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Partnership, in layman terms, refers to an agreement between a group of people to share their profits or losses arising by virtue of actions carried by all or one of them acting on behalf of all. The individuals who enter into such an agreement are called ‘partners’ and collectively they are called as ‘firm’ or a ‘partnership firm’. The maximum number of members that can exist in a partnership is 10 in case of a firm carrying out banking business whereas the limitation is 20 in case of any other businesses.

The Act which governs the principle of partnership is the Indian Partnership Act, 1932 but the limitation imposed on the number of partners is governed under the Companies Act, 1956.

The Section 4 of the Indian Partnership Act, 1932 defines the term ‘Partnership’ as – “the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.

Features of Partnership

As per the aforementioned definition, there are five elements which collectively constitute a partnership, which are mentioned below –

1. There must be a contract
2. The contract must be between two or more individuals
3. The individuals intending to form a partnership firm must have a ‘consensus ad idem’ to carry on a business
4. The object of the proposed partnership firm must be based on sharing profits  
5. The business must be carried out by either all or any one of them acting for all.

Starting a Partnership Firm in India

I. Choosing a Name

The partners are free to choose any name for the proposed partnership firm subject to two conditions which are – first, the name of the proposed firm must not be identical to another firm having the same nature of business and secondly, the proposed firm must not contain the words namely – ‘Crown’, Emperor’, ‘Empress’, ‘Empire, ‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words which intends to express or imply the sanction, approval or patronage of the government, except when the State Government itself signifies its consent to the use of such words as part of the firm name by order in writing as is mentioned under Section 58(3) of the Indian Partnership Act, 1932.

II. Creating Partnership Agreement/Deed

A partnership deed/agreement can be either written or oral. However, written agreements are preferred over oral agreements. The deed must be accompanied with a prescribed fee amount, which varies from state to state depending on where the firm is proposed to be established and contain the below mentioned details as per Section 58(1) of the Indian Partnership Act, 1932 –

1. The firm’s name
2. The place or principal place of business of where the firm carries on its function.
3. Name(s) of any other places where the firm conducts business
4. The date when each partner joined the firm
5. The names and permanent addresses of the partners of the firm
6. The duration of the firm, i.e., if it is for a fixed period.

The partners of the proposed firm may also include additional details of the partnership in the deed like-

1. Tasks/responsibilities of the partners
2. Obligations and duties of the partners
3. Shares/Salaries/Commissions of the Partners

The above list is not exhaustive. Any detail relevant to the partnership must be included unambiguously.

III. Registering Partnership Deed

Partnerships in India are governed by the Indian Partnership Act, 1932 which does not prescribe mandatory registration of the Partnership firms. However, if the partnership firm is not registered, the partners may miss out on a lot of benefits which a partnership firm is entitled to.

When can a Partnership firm be registered?

The registration of a partnership firm can be done anytime even during continuance of the business. But in case, the firm intends to file a case in the court, the registration must be done before that.

Procedure to Register a Partnership firm

The procedure to register a partnership firm is not cumbersome. An application and the prescribed fee are required to be submitted to the Registrar of Firms of the State concerned where the firm is situated. The documents mentioned below are required to be submitted-

1. Form No. 1, which is the application for registration of partnership.
2. Identity and Address Proof of Partners. For example, Pan Card/Passport/Voter ID/Aadhar Card/Driving License Copy of the Partners.
3. Ownership proof of the principal place of business where the firm conducts its business.
4. Certified True Copy of the Partnership Deed
5. Duly filled specimen of Affidavit.

The application (Form no. 1) must be signed by all the partners or their agents especially authorized in this behalf. Once the registrar is satisfied, he/she shall record the same in ‘Register of Firms’ and issue a ‘Certificate of Registration’ as per section 59 of the Indian Partnership Act, 1932.

IV. Certificate

The documents submitted to the Registrar for the registration of the firm are examined. It is also checked whether all legal formalities have been followed or not. If everything is found to be in order, the Registrar then shall record an entry in the register of firms. The firm is then officially registered thereon.

Alteration of Particulars in the Partnership Firm

In the event when there is a change/alteration is made in any of the particulars appended below then it should be intimated to the Registrar of Firms so that the particular change is made. The required change to be made must be sent in the prescribed form along with the prescribed fees.

Changes/Alterations on the following are to be sent to the Registrar –

1. When there is a change in the name of the firm (Section 60, Indian Partnership Act, 1932) – An application (Form No. 2), duly signed and verified by all the partners, with the prescribed fee has to be sent.
2. Change in the principal place of business (Section 60, Indian Partnership Act, 1932) – This process almost requires a new registration. In this case too, Form No. 2 must be filled out and sent to the Registrar.
3. Discontinuation of business (Section 61, Indian Partnership Act, 1932) – In the event when a registered firm discontinues business or begins to conduct the business at any other place, any partner or even the agent of the firm can intimate the Registrar by filling up Form No. 3.
4. Change in the name of Partner/his Address (Section 62, Indian Partnership Act, 1932) – In the event there is a change in the name of the concerned partner or his/her address, Form no. 4 must be filled and duly sent to the Registrar.
5. Change in constitution of the Firm (Section 63(1), Indian Partnership Act, 1932) – If an old partner retires or a new partner is inducted, Form no. 5 must be filled and duly sent to the Registrar intimating the same.
6. Minor attaining the age of majority (Section 63(2), Indian Partnership Act, 1932) – When a minor attains majority, he/she becomes eligible to hold the office of a partner. In that case, Form no. 4 must be duly filled and sent to the Registrar.
7. Dissolution of the Firm (Section 63(2), Indian Partnership Act, 1932) – When the firm is dissolved/proposed to be dissolved, Form no. 6 must be filled and sent to the registrar.

Non-Registration of a Partnership Firm – Disadvantages

Registration of firms is not compulsory under Partnership Act, 1932. The partners can set the firm registered at any point with no penalties levied for non-registration.

Although there are no penalties for non-registration but section 69 of the Indian Partnership Act, 1932 deals with the effects of non-registration which denies certain rights.

1. A partner of an unregistered firm cannot file a suit against that unregistered firm or its partners for the enforcement of right arising from a contract/agreement. This is due to the sole reason that the firm is not registered.
2. Set-off (mutual adjustment of debts owed by the disputant parties to one another) cannot be claimed by any unregistered firm or by their partners itself. Likewise, proceeding in other disputes with a third party cannot be resolved if the firm is not registered.
3. An unregistered firm cannot institute a suit to enforce a right arising from a contract in any court of law. Again, the firm has to be registered so as to be eligible. Hence, it is advisable that the firms register themselves sooner or later so as to be eligible to sue and enforce their rights in the court of law.

Want to Register a Partnership Firm?

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