The entrepreneurs willing to start up partnership firm may or may not go for registering the business as the registration of the partnership firms in India is not compulsory. Even prior to the passing of the Indian Partnership Act, 1932, there was 10 provision for registration of firms in India.
Though registration of the firm is optional at the discretion of the partners, an unregistered firm suffers from certain disabilities. These disabilities have indirectly made some sort of compulsion on the part of the firms to be registered. In case of unregistered firm, payment of salary, commission, interest on borrowings or drawings are not considered as allowable expenses for determination of total income for payment of tax.
1. Procedure of Registration
Entrepreneurs desirous of setting a partnership firm may apply in the prescribed form to be submitted to the Registrar of Firms of the State in which the business of the firm is situated or proposed to be situated. The prescribed registration fee also need to be deposited Along with the application. The application must be signed by all the partners or their authorise agents.
The application or the statement must contain the following particulars:
- The name of the firm.
- The place or principal, place of business of the firm.
- The names of other places where the firm carries on business.
- The different dates on which partners joined the firm.
- The full names and permanent addresses of the partners.
- The duration of the firm.
When the Registrar is satisfied that the above provisions have been duly complied with, he shall record an entry of the statement in the register of firms and file the statement. The Registrar shall then issue a certificate of registration.
Effects of Non-Registration:
An unregistered firm and its partners suffer from the following disabilities:
i. An unregistered firm cannot file a suit against a third party to enforce a right arising from a contract. (For example, for the recovery of the price of goods supplied)
ii. A partner cannot file a suit against the firm or co-partners to enforce his rights under the Partnership Deed.
iii. An unregistered firm cannot claim a set-off against a third party to enforce right arising from a contract exceeding Rs.100 in value.
Exception: The non-registration of a firm, however, does not affect the follow rights:
i. The rights of third parties to sue the firm or any partner.
ii. The rights of a partner to sue for dissolution of the firm, accounts after dissolution and realisation of property after dissolution.
iii. The rights of firm or partners of firm having no place of business in India.
iv. The right to sue or claim a set-off of value not exceeding Rs. 100.
v. The powers of an Official Assignee or Receiver or the Court to realise the prop of an insolvent partner.
Advantages / Benefits of Registration:
The effects of non-registration or disabilities of an unregistered firm have been pointed above. Considering the same, the advantages or benefits of registration can be as follows :
i. The firm can sue third parties to enforce its claim.
ii. A partner can enforce his claim against third parties or against his co-partner.
iii. The interest of third parties is safeguarded against fraud of partners because statement submitted to the Registrar is a conclusive proof of the existence partnership and the composition of partners.
iv. An incoming partner is empowered to enforce his dues against the other co-partners otherwise he would have to rely on their honesty.
v. A retired or expelled partner is exempted from liabilities of the firm incurred after his retirement or expulsion by giving a public notice and effecting the necessary changes in the register of firms.
vi. It can avail tax benefits as per IT Act - 1962.
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