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Scale your business to a partnership firm and add new strength to your business

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    How To Register A Partnership Firm?

    Registering a Company is quick, easy, and can be done online with Numbro in 3 simple steps:

    STEP 1

    We try to understand the need of the legal entity and the partners involved along with the terms and conditions

    STEP 2

    We will draft a bespoke partnership deed with all the specific clauses that you would want to have and suggest you what are the necessary provisions

    STEP 3

    We will get the deed registered and register the firm and apply for relevant statutory registrations

    Partnership Firm Registration

    The Partnership Act has been in existence in India since 1932, making partnerships one of the oldest types of business entities in India. A partnership firm can be incorporated and registered at a later date as registration is voluntary and not mandatory.

    There are as such no penalties for non-Registration of a Partnership firm. But unregistered Partnership firms are denied certain rights under section 69 of the Partnership Act that majorly deals with the effects of non-Registration of Partnership firms.

    The contract between the partners is known as a partnership deed which regulates the relationship among the partners and also between the partners and the partnership firm

    Some of the key features of a Partnership Firm are:

    1. A partnership firm can have a minimum of two and maximum of hundred members
    2. A partnership firm unlike a company has no separate legal entity, except if the type of partnership is a Limited Liability Partnership
    3. Each partner in a partnership firm has an unlimited liability, but a Limited Liability Partnership (LLP) removes this shackle and limits the obligations of a partner
    4. There is no minimum capital requirement for commencing a partnership firm
    5. A partner is restricted to transfer his/her profits or rights entailing from the partnership without the consent of all partners
    6. In either case, a partnership firm is registered or unregistered under the Act, third parties can sue the firm to enforce their claim
    7. A registered firm, which is mandated to comply with the legal and taxation documentation, has an added advantage when it approaches banks for capital or working capital loans

    Registration of Partnership

    An application form along with fees should be submitted to the Registrar of Firms of the State in which the firm is situated for registering a partnership firm. The application has to be signed by all partners or their agents. After the Registrar of the Firms is satisfied with the correctness of the application, he will register the firm in Register of Firms and issue Certificate of Registration.

    Who requires Partnership Firm registration

    The registration of a partnership is at the sole discretion of the partners. The Partnership Act does not demand registration as a mandatory process that has to be adhered to.

    However, it is always advisable to register the firm under the act since it gives the firm other advantages that send an implied message of the act favoring registered firms than the unregistered.

    The firm can be registered at any time before the existence or during the continuance of the partnership. However, if a firm wishes to enforce a legal right arising out of any legal document by filing a case, the firm shall do so only after the registration of the partnership deed is done.

    The firm is registered when the registrar of firms is satisfied with the compliance of section 58 of the partnership act. It is important to note that registration at the income tax department is still mandatory for both registered and unregistered firms by the registrar. 

    Another instance where registration of the firm becomes compulsory is when the firm wishes to adopt a new form of organization such as LLP or company more easily. 

    Proof of registration

    A certified copy of any entry relating to the firm in the Register of firms shall act as conclusive proof of the registration of the firm.

    Advantages of registration

    A partnership firm compared to proprietary business has an upside of inculcating more skills, capital and risk sharing; and compared to a company it has an upside of easy processes, and minimal compliance that makes partnership a viable option for small and medium scale enterprises. 

    Ability to file case against Third Parties:

    The partners of the registered Partnership Firm can bring third parties to the court for resolution of disputes arouse during the course of Business or any other matter relating to the Partnership Firm.

    Power to file suit against co-partners:

    As none knows when the dispute between the Partners arises, whether for the sharing of profits or any other matter regarding operations of the Partnership Firm. The resolution of any dispute is best resolved by the Court of Law.

    Ability to claim Set-off:

    The registration of Partnership Firm enables the partners with power to claim set-off. When any third party files a suit against the Partnership Firm, the Partnership Firm can claim the set-off, if any against the claim of third Party

    Higher Credibility:

    Compared to an unregistered Partnership Firm, a Partnership Firm which has completed the procedure of Online Registration of Partnership Firm enjoys higher credibility. Although both registered and unregistered Partnership Firms are legal and valid under the given Act, the Registered Firm is highly preferred by authorities over unregistered one.

    Effects of non-registration

    Section 69 of the Partnership Act deals with the effects of non-registration which refuses or denies certain rights to an unregistered firm such as: —

    An unregistered Partnership firm loses the right file the case against third party for resolution of their disputes until and unless the procedure of Deed Registration has been completed. For example, if the client has not paid his dues to the firm, the firm cannot sue him if it is unregistered.

    However, the third party always own the right to file the suit against a Partnership Firm irrespective of its registration status.

    The Partners of an unregistered Partnership Firm cannot enforce any clauses of Partnership Deed. To enforce the said clauses, the registration for Partnership Firm shall be required by following the procedure prescribed for the same.

    A partnership firm which is not registered and any of its partners cannot claim a set-off. A set-off means a mutual adjustment of debts owed in a dispute with a third party.

    Therefore, every partnership firm finds it advantageous to get itself registered under the Partnership Act sooner or later.

    Non-registration of a firm has some real-life legal consequences for the partners and the firm itself. So it is always advisable to draw up a written partnership deed and register the firm with the Registrar of Firms. The consequences of not doing so are as follows,

    Difference between partnership and LLP

    1. The partnership is defined as an association of persons joined for earning profits from business, undertaken by all the partners or any one partner on behalf of all the partners. Limited Liability Partnership is a form of business operation which combines the features of a partnership and a body corporate.
    2. The partnership is governed by the Indian Partnership Act, 1932. On the contrary, Limited Liability Partnership Act, 2008 governs LLP in India.
    3. The incorporation of the partnership is voluntary, whereas the registration of the LLP is obligatory.
    4. The document that guides the partnership is called Partnership Deed. As opposed to limited liability partnership, the LLP agreement is the charter document.
    5. A partnership firm cannot enter into a contract in its name. On the other hand, the LLP can sue and be sued in its name.
    6. A partnership has no separate legal status apart from its partners, as the partners are individually known as a partner and collectively known as firm. Unlike, LLP which is a separate legal entity.
    7. The partners liability is limited to the extent of the capital contributed by them. As against this, the partners of a partnership have unlimited liability.
    8. Partnership can be started with any name of choice Conversely, the limited liability partnership must use the word LLP by the end of its name.
    9. Any two persons can start a partnership or LLP, but the maximum number of partners in a partnership firm are limited to 100 partners. In contrast, there is no limit of maximum partners in LLP.
    10. A limited liability partnership have perpetual succession whereas a partnership may dissolve any time.
    11. The maintenance and audit of books of accounts is not mandatory for a partnership, As against this, the LLP is required to maintain and audit books of accounts if turnover and capital contribution overreaches 40 lakhs and 25 lakhs respectively.
    12. The partnership firm cannot hold property in its name. Conversely, the LLP is allowed to held property in its name.
    13. In a partnership, the partners act an agent of the partners and the firm. On the other hand, the partners are agents of partners in case of LLP.

    Documents required for partnership firm registration

    The documents required to be submitted to Registrar for registration of a Partnership Firm are:

    Application for registration of partnership (Form 1)

    Certified original copy of Partnership Deed.

    Specimen of an affidavit certifying all the details mentioned in the partnership deed and documents are correct.

    PAN Card and address proof of the partners.

    Proof of principal place of business of the firm (ownership documents or rental/lease agreement).

    If the registrar is satisfied with the documents, he will register the firm in the Register of Firms and issue a Certificate of Registration.

    Register of Firms contains up-to-date information on all firms and can be viewed by anybody upon payment of certain fees.

    Procedure of Registration

    According to the India Partnership Act 1932, there is no time limit as such for the registration of a firm. The firm can be registered on the date when it is incorporated or any such date after so. The requisite fees and fines must be paid. The procedure for such a registration is as follows,

    Step 1: Choose name for a partnership

    A firm should select a name that does not resemble the name or color-able imitation of the entity that is already public.  

    Step 2: Draft a Partnership Deed

    The partnership deed is the most important document for the registration of the company as it provides the registrar with the following necessary information:

    Name and address of company and all partners

    Contact details of partners

    Nature of the business

    Duration of the partnership

    Profit/Loss sharing ratio

    Rules regarding the solvency of the firm

    Information of capital to be contributed by each partner

    Additionally, the Deed also contains information about the remuneration payable to partners in excess of the profit shares, responsibilities of partners, audit procedures, etc.

    Once the deed is ready it shall be reviewed by the partners and if necessary by experts to avoid any technical error. The final Deed shall be printed on a non-judicial stamp paper with a value of 500/- or more depending upon the value of properties that are present in the deed. The parties are thus requested to verify the state stamp duty act of the respective state in which it is registered. 

    All the partners or their authorised agents have to sign the deed in the presence of the other partners and the witness. It is a customary practice that every partner retains a copy of the original signed deed for their reference. Then the signature of the witness is obtained.

    The partnership act does not require the deed to be notarized but it is advisable to notarize the deed because it adds more credibility to the deed. Litigations questioning the genuineness of the deed shall be avoided just by notarizing it. It is a mere customary practice of this industry.

    In case if there is no partnership deed then the following rules will apply irrespective of the approval or disapproval by partners.

    Equally distributed profit and loss.

    No salary shall be provided to any partner.

    There shall be no interest on capital brought in.

    No interest shall be attracted when a drawing is made.

    On mutual agreement, the firm shall pay interest of 6% p.a to the partner who has advanced loan.

    Step 3: Apply for a PAN Card in the Partnership Name

    A firm, irrespective of registration under the Act, has to apply for a Permanent Account Number to the Income Tax Department. The PAN is a requirement to fulfill the obligation of paying taxes.

    Step 4: File a Registration Application

    The registration application requires a firm to provide information regarding the name of the firm, the nature of the business carried out, address of the business, names and addresses of all the partners, date of commencement of business. This form is further taken to the registrar in the region of the firms main office.

    Step 5: Submit the Documents

    Along with the registration application, the documents are to be submitted to the Registrar as a part of the registration process:

    Step 6: Pay the Fees & Stamp duties

    A registration fee and a stamp duty need to be paid at the time of the submission of the documents with the Registrar. The fees vary across states. One must understand that the registration is not complete until all dues are paid.

    Step 7: Finalize the Deed

    To legalize the Deed, it should be provided to each partner in a written form on a stamp paper. One stamp paper deed should be duly signed by all the partners in front of the notary. The value of the stamp varies from state-to-state. The signed copy is thereafter submitted to the Registrar during the registration process.

    Step 8: Certification from the Registrar

    The registrar, after thorough examination of the documents, will issue a registration certificate.

    The firm will be thus on record in the Register of Firms . On the date of this entry, the firm shall be deemed to be registered. The partnership firm is required to add (Registered) after its name from the date of registration.

    A lot of states in India now provide the facility of registering partnership firms online. The online registration of partnership firm requires the firm to file an application online. The firm will have to furnish the same information on this form. The acknowledgement number raised after the submission of the application is further used to login on the website and the firm has to upload the scanned copies of all the above mentioned documents. The registrar will review the documents and the certificate will be sent through an email.

    Why numbro?

    • Numbro can help you start a partnership firm from start to finish
    • We are capable of advising and serving you, even as your company grows and expands
    • You can reach us at any time. You can contact us via text, whatsapp, email, or phone
    • We place a great value on ethical business operations
    • We believe that flexibility leads to greatness, so we customise all of our services to each client’s individual needs.

    FAQ's

    Who is a partner?

    Partner is a person who is one of the promoters in a partnership firm.

    What is a Partnership Firm?

    A partnership firm is a form of business entity which is formed with partners who are promoters of the entity. A partnership firm is registered under the partnership act 1932. A partnership firm has to be registered by the partners.

    What is a Partnership deed?

    A Partnership deed is an agreement between partners that describes the profit sharing ratio among the partners, remuneration to the partners, objects of the partnership firm, registered office details and all other key information that regulate the way business would be conducted and the key personnel who would be handling the business.

    What is profit sharing ratio?

    Profit is a crucial part of any business. Profit sharing ratio is the ratio in which the profit is to be distributed among the partners. This ratio is to be mentioned in the partnership deed.

    How many partners are required in a partnership firm?

    A minimum of two partners are required to start a partnership firm. The maximum number of partners in a partnership firm is 10 except in case of banking firm where a maximum of 20 partners are allowed.

    When my partnership can be invalid?

    In general, the court may deem a partnership not valid when the partnership agreement is not registered in the eye law. The court may consider the partnership not valid and dissolve the partnership if the object of the business is not legal.

    What is the minimum share capital for starting a Partenership firm?

    There is no minimum share capital unlike a private limited Company. Hence, a partnership firm can start their business without a minimum capital.

    Which form of business can be converted into for Partnership firm?

    A sole proprietorship can be converted into a partnership firm .A partnership firm can be scaled up into a Private Limited Company when there is a scope for expansion.

    Who can start a Partnership firm?

    Like minded entrepreneurs with similar ideologies who want to start small and expand the organization in near future and who believe that their personal funding would help them in building the business can opt for a partnership firm.

    Can a NRI start a Partnership firm in India?

    FDI is not allowed in India in form of sole proprietorship or partnership businesses except that NRIs are allowed to do so on non-reparable basis.

    What are the yearly compliances with respect to Income Tax, Service Tax and VAT?

    Income Tax: A partnership firm has to pay an advance tax on quarterly basis if the tax liability payable during the year is more than INR 10,000 and has to file income tax return on a yearly basis.

    Goods & Services Tax (G.S.T): If the partnership firm’s taxable turnover exceeds Rs.20, 00,000 it is liable to be registered under G.S.T and compliances applicable to GST Act have to be complied with.

    When my certificate of registration can be cancelled?

    Sometimes a partnership certification of incorporation can be revoked which can be termed as dissolution. When all partners or except one partner is declared insolvent or if the firm is carrying unlawful activities, in that case the dissolution can be brought upon automatically. Unlawful activities include like corporate malpractice, trading in drugs or other illegal products, or making business operations with countries that may harm the interest of the country.

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