Partnership Firm Formation and Registration in India under Partnership act, 1932

Aditya Pratap is a lawyer practicing in the Bombay High Court. He can be reached at aditya@adityapratap.com

Persons who have entered into a partnership with one another are called individually ‘Partners’ and collectively ‘A firm’ and the name under which their business is carried on is called the ‘Firm name’. Indian Partnership Act, 1932 plays a vital role in governing partnership firms and their smooth functioning.

This article shall give you the clarity to start your Firm Formation and registered under the Indian Partnership Act, 1932. Join us as we take you through the registering your law firm and formation of Partnership Firm.

Types of Partnership Firm under Partnership act, 1932

Indian Partnership Act allows a firm to be formed and executed by entering into Partnership Agreement. It provides types of Partnership Firm namely by Unregistered Partnership Firm or Registered Partnership Firm. The formation of Partnership Firm shall be with mutual consent of Partners to the business, classified as a type below:

  • Unregistered Partnership Firm: The Unregistered Partnership Firm is established by entering into agreement by the partners of the proposed firm. The Unregistered Partnership Firm as stated to be legal allows the Partners to carry on the business in manner stated and provided in the agreement.
  • Registered Partnership Firm: The Partnership Firm is to be registered with the Registrar of Firm having jurisdiction over the Place of Business of the Firm. The registration of Partnership firm involves payment of Government fees to Registrar, varied from state to state according to the State Law.

Registration of a Partnership firm

It is not compulsory under Indian law to get a Partnership firm registered but a registered firm enjoys various benefits over a non registered partnership firm.

In a Registered Partnership, partners have a right to file a case against the firm or co partners or any other third party and can claim against any third party in the court for the repayments of damages.

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. Any statement, notice of intimation recorded or noted in the registrar of firms shall be conclusive proof of any fact stated therein. 

Procedure for the Partnership Firm Formation and Registration in India

  • Preparation and Execution of Partnership Deed: The Partnership Deed shall contain the covenants such as the name and business place of the firm, business activities to be carried on, the contribution and profit sharing ratio of the Partners or any other conditions required.
  • Payment of Stamp Duty and Notary: The Partnership Deed prepared shall be executed by the payment of stamp duty as applicable in accordance with the respective state law. One may either opt for execution on non-judicial paper or franking i.e. payment of stamp duty from banking channel. Subsequently the deed shall be notarized after providing the signature of all partners along with witnesses to agreement.
  • Registration of Partnership Firm with RoF: The registration of Partnership Firm is voluntary, however is preferable by the businessmen. The registration procedure prescribed by the respective Government shall be followed with payment of requisite Government Fees and submitting the documents required.
  • Application for PAN: The application for allocation of PAN shall be made to the Income Tax department as the department identifies the Partnership different from its Partners.
  • Opening Bank Account: The current account in the name of the Partnership Firm shall be opened in order to regulate the transaction of the Firm.

Role of Partners in the Formation of Partnership under Partnership act, 1932

A partner must perform several duties to ensure the formation of a partnership without any constraint governing the following role:

  • As per Section 11(2) of The Partnership Act, 1932, a partner shall not carry on any business other than that of the firm while he is partner.
  • Every partner has a right to take parrt in the conduct of the bussiness.
  • Every partner must perform his duties diligently and should not involve in fraudulently activities.
  • Every partner has a right to express his opinion in decision making and in case of dispute, the decision of the majority of the party will be considered.

Criteria of Partnership in a Partnership Firm

The minimum number of partners that is essential to make a partnership association is 2. However, the Companies Act to make a cap as to the maximum number of partners that can be involved in a partnership firm.

  • For a Banking business, the number of partners shall not exceed 10.
  • For any other business other than banking the number of partners shall not exceed 20.

If this limit is exceeded the firm shall be registered as a company under the companies act if not the firm shall be deemed to be unlawful.

Rectification of mistakes of Registration under Partnership Firm

The registrar has all the powers to rectify any mistake relating to or inconsistent with the statements filed by the partners and so shall make necessary changes in the register as well. 

Rectification shall also be made at the request of the partners regarding any record or statement filed to the registrar regarding the firm. The registrar is entitled to do so under Section 64 of the The Partnership Act, 1932.

About the Author – Aditya Pratap

Aditya Pratap is a lawyer practising in Mumbai. He argues cases in the Bombay High Court, Sessions and Magistrate Courts, along with appearances before RERA, NCLT and the Family Court. For further information one may visit his website adityapratap.in or view his YouTube Channel to see his interviews. Questions can be emailed to him at aditya@adityapratap.com.

Cases argued by Aditya Pratap can be viewed here.

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