IPLF: Getting your Partnership Firm Registered

With one of the most important forms of business organization, the partnership is the most sought by young entrepreneurs. This form of business generally takes two or more person who comes together for the business based on certain agreement. That agreement tells the working nature of the partners and the agreed profit ratio between them. The business includes a variety of services in terms of trade, occupation, and profession. The formation of partnership firms is growing due to its easy process and less compliance compared to companies. This partnership is regulated by the Indian Partnership Act 1932 which governs and regulates the firms in India. The partnership is conducted and governed by the contract between partners which is known as a partnership deed that regulates the relationship among the partners and also between the partners and the partnership firm.

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In short, an organization that is set up with two or more individuals to run a business to make a profit is called a Partnership Firm. Each member of such a group is recognized as a partner and is known collectively as a partnership firm. The Indian Partnership Act discusses issues that regulate partnerships. A crucial feature of the partnership is that each partner is both a principal and an agent for all the other partners of the firm, so an act of one partner is an act of all partners. In simpler words, this means that each partner is responsible for the actions of other partners of the firm (unlimited liability). Registration of a Partnership Firm is not compulsory in India, but it is recommended that one registers a Partnership firm considering the advantages of a registered company and limitations on access to a court of law for the enforcement of a partner’s rights.

Advantages

There are multiple advantages of the partnership firm of which the first one is the incorporation process which is very easy as compared to the other form of business. Registration is also not compulsory. For incorporation, it just required the drafting of the partnership deed and entering into the partnership agreement. No other documents are required. Even in the case of incorporation, the partnership firm can be registered at a later date. Also, the compliance which needs to be followed is less as compared to the LLP. The partners do not need a Digital Signature Certificate (DSC), Director Identification Number (DIN), which is required for the company directors or designated partners of an LLP. The registration process is also very cheap as compared to other business forms. Even the dissolution is simple and does not require any such legal formalities. Also in terms of sharing the profit and loss, the partners have the liberty to share the profit and loss as decided mutually. This can be decided in terms of profit and turnover which can be proportional to ownership and accountability. Therefore, any loss and any profit will be borne by all the partners equally.

Disadvantages

There are certain disadvantages of the partnership firm. The unlimited liability of the partners is one of them. At the time of loss, the partner would have to bear the same even from the personal estate. It is not in the case of company and LLP where the liabilities of the partners are limited to the extent of shares. Therefore, the liability of one partner is borne by all. In case the debt is higher, the partners need to pay from the personal property. In the case of company and LLP, there is a perpetual succession, but in the case of a partnership, there is no succession which means that a partnership firm will come to an end upon the death of a partner or insolvency of all the partners except one. Moreover, the partnership can end if any partner gives notice of dissolution.

With the restriction of a number of partners, the capital invested is also less. The maximum number of partners is 20. This restricts the firm’s resources, and the partnership firm cannot take up a large-scale business. Not having any legal entity, it is difficult to raise the capital due to less faith. With less compliance and no requirement of publishing the account, it becomes difficult to raise the fund from third parties.

Nevertheless, despite all the disadvantages, the partnership firms are growing in large numbers. A partner can sue other partners for enforcing his rights arising out of the contract between the firms. Also, it can file a suit against the third party for enforcing the right. But these benefits will only arise if the partnership firm is registered; hence it is advisable to register your partnership firm. The team at IPLF has helped clients in registering the firm and for more details regarding the same, please contact the IPLF team.

Author: Saransh Chaturvedi an associate at IP & Legal Filings, in case of any queries please contact/write back to us at support@ipandlegalfilings.com.