Thursday, 3 October 2019

Registration of Partnership - ICSE Class 9 | NCERT/CBSE Class 11

Is the registration of partnership firm mandatory?

The answer is NO. The registration of a partnership firm in India is optional.

However, it is always advisable to get the partnership firm registered. This is because if you don't register the partnership firm, there are a lot of drawbacks.

If the partners want to get the partnership firm registered, they have to submit a statement in the prescribed form along with the registration fees to the registrar of the firms. Details to be mentioned in the statement includes name of the firm, the principal or the main place of the business, name of other places where the firm runs the business, name in full and permanent addresses of all the partners, the date when each partner joined the firm, duration of partnership (if any), etc.

Once the registrar is satisfied with the details provided by the partners, a certificate of registration will be issued by the registrar.

This is how the firm gets registered.




What are the consequences of non-registration?

As already mentioned, there are a lot of drawbacks of not getting the partnership firm registered.

1. Claim against a third party - If a partnership firm is not registered, it cannot enforce its claim against any third party in the court of law. Third-Party means an outsider.

So, if the partnership firm has to receive a certain amount from a debtor and if that debtor doesn't pay the partnership firm, in such a situation the partnership firm cannot approach the court of law.

2. If a partnership firm is not registered, it cannot even sue its partners. Similarly, even partners cannot sue the firm. Partners cannot file a case against an unregistered partnership firm to enforce their claims. Partners even cannot file a case against each other.

4. The partnership firm which is not registered cannot claim adjustment of a claim more than Rs.100/-

What does this mean?

Let's assume that 'A' represents an unregistered partnership firm. Suppose 'A' has to pay Rs.500/- to some other entity 'B'
and the same entity 'B' has to pay Rs.400/- to 'A'.

So, instead of 'A' paying Rs.500/- to 'B'
and  'B' paying Rs.400/- to 'A',.'A' can simply pay Rs.100/- to 'B' and settle the transaction.

So 'A' will only pay the net amount Rs.100/ to 'B'. This is claim adjustment.

But suppose, 'A' has to pay Rs.1,000/- to 'B' and 'B' has to pay Rs.500/- to 'A'. Since 'A' represents an unregistered partnership firm, it cannot claim an adjustment of a claim exceeding Rs.100/-.  So in this scenario, 'A' and 'B' can adjust only Rs.100/- and not more than that. So 'A' will have to pay Rs.900/- to 'B' because Rs.100/- is going to be adjusted. Rs.100/- is the adjustment of the claim. So even 'B' will pay Rs.100/- less to A. So 'B' will pay Rs.400/- instead of Rs.500/- here to 'A'.

Thus, we can see that there are some very serious drawbacks of not getting a partnership firm registered.




Related Article - Partnership: Features, Merits and Demerits

The non-registration of partnership firm doesn't affect the following rights-

1. Right of a third party to file a suit against an unregistered firm as well as against its partners:

If a partnership firm is not registered, that doesn't mean that a third party or an outsider cannot file a suit against the firm. An outsider can very well file a case against an unregistered firm as well as against its partners. An outsider has the right to file a case or a suit against the partners also.

2. Right of an unregistered firm to file a suit or claim set-off where the claim doesn't exceed Rs.100:

This point has already been discussed. An unregistered firm can file a suit where the claim amount does not exceed Rs.100/ or it can even claim a set-off in case the claim does not exceed Rs.100/-

3. Right of partners of an unregistered firm to file a suit for dissolution of the firm and for realizing the property of the firm:

So even if the firm is unregistered, still any partner can approach the court for dissolution of the firm. Any partner can file a suit for dissolution of the firm and for realizing the property of the firm. Realizing of the property of the firm means selling off the assets or the properties of the dissolved firm. Any partner can approach the court for selling off the property of the unregistered firm.

4. Right to file suit against infringement of the firm's patent rights:

Even if the firm is not registered that doesn't mean that the firm's patent rights can be violated by any 3rd party. An unregistered firm still has a right to file a suit against infringement of the patent rights of the firm.

If an unregistered firm has acquired some patent rights for some product, and if some other company also starts selling the same product under a different brand name, then the firm has the right to approach the court for infringement of the firm's patent rights. The firm has the right to approach the court to file a case against the company which is selling the product for which the partnership firm has the patent rights.




What are the advantages of registration of a partnership firm?

1. A registered firm can file suits. If a firm is not registered, then it cannot enforce its claims against a third party in the court of law.  Neither it can file a case against any of its partners.

2. If a partnership is registered then even the partners can file the suits. Partners of a registered partnership firm can file suits against each other or even against the outsiders.

Partners of an unregistered firm cannot sue the firm to enforce their claims. They cannot even file a suit against each other.

3. In the case of a registered partnership, if there is a new partner who is going to join the partnership, he can get all the information about the firm from the registrar's office. Before joining the firm, he can get all the required information from the registrar's office and he will be more confident about joining the firm.

Even the third parties who are interested in dealing with the partnership firm can get information about the firm from registrar's office.

4. No liability of the retiring partner after retirement - What this means is that, in case of a registered partnership, when any partner is retiring he does not have to give public notice of his retirement. The retiring partner can retire peacefully after informing the registrar about his retirement.

Related Article: 

Difference between LLP and General Partnership 

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