ASSIGNMENT

TOPIC: Registration of a Partnership Firm

SUBJECT: Commercial Law

ASSIGNMENT SUBMITTED TO
FACULTY OF LAW, UNIVERSITY OF LUCKNOW

For the Partial Fulfilment of the Requirement in

LL.B. (Hons.) IV SEM (SECTION A)

Under Guidance of: Submitted By:

Ms. Bandana Singh Devaang Dev

GUEST FACULTY, Roll No. 190013015091
FACULTY OF LAW

UNIVERSITY OF LUCKNOW

FACULTY OF LAW
UNIVERSITY OF
LUCKNOW, LUCKNOW,
U.P.
2020-21
Index

Acknowledgement……………………………………………………………….…02

Introduction………………...………………………………………………………03

Advantages of a Partnership Firm………………………………………………….04

Disadvantages of a Partnership Firm……………………………………………….05

Importance of Registering a Partnership Firm……………….…………………….06

Procedure for Registration…………………..………………………………….….07

Documents for Registration……………..……………………………………….…08

Partnership Deed…..………………………………………………………………..08

Scope of Liability in a Partnership…………………………………………………11

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Acknowledgement

I, Devaang Dev, LL.B. (Hons.), Semester 4, Faculty of Law, University of Lucknow, would
like to extend my deep sense of gratitude towards our teacher for the subject of Commercial
Law, Mrs. Bandana Singh, for pushing us towards the competition of this report and in turn
making us learn a lot about the topic that had been assigned.

I would additionally like to extend my thanks to my fellow hostel-mates who helped me and
kept me going when I was slacking with work and without whose constant support, I would
not have been able to complete the assigned work.

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Introduction

A Partnership is one of the most important forms of a business organization. A partnership firm
is where two or more persons come together to form a business and divide the profits in an
agreed ratio. The partnership business includes any kind of trade, occupation and profession.
A partnership firm is easy to form with fewer compliances as compared to companies.

The Indian Partnership Act, 1932 governs and regulates partnership firms in India. The persons
who come together to form the partnership firm are knowns as partners. The partnership firm
is constituted under a contract between the partners. The contract between the partners is known
as a partnership deed which regulates the relationship among the partners and also between the
partners and the partnership firm.

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Advantages of Partnership Firm

1. Easy to Incorporate
The incorporation of a partnership firm is easy as compared to the other forms of
business organisations. The partnership firm can be incorporated by drafting the
partnership deed and entering into the partnership agreement. Apart from the
partnership deed, no other documents are required. It need not even be registered with
the Registrar of Firms. A partnership firm can be incorporated and registered at a later
date as registration is voluntary and not mandatory.

2. Less Compliances
The partnership firm has to adhere to very few compliances as compared to a
company or LLP. The partners do not need a Digital Signature Certificate (DSC),
Director Identification Number (DIN), which is required for the company directors or
designated partners of an LLP. The partners can introduce any changes in the business
easily. They do have legal restrictions on their activities. It is cost-effective, and the
registration process is cheaper compared to a company or LLP. The dissolution of the
partnership firm is easy and does not involve many legal formalities.

3. Quick Decision
The decision-making process in a partnership firm is quick as there is no difference
between ownership and management. All the decisions are taken by the partners
together, and they can be implemented immediately. The partners have wide powers
and activities which they can perform on behalf of the firm. They can even undertake
certain transactions on behalf of the partnership firm without the consent of other
partners.

4. Sharing of Profits and Losses

The partners share the profits and losses of the firm equally. They even have the
liberty of deciding the profit and loss ratio in the partnership firm. Since the firm’s
profits and turnover are dependent on their work, they have a sense of ownership and
accountability. Any loss of the firm will be borne by them equally or according to the

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partnership deed ratio, thus reducing the burden of loss on one person or partner. They
are liable jointly and severally for the activities of the firm.

Disadvantages of Partnership Firm

1. Unlimited Liability
The biggest disadvantage of the partnership firm is having an unlimited liability of
the partners. The partners have to bear the loss of the firm out of their personal estate.
Whereas in a company or LLP, the shareholders or partners have liability limited to the
extent of their shares. The liability created by one partner of the partnership firm is to
be borne by all the partners of the firm. If the firm’s assets are insufficient to pay the
debt, then the partners will have to pay off the debt from their personal property to the
creditors.

2. No Perpetual Succession
The partnership firm does not have perpetual succession, as in the case of a
company or LLP. This means that a partnership firm will come to an end upon the death
of a partner or insolvency of all the partners except one. It may also be dissolved if a
partner gives notice of dissolution of the firm to the other partners. Thus, the partnership
firm can come to an end at any time.

3. Limited Resources
The maximum number of partners in a partnership firm is 20. There is a restriction
on the number of partners, and hence the capital invested in the firm is also restricted.
The capital of the firm is the sum total of the amount invested by each partner. This
restricts the firm’s resources, and the partnership firm cannot take up large scale
business.

4. Difficult to Raise Funds

Since the partnership firm does not have perpetual succession and a separate legal
entity, it is difficult to raise capital. The firm does not have many options for raising
capital and growing its business as compared to a company or LLP. As there are no

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strict legal compliances, people have less faith in the firm. The accounts of the firm
need not be published. Thus, it is difficult to borrow funds from third parties.

Importance of Registering a Partnership Firm

The registration of a partnership firm is optional and not compulsory under the Indian
Partnership Act. It is at the discretion of the partners and voluntary. The firm’s
registration can be done at the time of its formation or incorporation or during the
continuance of the partnership business.

However, it is always advisable to register the partnership firm as a registered firm

enjoys certain special rights and benefits as compared to the unregistered firms. The
benefits that a partnership firm enjoy are:

A partner can sue against any partner or the partnership firm for enforcing his rights
arising from a contract against the partner or the firm. In the case of an unregistered
partnership firm, partners cannot sue against the firm or other partners to enforce his
right.

The registered firm can file a suit against any third party for enforcing a right from a
contract. In the case of an unregistered firm, it cannot file a suit against any third party
to enforce a right. However, any third party can file a suit against the unregistered firm.
The registered firm can claim set-off or other proceedings to enforce a right arising
from a contract. The unregistered firm cannot claim set off in any proceedings against
it.

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Procedure for Registering a Partnership Firm

Step 1: Application for Registration

An application form has to be filed to the Registrar of Firms of the State in which the
firm is situated along with prescribed fees. The registration application has to be signed
and verified by all the partners or their agents.

The application can be sent to the Registrar of Firms through post or by physical
delivery, which contains the following details:

The name of the firm.

The principal place of business of the firm.
The location of any other places where the firm carries on business.
The date of joining of each partner.
The names and permanent addresses of all the partners.
The duration of the firm.

Step 2: Selection of Name of the Partnership Firm

Any name can be given to a partnership firm. But certain conditions need to be followed
while selecting the name:

1. The name should not be too similar or identical to an existing firm doing the same
business.
2. The name should not contain words like emperor, crown, empress, empire or any
other words which show sanction or approval of the government.

Step 3: Certificate of Registration

If the Registrar is satisfied with the registration application and the documents, he will
register the firm in the Register of Firms and issue the Registration Certificate. The
Register of Firms contains up-to-date information on all firms, and anybody can view
it upon payment of certain fees.

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An application form along with fees is to be submitted to the Registrar of Firms of the
State in which the firm is situated. The application has to be signed by all partners or
their agents.

Documents for Registration of Partnership

The documents required to be submitted to Registrar for registration of a Partnership
Firm are:

1. Application for registration of partnership (Form 1) (attached)

2. Certified original copy of Partnership Deed.
3. Specimen of an affidavit certifying all the details mentioned in the partnership deed
and documents are correct.
4. PAN Card and address proof of the partners.
5. Proof of principal place of business of the firm (ownership documents or
rental/lease agreement).

If the registrar is satisfied with the documents, he will register the firm in the Register
of Firms and issue a Certificate of Registration.

Register of Firms contains up-to-date information on all firms and can be viewed by
anybody upon payment of certain fees.

Name Given to the Partnership Firm

Any name can be given to a partnership firm as long as you fulfil the following
conditions:

The name shouldn’t be too similar or identical to an existing firm doing the same
business,
The name shouldn’t contain words like emperor, crown, empress, empire or any other
words which show sanction or approval of the government.

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Partnership Deed

A partnership deed is an agreement between the partners in which rights, duties, profits
shares and other obligations of each partner is mentioned. A partnership deed can be
written or oral, although it is always advisable to write a partnership deed to avoid any
conflicts in the future.

1. Details Required in a Partnership Deed

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

Apart from these, certain 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 the 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 the firm.
6. Other clauses as partners may decide by mutual discussion.

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Timelines for Partnership Firm Registration
The partnership firm registration process takes approximately 10 days, subject to
departmental approval and reverts from the respective department.

Checklist for Partnership Firm Registration

Drafting of Partnership Deed.
Minimum two members as partners.
Maximum of equal to or less than twenty partners.
Selection of appropriate name.
Principal Place of business.
PAN card and bank account of the firm.
FAQs on Partnership Firm Registration
How much time does it take to register a partnership?
The registration of a Partnership Firm in India can take up to 12 to 14 working days.
However, the time taken to issue a certificate of incorporation may vary as per the
regulations of the concerned state. The registration of a Partnership Firm is subject to
Government processing time which varies for each State.

Grounds for Invalidity

Often, if the partnership agreement is not registered, the court may deem a partnership
invalid. If the object of the business is illegal, the court may consider the partnership
invalid and dissolve the partnership.

If all partners wish to end the partnership, how can they do so?
If the partners of a firm wish to end the partnership, they can do so by dissolving the
partnership by notice, if it is a partnership of will. A partnership can be dissolved in
accordance with the terms laid out in the Partnership Deed, or they can do so by creating
a separate agreement.

In a certain sense, a partnership certification of incorporation can be revoked, this often

termed as dissolution. A dissolution can be brought upon automatically when all
partners or all partners except one partner are declared insolvent or if the firm is
carrying unlawful activities, i.e. like trading in drugs or other illegal products, corporate

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malpractice or making business engagements with countries that may harm the interest
of India.

Scope of Liability in a Partnership

Every partner is jointly liable with all the other partners and also individually, for all
acts/activities of the firm, during the course of business while he/she is a partner. This
means that if a loss or injury is caused to any third party or a penalty is levied during
the course of business all partners will be held liable even if the injury or loss was
caused by one of the partners.

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