart from these, certain specific clauses may be mentioned to avoid any conflict at a later stage:

• The Rights of each partner, including additional rights to be enjoyed by the active partners
• The Interest on Capital invested, drawings by partners or any loans provided by partners to the firm
• The details of the Commissions, Salaries, or any other amount to be paid to partners
• Duties and obligations of all partners
• Processes or Adjustments or to be followed on account of the retirement or death of a partner or dissolution of the firm.
• Other clauses as partners may decide by mutual discussion

How to register a partnership firm?

You need to make an application for the registration of the partnership firm and submit it to the Registrar of Firms of your state along with the prescribed fees. Furthermore, the application must contain signatures of all the partners or agents.

Required documents

The documents required to certify a partnership firm is a few, namely;

As identity and address proof of the Partners, any of the following two documents can be submitted:

• PAN Card
• Passport
• Drivers License
• Aadhar Card
• Voters ID

Proof of the principal place of business can be established by submitting the following documents:

• Sale deed in case one of the partners owns the place of business
• Rental agreement copy if the premises are rented
• Copy of latest electricity bill or water bill or property tax receipt

Liability of the firm for any wrongful acts of a partner

As a partnership firm is constituted of individual partners and has unlimited liability, the actions by each member determine the profit or loss of the firm. Furthermore, the firm is liable for the same extent as the partner because of any wrongful act or omission by any of the partner.

Expulsion of a partner

A partner of a firm cannot be expelled unless the reason for the expulsion of such partner satisfies these conditions;

• A partner can be expelled if it is being exercised in absolute goodwill
• The decision of such expulsion should be taken by the majority of the members
• The power of expulsion must be given to partners by an express contract between them

Dissolution of a firm

As per the Partnership Act, the dissolution of a partnership between all the partners of a firm is called dissolution of the firm.

The dissolution of the firm can be done in the following ways;

• Dissolution by agreement: the dissolution of a partnership between all the partners of a firm in accordance with a contract between the partners.
• Compulsory dissolution: the dissolution of a firm under forced conditions or in a situation when it becomes necessary to take such action.
• Dissolution on the happening of certain contingencies: dissolution because of various contingencies.
• Dissolution by notice of partnership at will: the dissolution of the firm because of the consent of all partners.
• Dissolution by the court: the dissolution of a firm by the court under certain conditions.

Conclusion

The partnership firm is a very popular form of entity in India. Also, such a firm can be formed between friends and strangers and should not be formed between family members like husband and wife. The partnership Act, 1932 supervises the formation, governance and registration of partnership firms in India.

Read our article:What are the Benefits of Limited Liability Partnership Registration.