Partnership Firm -

0 Partnership Firm

Indian Partnership Act 1932 Partnership Firm

In this part, we discuss about Partnership Firm, in respect of following topics

Partnership Deed
Registration of Partnership Firm
Register of Firms and Documents
Effects of Non-registration of a Firm
Partnership Property

Tags: Sikshayati, “Asok Nadhani”, “Partnership Act 1932”, “Partnership Act”, Partnership, Partnership Firm

Audio : 00

1 Partnership Agreement

Indian Partnership Act 1932 Partnership Agreement

A Partnership is based on an Agreement, which can be made orally, or in writing, or may be implied from the course of dealing among partners. No legal formalities are required for the formation of partnership. However, the partners can make a Partnership deed and go in for registration of their partnership firm, as a guideline to help them manage their business and avoid / settle future disputes,

Partnership Deed

A Partnership Deed is a document containing the terms and conditions of the partnership in writing, to avoid future disputes. There is no specific format of a partnership deed. It can be written in any form. It should be signed by each partner personally, or through their agent, and should also be properly stamped, as per the Stamp Act, 1889.

Advantage of Partnership deed

Resolving the mutual differences among the partners in future
Registering the Firm

Basic Contents of Partnership Deed

The contents of partnership deed differ in different businesses depending upon their nature.

However, following are some Important contents of partnership deed:

Particulars of Firm: Name and address of the firm, Name and address of the Partners.

Scope and business of the partnership firm, Duration of partnership. Profit / Loss sharing

Finance : Capital contribution. Drawings. Lending to firms by partners and interest thereon. Borrowing by Partners from firm & Interest thereon.

Remuneration : Salary to the Partners, Interest on capital, if admissible.

Accounts & Management : Accounts and Audit. Rights of partners to access Accounts. Duties of partners in conduct of the business. Retirement of partners and valuation of goodwill.

Reconstruction : Admission, Removal, Death, Insolvency. Rights of Partner’s Legal representative. Payment of the share of property and profits to retiring partner. Dissolution of the firm. Arbitration.

Tags: Sikshayati, “Asok Nadhani”, “Partnership Act 1932”, “Partnership Act”, Partnership, Partnership Agreement, Partnership Deed

Audio : 01 Partnership Agreement 1, 2, 3

2 Registration of Partnership Firm

Indian Partnership Act 1932 Registration of Partnership Firm

Registration of a firm refers to filing of Partnership Deed with Registrar of Firms. On fulfilling the requirements of Registration, the Registrar issues a certificate of Registration. The Firm gets registered on issue of Certificate of Registration by the Registrar of Firms.

Registration of firms is not compulsory. A firm can optionally get itself registered. Non-registration of a firm does not affect the main and ancillary activities of a firm

Registration does not create partnership. Partnership is created when the Partnership agreement is formed (by oral, written or by conduct of the Partners). Registration is just an evidence of existence. However, Registration offers many advantages and legal protection to the Registered Firm and third parties dealing with the Firm.

A Firm may be registered at any time. There is no definite provision in the Partnership Act regarding time of the registration of a firm.

Implications of non- Registration

Registration is not compulsory : The Registration of a firm is optional. Hence, a firm may decide not to get itself registered.
Non-Registration is not punishable : The Act has not prescribed any penalty or punishment for non-registration of a firm.
Business Unaffected : A non-registered firm can carry on the business in the same way as a registered firm carries on its business.

Non-registration does not make the business of the firm illegal, if such business is otherwise legal.

Transactions of an unregistered firm cannot be void, unlawful or illegal merely because of non-registration which also does not affect the validity of any act, dealing, transaction or contract entered into by the firm.

Disabilities of non-registered firm

No suit can be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered (s.69(2)).

A non-registered firm cannot maintain any suit, claim any set off, make any counter claim or institute any legal proceeding in respect of any act, dealing, transaction or contract, until it has been registered.

Before any suit is filed in a Law Court, registration must be effected. Subsequent registration does not cure the initial defect. Hence, the preferred course in such a case is to withdraw the suit from the Court, get the firm registered and then file a fresh suit.

Tags: Sikshayati, “Asok Nadhani”, “Partnership Act 1932”, “Partnership Act”, Partnership, Registration of Partnership Firm, Registration of Firm

Audio : 02 Registration of Partnership Firm 1, 2

3 Procedure of Registration

Indian Partnership Act 1932 Registration Procedure

Submission of Application for Registration : The firm is to make an application to the Registrar of Firms of respective Jurisdiction (s.58).

Time of making Application : No time limit has been prescribed for making application for registration of a firm, as the registration of firms is not compulsory.

An existing firm may apply for registration any time after its formation. A proposed firm may apply for registration even before its formation.

Legal requirements for Application

The application shall be made in writing in the prescribed form, with prescribed fees. The application shall be signed by all the partners, or by their agents specially authorized in this behalf [s.58(1)].

The application shall be accompanied with the agreement between the partners, i.e., the partnership deed, if any. It shall be verified by all the partners in the prescribed manner. [s.58(2)]. The application may be sent to the Registrar by hand or by registered post.

Essential Contents of Application

Firm Name : The Application must contain the Name of the Firm to be Registered

Rules of Firm Name : Except with the approval of the State Government, a firm name shall not contain the words, like,‘Crown’, ‘Emperor’, ‘Empress’, ‘Empire’, ‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words expressing or implying the sanction, approval or patronage of the Government [s.58(3)].

Particulars of Firm : The application shall contain the particulars about the partnership firm:

Name of the firm. The principal place of business of the firm. The names of other places where the firm carries on business.Duration of the firm.

Particulars of Partners : The application must specify the particulars of partners

Name and permanent address of each partner. Date of joining the firm in respect of each partner.

Tags: Sikshayati, Asok Nadhani, Partnership Act 1932, Partnership Act, Partnership, Registration of Partnership Firm, Registration of Firm, Procedure of Registration, Certificate of Registration, Registration Certificate,

Audio : 03 Procedure of Registration 1, 2

4 Certificate of Registration

Indian Partnership Act 1932 Registration Certificate

The Registrar upon receiving the Application for Registration, and upon being satisfied that all the requirements of application have been duly complied with, shall issue Registration Certificate

Record in the Register : The Registrar shall Record an entry of the statement in the Register of Firms, file the statement and shall enter the name of the firm and the names of all the partners of the firm in the register of firms.

Issue of Registration Certificate :The Registrar shall then issue a certificate of registration (s.59).

Effective Date of Registration :The Registration of the firm shall be effective only from the date when the Registrar enters the particulars in the Register of Firms, and not from the date when application for registration is made to the Registrar.

Late Registration: If the statement in respect of any firm is not sent or delivered to the Registrar within the time specified, then the firm may be registered on payment of a penalty of one hundred rupees per year of delay or a part thereof.(s.59A)

Alteration of particulars after Registration

In case of any alteration to any basic matters, the firm shall make a fresh application containing the changed particulars to the Registrar.

Change in the name of the firm or in location of the principal place of business of the Registered Firm (s. 60). Closing and opening of branches (s. 61). Change in names and addresses of partners (s. 62). Change in the constitution of the firm, dissolution, or election of a minor partner on attaining majority to continue as partner or severe his connection (s. 63).

The application shall also comply with all the legal requirements required to be fulfilled at the time of filing of application.

False information

Submission of False Information to the Registrar is punishable. If any person supplies false or incomplete information to the Registrar, or signs any statement containing false or incomplete information to be supplied to the Registrar, he is punishable with imprisonment which may extend to three months, or with fine, or with both (s.70).

Tags: Sikshayati, “Asok Nadhani”, “Partnership Act 1932”, “Partnership Act”, Partnership, Registration of Partnership Firm, Registration of Firm, Procedure of Registration, Certificate of Registration, Registration Certificate,

Audio : 04 Certificate of Regsitration1, 2, 3

5 Register of Firms and Documents

Indian Partnership Act 1932 Register of Firms

The Register of Firms and documents submitted with Registrar are public records open to inspection to public.

Seeking Information : Any person has rights to get information regarding Register of Firms & related Documents.

Inspection of Register : Any person may apply for inspection of the Register of Firms on payment of a prescribed fee [s. 66(1)].
Documents: Further, all statements, notices and information filed with the Registrar may be inspected subject to prescribed conditions and payment of prescribed fees [s. 66(2)].
Certified Copy : The Registrar, on application, shall also furnish a certified copy of any entry in the Register of Firms, to any person on payment of the prescribed fee (s. 67).
Conclusive Evidence: Any statement, notice or intimation recorded with the Registrar by any person, shall be a conclusive proof against him of any fact therein stated (s. 68). However, it can be challenged by third parties to prove that it is false and is based on misrepresentation or fraud.
Rectification of Mistakes in Register of Firms: The Registrar may rectify any mistake to bring the entry in the Register of Firms into conformity with documents filed relating to the firm (s. 64)
Amendment of Register by Order of Court: The Court may direct the Registrar to make any amendment in the entry in the Register of Firms upon its decision, and the Registrar shall amend the entry accordingly (s. 65).

Tags: Sikshayati, “Asok Nadhani”, “Partnership Act 1932”, “Partnership Act”, Partnership, Registration of Partnership Firm, Registration of Firm, Register of Firms

Audio : 04 Register of Firms

6 Effects of Non-registration of a Firm

Indian Partnership Act 1932 Effect of Non Registration

A non-registered firm suffers from the following disabilities:

Filling of suit against the Firm or other Partners

No partner of an unregistered firm can sue the firm (or refer to arbitration) or any other partner of the firm, for the enforcement of any right conferred by the Indian Partnership Act, 1932 [s.69(1)]. He can exercise this right if the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm

Ex: P, Q and R are the three partners of the firm PQR & co, an unregistered firm. Q uses the firm’s property for his personal use. But, P and R cannot take any legal action against Q, as the firm is not registered

Filling of suit against Third Parties

No suit can be filed in any Court by or on behalf of an unregistered firm against any third party to enforce a right arising from a contract [s. 69(2)]. Thus, an unregistered firm, or any of the partners of an unregistered firm cannot file a suit (or refer to arbitration) against a third party for the enforcement of any right arising under a contract.

Ex:T enters into a contract with an unregistered firm XYZ & company, providing that any dispute shall be referred to arbitration. When a dispute came up, T instantly files a suit against XYZ & company in the Court of law. XYZ & company has no right to enforce the arbitration clause since the arbitration clause is contained in a contract, which cannot be enforced by an unregistered firm.

Claim a Set-off

No partner of an unregistered firm and the firm can claim set off in any suit or proceeding filed by a third party to enforce a right arising from a contract, until the registration of the firm is effected [s.69(3)]. The right of set-off is not affected if the claim of set-off does not exceed Rs.100 in value [s.69(4)(b)].

Hence, in a suit filed by a third party against an unregistered firm or a party thereof, the unregistered firm and the partner cannot claim that some money is due to the firm from the third party.

If the suit is filed by partner against any other partner of the unregistered firm, the defendant partner cannot claim that some money is due to him under the Partnership.

Enforce other proceeding

A partner of an unregistered firm or an unregistered firm cannot enforce any proceedings for the enforcement of any right arising under partnership contract.

Hence, any right arising under a contract cannot be enforced by a partner of an unregistered firm against the firm or any other partner of the firm; or by an unregistered firm against a third party.

Tags: Sikshayati, “Asok Nadhani”, “Partnership Act 1932”, “Partnership Act”, Partnership, Registration of Partnership Firm, Registration of Firm , Register of Firms

Audio : 05 Effects of Non Registration 1,2,3, 4

7 Rights not affected by Non-registration

Indian Partnership Act 1932 Rights Not affected by Non Registration

Non-registration of a firm does not affect the following rights of the partners:

Suit for Dissolution : A partner of unregistered firm, may file a suit in the Court for seeking dissolution of the firm.

During dissolution, he can file a suit for accounts of the firm to be rendered. He can claim his due share of property in the dissolved firm. The disability of a partner disappears with the dissolution of the firm.

Non-contractual Rights : Partner of Unregistered firm can file a suit for enforcement of right accruing to a firm other than partnership contract, [s.69(3) &(4)]. Hence, the firm or any of its partners can initiate criminal proceedings against any partner or a third party.
Suit of a value upto Rs.100 : If the amount due to an unregistered firm does not exceed Rs.100. The unregistered firm or any of its partners shall have the right to file a suit for recovery of amount due or right to enforce set off, where suit is filed by the party who is liable to pay the firm an amount not exceeding Rs.100.
Recovery of partnership property of Insolvent Partner : Where a partner of an unregistered firm is adjudicated insolvent, the Court or the official assignee / receiver shall have a right to realize the property of the insolvent partner.
Rights of a Third Party : A third party is entitled to sue the firm, whether or not the firm is registered.
Firm having no place of business in India : Non-registration does not affect to the right of a firm or partners of a firm having no place of business in area to which Partnership Act, 1932 extend.
Rights on Registration of Firm : A suit, which is not maintainable because of the reason of non-registration of firm, shall become maintainable immediately on registration of firm. Hence, the disabilities cease to apply when a firm is registered before filing the suit.

Tags: Sikshayati, “Asok Nadhani”, “Partnership Act 1932”, “Partnership Act”, Partnership, Registration of Partnership Firm, Registration of Firm , Rights of Registered Firm

Audio : 06 Rights not affected

8 Partnership Property

Indian Partnership Act 1932 Partnership Property

Partners can determine the partnership property by the agreement made between the partners and can differentiate partnership property from that of personal property of a partner.

Deemed Properties of Firm : In the absence any specific agreement, the following property shall be deemed to be Partnership property (s.14):

Property originally brought in the Firm : At the commencement of partnership, the partners may bring capital in the form of some property for use in the business of the firm. Such property becomes the property of the firm. Similarly, during admission of a partner, the incoming partner may bring in capital in the form of some property for use in the business of the firm.
Property acquired by the Firm : All property acquired by or for the firm, whether by purchase or otherwise, is partnership property.
Property acquired for business purpose: All property acquired for the purposes and in the course of the business of the firm is partnership property. Similarly, any property which is acquired during the conduct of business of the firm is partnership property.
Property acquired with firm’s money : All property which is purchased with the firm’s money, either in the name of the firm or in the name of any partner of the firm, is considered as Partnership Property.

However, if any property is being purchased for the sole benefit of the partner shall not become partnership property, but shall be treated as personal property and the concerned partner shall become a debtor of the purchase price paid by the firm.

Goodwill of Firm : The goodwill of the business is considered Partnership Property.
Intangible Assets : Copyrights, trade marks, patents etc. acquired by reason of joint efforts of the partners during the conduct of the business of the firm amount to Partnership Property.

Rules of Use of Partnership Property

During Continuance of Business : During continuance of Partnership Business, the Partnership Property is to be used for the purpose of Business.
For Partnership Business : In absence to any contract, the property of the partnership firm is held for the purpose of the business of the firm and is used for such purpose only (s.15).
Personal Benefit : No partner can use the property of the firm for his own benefit.
Benefits arising from use of Firm Property : Any profit earned by a partner by using the property of the firm are deemed to be the profits earned by the firm and he is bound to account for such profits and deposit them with the firm.
On Dissolution of Firm : On dissolution of firm, the debts of the firm are paid first out of partnership property (s.48 & 49). Still, if debts of the firm are not paid in full, the surplus property of each partner shall be utilised in payment of debts of the firm

Tags: Sikshayati, “Asok Nadhani”, “Partnership Act 1932”, “Partnership Act”, Partnership, Registration of Partnership Firm, Registration of Firm , Partnership Property

Audio : 08 Partnership Property 1,2

9 Contravention of Provisions

Indian Partnership Act 1932 Contravention of Provisions

If any statement, intimation or notice under sections 60, 61, 62 or 63 in respect of any registered firm is not sent or given to the Registrar, within specified period, the Registrar may, refuse to make the suitable amendments in the records relating to the firm, until the partners of the firm pay such penalty (s.69A).

Notice to Firm : The Registrar will give notice to the partners of the firm and after giving them a reasonable opportunity of being heard.
Amount of Fine : The Registrar may impose Fine not exceeding ten rupees per day, as the Registrar may determine for the period between the date of expiry of the period specified in sections 60, 61, 62, 63, or as the case may be, and the date of making the amendments in the entries relating to the firm.