Registration of Partnership Firm in India and Consequences of Non-registration

Introduction

Registration of a partnership firm involves officially recording the firm with the Registrar of Firms. The process is governed by the Indian Partnership Act, 1932. Notably, the Act makes the registration of a partnership firm optional, leaving it to the discretion of the partners.

Types of Partnership Firms

Under the Indian Partnership Act, 1932, partnership firms are classified into two types:

Unregistered Firms: These are formed by an agreement between two or more competent persons (partners) but are not registered with the Registrar of Firms.
Registered Firms: These firms are registered with the Registrar of Firms by submitting a copy of the partnership deed.

Chapter VII (Sections 56-71) of the Indian Partnership Act, 1932, outlines the process for registering partnership firms.

Laws Governing Registered Partnership Firms

An overview of Sections 56-71 of the Indian Partnership Act, 1932, is as follows:

Section 56: Grants the State Government the power to exempt the application of Chapter VII in certain areas or states via notification in the official gazette.
Section 57: Allows the State Government to appoint Registrars of Firms, who are public servants under Section 21 of the Indian Penal Code. The State Government may define the areas where these Registrars will operate.

Application for Registration of a Partnership Firm (Section 58)

Sections 58 and 59 detail the procedure for registering a partnership firm. The application form, along with the registration fee, must be submitted to the Registrar of Firms appointed by the State Government.

Registration can occur at any time by sending the required documents by post or delivering them to the Registrar in the appropriate area. It is not mandatory for a firm to be registered from the outset.

When partners decide to register the firm, they must file a statement in the prescribed form according to Section 58 of the Indian Partnership Act, 1932. This statement must include:

The firm's name
The principal place of business
Names of other places of business
The date each partner joined
Full names and permanent addresses of the partners
The duration of the firm

The statement must be signed by all partners or their authorized agents. Once the Registrar is satisfied that all the requirements have been met, the firm’s registration will be recorded in the register and the statement filed.

Recording Alterations in Firm Name and Principal Place of Business (Section 60)

If there are any changes in the firm’s name or the location of its principal place of business, a statement specifying these alterations must be sent to the Registrar. This statement must be signed and verified as required under Section 58 and accompanied by the prescribed fee.

Once the Registrar is satisfied that the provisions have been complied with, they will amend the entry related to the firm in the Register of Firms.

Noting of Closing and Opening of Branches (Section 61)

When a registered firm discontinues business at any location or starts business at a new location, any partner or agent of the firm can send intimation to the Registrar. The Registrar will note the changes in the firm’s entry in the Register of Firms.

Changes in Name and Address of Partners (Section 62)

If any partner in a registered firm alters their name or permanent address, an intimation of the alteration can be sent to the Registrar. The Registrar will handle this in the same manner as noted in Section 61.

Rectification of Mistakes (Section 64)

The Registrar has the power to rectify any mistakes in the register to ensure conformity with the documents related to the firm. Upon application by all the parties who signed any document related to the firm, the Registrar may also correct mistakes in those documents.

Inspection of Register and Filed Documents (Section 66)

The Register of Firms and all related documents filed under this chapter are open to inspection by any person, subject to the payment of prescribed fees.

Effect of Non-Registration of Partnership Firm

Under English law, firm registration is compulsory, and penalties apply for non-registration. However, the Indian Partnership Act does not make registration mandatory and imposes no penalties for non-registration. Nonetheless, Section 69 outlines several significant consequences of not registering a partnership firm:

Inability to Enforce Rights: A non-registered firm cannot file a lawsuit to enforce rights arising from a contract against any other firm or third party. However, a third party suing the non-registered firm must be a registered entity.
Lack of Proper Relief: Claims exceeding ₹100 cannot be set off by a third party, leaving the non-registered firm without relief in such cases.
No Legal Action Between Partners: Partners in an unregistered firm cannot bring legal action against each other.

Due to these limitations, it is strongly recommended to register the partnership firm with the Registrar of Firms. Registration can be done at any time, and every state government has established the office of the Registrar of Firms for this purpose.

Rights Not Affected by Non-Registration

Certain rights remain unaffected by the non-registration of a partnership firm:

The right of a partner to sue for the dissolution of the firm or for accounts of and their share in the dissolved firm.
Rights of firms or partners having no place of business in India.
Suits involving claims not exceeding ₹100.
The power of an official assignee to realize the property of an insolvent partner.
Suits arising from non-contractual matters, such as a suit against a third party for trademark infringement.

Penalty for Furnishing False Particulars (Section 70)

Anyone who knowingly signs a false statement, amending statement, notice, or intimation under this chapter can be punished with imprisonment for up to three months, a fine, or both.

Payment of Stamp Duty (Section 71)

The State government is free to establish rules regarding fees paid to the Registrar for registration. Different states impose different stamp duties on partnership agreements/deeds. Partners must purchase stamp paper of appropriate value based on the respective state’s requirements to annex with the agreement.

Advantages of Registering a Firm

Registering a firm benefits both the firm and those dealing with it. The advantages include:

Benefits to the Firm: The firm can sue third parties in civil suits to enforce its rights. Without registration, the firm cannot sue outside partners in courts.
Benefits to Creditors: Creditors can hold any partner accountable for recovering money due from the firm, as all partners listed in the registration are personally liable.
Benefits to Partners: Partners can seek legal help against each other in case of disputes and can sue external parties to recover amounts.
Benefits to Incoming Partners: A new partner can assert their rights if the firm is registered. Without registration, they must rely on the trustworthiness of other partners.
Benefits to Outgoing Partners: Registration protects outgoing partners from liabilities incurred after they leave the firm. Upon a partner's death, their heirs are not responsible for obligations incurred after the partner's death. Retiring partners can also be absolved of liabilities by giving public notice.

Conclusion

Registration of a partnership firm is recorded by the Registrar of Firms, and while not mandatory, the consequences of non-registration make it highly advisable. Non-registration imposes significant limitations on the firm and its partners, preventing them from enforcing certain claims in civil courts. However, certain rights remain unaffected, allowing some actions to proceed despite non-registration.