Partnership Firm Formation and Registration in India

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Partnership Firm Formation and Registration in India

A Partnership is easy to form, and the compliance is minimal as compared to companies. It is not mandatory for any partnership firm registration, however it is always advisable for the partnership firm to get registration due to the following reasons-

• In case a partnership firm is unregistered then a partner cannot file a suit in any court against the firm or other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act
• If a partnership firm is unregistered then a right arising from a contract cannot be enforced in any Court by or on behalf of the firm against any third party
• Further, the unregistered partnership firm or any of its partners cannot claim a set off (i.e. mutual adjustment of debts owned by the disputant parties to one another) or other proceedings in a dispute with a third party.

Thus it highly recommended that the partnership firm shall be registered.

How to form and register a partnership firm

Initially to incorporate a partnership firm an appropriate name must be selected for the firm. An effort shall be made to select a unique name reflecting the activities of the firm.

Further, the decision shall be taken whether the firm shall be registered or not

In case the partners want to register the partnership firm then an agreement between the partners shall be formed regarding the conduct of the partnership firm, the rights, responsibilities of the partners etc.

The deed created by the partners should be on a stamp paper in accordance with the Indian Stamp Act. Further, each partner should have a copy of the partnership deed.

Agreement between the partnership firm is known as the partnership deed. This deed generally specifies the rights, duties, profits shares and other obligations of each partner. Partnership deed can be written or oral, although it is always advisable to write a partnership deed to avoid any conflicts in the future.

Following details are required to be specified in the partnership deed-

1. Name and address of the firm and all the partners
2. Nature of business
3. Date of starting of business Capital to be contributed by each partner
4. Capital to be contributed by each partner
5. Profit/loss sharing ratio among the partners

Further following specific clauses may also be mentioned to avoid any conflict at a later stage:

1. Interest on capital invested, drawings by partners or any loans provided by partners to firm
2. Salaries, commissions or any other amount to be payable to partners
3. Rights of each partner, including additional rights to be enjoyed by the active partners
4. Duties and obligations of all partners
5. Adjustments or processes to be followed on account of retirement or death of a partner or dissolution of firm
6. Other clauses as partners may decide by mutual discussion

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