How to Start and Register a Partnership Firm in India. In the previous article, we have given What Partnership Deed is and What are its Main Contents?. Today we are discussing partnership firm registration process in India. 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, it is advisable since the following rights are denied to an unregistered firm:
- A partner cannot file a suit in any court against the firm or other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act
- A right arising from a contract cannot be enforced in any Court by or on behalf of your firm against any third party
- Further, the firm or any of its partners cannot claim a set off (i.e. mutual adjustment of debts owned by the disputant parties to one another) or other proceedings in a dispute with a third party.
|Read||Sole Proprietorship Firm Registration Procedure in India|
How to start a Partnership Firm in India
Let us consider a step by step procedure
Step 1- Choosing the Partnership Name
The names must not be too identical or similar to the name of another existing firm doing similar business so as to lead to confusion. The reason for this rule being that the reputation or goodwill of a firm may be injured, if a new firm could adopt an allied name.
The name must not contain words like Crown, Emperor, Empress, Empire or words expressing or implying the sanction, approval or patronage of Govt except when the State Govt signifies its consent in writing to the use of such words as part of the firm name
Step 2 – How to Create Partnership Deed?
The document in which the respective rights and obligations of the members of a partnership are written is called the Partnership Deed.
A partnership deed agreement may be written or oral. However, practically oral agreement does not have any value for tax purposes and therefore the partnership agreement should be written. The following are the essential characteristics of a partnership deed:-
- Name and Address of the firm as well as all the partners
- Nature of business to be carried on
- Date of Commencement of business
- Duration of Partnership (whether for a fixed period/project)
- Capital contribution by each partner
- Profit sharing ratio among the partners
The above are the minimum essentials which are required in all partnership deeds. The partners may also mention any additional clauses. Some of the examples of additional clauses which may be mentioned in the partnership deed are mentioned below:-
- Interest on Partner’s Capital, Partners’ Loan, and Interest, if any, to be charged on drawings.
- Salaries, Commissions etc, if any, payable to partners
- Method of preparing accounts and arrangement for audit
- Division of task and responsibility i.e. the duties, powers, and obligations of all the partners.
Step 3- How to Register Partnership deed in India?
A simple procedure is followed for getting a firm registered. This procedure is divided into two parts:
(i) Filing an Application:
The first thing to be done is to file an application with the Registrar of Firms on a prescribed form. A small amount of registration fee is also deposited along with the application.
The application should contain the following information:
- The name of the firm.
- The principal place of business of the firm.
- The names and addresses of partners and the dates on which they joined the firm.
- If the firm is started for a particular period then that period should be mentioned.
- If the firm is started to achieve a specific object then it should also be given.
The application form should be signed and verified by each partner or by his duly authorized agent.
The particulars submitted to the Registrar are examined. It is also seen whether all legal formalities required have been observed or not. If everything is in order, then the Registrar shall record an entry in the register of firms. The firm is considered registered thereon.
Advantages of Registration
The registration of a firm is not only advantageous for the firm but also for those who deal with it. The following advantages are derived from the registration of a firm:
(i) Advantages to the Firm:
The firm gets a right to the third parties in civil suits for getting its rights enforced. In the absence of registration, the firm cannot sue outside partners in courts.
(ii) Advantages to Creditors:
A creditor can use any partner for recovering his money due from the firm. All partners whose names are given in the registration are personally responsible to the outsiders. So, creditors can recover their money from any partner of the firm.
(iii) Advantages to Partners:
The partners can approach a court of law against each other in case of dispute among partners. The partners can sue outside parties also for recovering their amounts, etc.
(iv) Advantages to Incoming Partners:
A new partner can fight for his rights in the firm if the firm is registered. If the firm is not registered then he will have to depend upon the honesty of other partners.
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