Definition of Partnership
Partnership is a type of business organization in which two or more persons agree to share the profits of a business carried on by all or any of them acting for all. It involves a contractual relationship between the partners, where they share the management, profits, and losses of the business. The partnership is governed by the Indian Partnership Act, 1932.
Registration of Partnership Firm
To register a partnership firm in India, the following steps need to be taken:
It is important to note that registration of a partnership firm is not mandatory. However, it is advisable to register the firm as it provides legal recognition to the partnership and helps in resolving disputes that may arise in the future.
- Choose a unique name for the partnership firm and ensure that it is not similar to any other existing firm or company.
- Prepare a partnership deed that contains the details of the partners, the capital contribution made by each partner, the profit-sharing ratio, the roles and responsibilities of each partner, and the terms and conditions of the partnership. The partnership deed should be printed on a non-judicial stamp paper and signed by all the partners in the presence of a witness.
- Obtain a PAN (Permanent Account Number) card for the partnership firm from the Income Tax Department.
- Open a current bank account in the name of the partnership firm and deposit the capital contribution made by each partner.
- Obtain the necessary licenses and permits required for the business, depending on the nature of the business activity.
- Register the partnership firm with the Registrar of Firms in the state where the firm is located. The application for registration should be made in the prescribed form along with the partnership deed, proof of address of the firm, and the prescribed registration fee.
- Once the partnership firm is registered, a certificate of registration will be issued by the Registrar of Firms.
Registration of Partnership Firm essentials
Registration of a partnership firm is not mandatory under the Indian Partnership Act, 1932. However, it is advisable to get the partnership firm registered to avail certain benefits and legal protections. The following are some of the essential requirements for registering a partnership firm:
- Partnership agreement: A partnership agreement is a written agreement that outlines the terms and conditions of the partnership, such as the names and addresses of the partners, their capital contributions, profit-sharing ratio, nature of the business, duration of the partnership, etc. It is a crucial document that governs the partnership and protects the rights and interests of the partners. A partnership agreement must be prepared and signed by all partners before registering the partnership firm.
- Partnership deed: A partnership deed is a legal document that contains the terms and conditions of the partnership agreement. It is a crucial document that acts as evidence of the existence of the partnership and the rights and obligations of the partners. A partnership deed must be executed on a non-judicial stamp paper of appropriate value, as per the stamp duty rates applicable in the respective state.
- Selection of a name: The partnership firm must have a unique name that is not identical or similar to the name of any existing partnership firm or company. The partners must select a suitable name and ensure that it complies with the provisions of the Partnership Act.
- Application for registration: After preparing the partnership agreement and deed, the partners must apply for registration of the partnership firm with the Registrar of Firms in the respective state. The application must be accompanied by the partnership deed, address proof, identity proof, and other documents as prescribed by the Registrar.
- Payment of fees: The partners must pay the prescribed fees for registration of the partnership firm. The fees vary from state to state and depend on the amount of capital invested in the firm.
- Verification and approval: The Registrar of Firms will verify the application and the documents submitted by the partners. If the Registrar is satisfied that the partnership firm meets all the requirements for registration, he will approve the registration and issue a Certificate of Registration.
Rights and Duties of Partners
Under the Indian Partnership Act, 1932, partners have various rights and duties towards each other and the partnership firm. Let’s discuss these rights and duties in detail:
Rights of Partners:
- Right to take part in the management of the partnership firm
- Right to receive profits
- Right to inspect the books of accounts
- Right to be consulted before the firm enters into any major transaction
- Right to receive compensation for any extra work done by them for the firm
- Right to share the assets of the firm in case of dissolution
- Right to prevent the admission of a new partner without their consent
- Right to retire from the partnership firm by giving a notice
Duties of Partners:
- Duty to act in good faith towards the other partners and the partnership firm
- Duty to indemnify the partnership firm for any loss caused due to their willful neglect
- Duty to attend to the business of the partnership firm
- Duty to share losses equally
- Duty to account for any personal profits made from the business of the partnership firm
- Duty to not carry on any competing business
- Duty to keep confidential information of the partnership firm
- Duty to contribute equally towards the capital of the partnership firm
Dissolution of Partnership and Partnership firm
Dissolution of a partnership refers to the termination of a partnership firm’s relationship between partners. It can happen in various ways such as by mutual agreement, on the expiry of the term of the partnership, or due to the death, bankruptcy or insanity of a partner. Dissolution of a partnership firm means the complete end of the partnership business.
The Indian Partnership Act, 1932, provides for the dissolution of a partnership firm. The Act lays down the provisions relating to the settlement of the accounts of the partnership firm, the distribution of assets among the partners, and the discharge of the liabilities of the firm. The provisions of the Act also specify the rights and liabilities of the partners after the dissolution of the partnership.
Modes of Dissolution of Partnership Firm:
Dissolution by mutual agreement:
A partnership firm may be dissolved by mutual agreement among all the partners. The partners may agree to dissolve the partnership at any time they desire. The agreement may be either express or implied.
Dissolution on the expiry of the term:
A partnership may be dissolved on the expiry of the term for which it was formed. If the partnership is for a specific term, it comes to an end on the expiry of that term. If the partnership is at will, any partner may dissolve it by giving notice to the other partners.
Compulsory dissolution:
A partnership may be compulsorily dissolved in the following cases:
- If all the partners or all but one partner become insolvent.
- If the business of the partnership becomes unlawful.
- If the partnership business cannot be carried on except at a loss.
- If a partner becomes of unsound mind.
Dissolution on the happening of certain contingencies:
A partnership may be dissolved on the happening of certain contingencies, such as the death or insolvency of a partner.
Dissolution by notice:
A partnership at will can be dissolved by any partner by giving notice in writing to all the other partners of his intention to dissolve the partnership.
Effects of Dissolution of Partnership Firm:
Settlement of accounts:
After the dissolution of the partnership firm, the accounts of the firm have to be settled. The assets of the firm have to be realized and the liabilities discharged.
Distribution of assets:
The assets of the partnership firm have to be distributed among the partners according to their respective shares. The distribution of assets takes place only after the settlement of accounts.
Liability of partners:
The partners are liable to the third parties for the acts done by the firm before the dissolution, but their liability is limited to the assets of the firm. The partners are also liable to the third parties for the acts done by them after the dissolution of the firm if they do not give notice of the dissolution to the third parties.
Rights of partners:
After the dissolution of the partnership firm, the partners have the right to take the firm’s property in proportion to their respective shares. The partners also have the right to enforce any claim against the firm and to be indemnified against the firm’s liabilities.