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A Detailed Guide to Partnership Firm Registration in India

A partnership firm contains two or more partners who contribute to the business and share profits, losses and responsibilities according to an agreement. According to the Indian Partnership Act, of 1932, such a partner should apply for partnership firm registration. They must also follow the contents of partnership deed for smooth operations which will be discussed ahead.

What Is Partnership Firm?

A partnership firm is a common and vital business structure in India. Every person forming the partnership is called a partner, and the minimum number of partners here is two. Several occupations, professions and trades can come under this category. However, partnership firms have fewer regulations than companies but introduce some complexities.

Indian Partnership Act

The Indian Partnership Act, of 1932, is a central act that governs the formation, operation, and dissolution of partnership firms in India. It extends to all of India except the state of Jammu and Kashmir. You might choose not to have a formal written agreement for your partnership company, but it is recommended to avoid further clashes between the partners. Similarly, the partners cannot enjoy legal benefits in the absence of the partnership firm registration.

According to the Indian Partnership Act, the documents should be submitted to the Registrar of Firms. Do not worry if you did not complete your partnership firm registration while forming your firm because you can do it during the ongoing operations. However, a husband and a wife (Hindu Undivided Family members) cannot form a partnership firm.

Importance of Partnership Firm Registration

1. Fewer Compliances

Compared to a Limited Liability Company (LLC) or corporation, registering a partnership firm is generally simpler and faster. There are fewer formalities involved, and the initial costs tend to be lower. For instance, the partners do not require a Direct Identification Number (DIN), designations or DSC (Digital Signature Certificate).

2. Rights for the Partners

One partner can sue another or the firm only after the registration of the partnership firm. The third party can sue an unregistered partnership firm but vice versa cannot occur. In an unregistered partnership firm, the partners can't reduce a debt they owe someone by using the money they owe the firm.

3. Flexibility

Making changes or dissolving the firm is easier, though the partners must follow some regulations. For instance, they must only follow the partnership agreement and partnership deed.

4. Recognition

Registration provides legal recognition to the firm which helps it deal with the suppliers, vendors, third parties, customers and banks. It also protects the partnership agreement and helps solve disputes between the partners.

An 8-Step Process for a Partnership Firm Registration

All partnership firms throughout India have the same rules for filling out an online partnership registration form via the Ministry of Corporate Affairs (MCA) portal. Before that, keep a set of required documents ready with you.

Step 1: Select the Name for the Partnership Firm

Your partnership firm can have any name but you must follow some guidelines.

Your firm’s name should follow The Names and Emblems Act, of 1950, and should not resemble patronisation.
You cannot use the name of an existing business in the same field for your firm.
Your firm can be named after one or more partners of the same firm.
Available suffixes are ‘and Co.,’ ‘and Company’ and ‘and Associates.’
Whether you are using the first names, middle names or the partners' surnames, you must add an ‘and/&’ before the final name in the list. Similarly, you may use it to differentiate the whole name of the partner chosen for the firm.

Step 2: Get the DSC and DPIN

The Digital Signature Certificate (DSC) helps you sign digital documents. Get it from a certified agency and remember that you can only the one issued to you. After that, all partners in the firm should get a Designated Partnership Identification Number (DPIN) that uniquely identifies them. Apply for it on the Ministry of Corporate Affairs (MCA)

Step 3: Draft the Partnership Deed

Your partnership agreement has some terms and conditions which are mentioned in the partnership deed. Thus, it is the most important document for your firm. The contents of partnership deed include:

Full name, addresses and capital contribution of every partner.
The ratio of profit and loss every partner must bear.
Interest on capital.
The duration of the partnership and the date of commencement of the firm.
Nature of the business.
Amount payable to the partners.
Duties and rights of each partner.
Procedure regarding the admission, retirement, after the death of the partner or dissolution of the firm.
Other contents of partnership deed can be added according to the mutual decision of the partners.

Step 4: Complete the Notarisation and Execution of the Deed

Step 5: Register the Partnership Firm

Visit the Registrar of Firms (ROF) office in your state or their website and get the application form (Form 1). Then, fill in the following details related to your partnership firm:

Step 6: Get the Certificate of Registration

The Registrar of Firms verifies the certificate of registration. Since registration is not mandatory, you may continue operating your firm till you acquire the certificate.

Step 7: Apply for PAN and TAN Cards

According to the Income Tax Act, of 1961, a partnership firm should compulsorily have a PAN card to file income tax returns. Meanwhile, the TAN card helps perform various financial transactions and file TDS and TCS returns.

Step 8: Other Registrations

Your partnership firm might have other registrations according to the nature of the business.

GST Registration
Trade License
Shop and Establishment Registration
FSSAI Registration
Drug License
Professional Tax Registration
Private Security Agency License (PSARA)
Import Export Code (IEC)

Documents Required for Partnership Firm Registration

PAN Card of the firm and all partners.
Address proof of the firm and all partners.
Application of partnership firm registration.
A copy of an affidavit of the partnership deed and related documents.
Rental agreement or ownership document.
Bank account details in the name of the partnership firm.

If you have all the documents, you may return to filling out the registration form.

Are You Stuck with Your Partnership Firm Registration?

Advantages and Disadvantages of a Partnership Firm

ADVANTAGES	DISADVANTAGES
Profit-loss sharing among the partners.	Partners must pay the debt if the firm has insufficient assets.
Easy to incorporate.	Easy to incorporate.
Quick decision-making and implementation.	The firm might collapse at any time.
Registration is not mandatory (but recommended).	Registration is not mandatory (but recommended).
Easy dissolution and fewer legal formalities.	Capital invested depends on the investment done by the partners.

Conclusion

The process for the Partnership firm registration depends on the state. The minimum number of partners required to form such a firm is 2 and the maximum is 100 (according to the New Companies Act 2013). This registration is not mandatory but is recommended to maintain peace between the partners. Moreover, registering the partnership firm helps gain the trust of the investors and other potential stakeholders.

FAQs

When Does the Registrar Reject the Partnership Firm?

The registrar rejects the partnership firm if NoC is not genuine, all partners have not signed the deed, mistakes, fraud or malpractices are found in the deed, the firm’s name is invalid or the submitted documents are questionable.

When Does the Court Dissolve the Partnership?

The court can easily dissolve the partnership if the business is illegal. Similarly, the partnership can be termed invalid if it is not registered yet.

What can be Penatly to the Partnership Firm?

The partnership firm can face a penalty if it is found responsible for the loss or injury of the third party. In this case, all partners suffer the losses.

When Can Be Changes Made in the Partnership Deed?

Changes in the partnership deed are made due to the changes in the management structure, the name of the firm, business type and place, partnership duration and capital contribution.

What Alterations Can Be Done to the Partnership Deed?

Alterations can be made concerning partner details, branches, the nature and location of the business and the name of the firm.