A Partnership is one of the most important forms of a business organization, where two or more people come together to form a business and divide the profits thereof in an agreed ratio. Indian Partnership Act 1932 is the governing law which regulates the partnership firms in India. Registering a partnership firm is of great importance, albeit not mandated by law.

There does not exist, a standard procedure, common throughout the Indian Territory due to the discretionary powers given to the state governments to establish a procedure suiting the needs of the general public. However, the basic steps for registration and requirements such as the existence of a partnership deed are common to all. These facets will be elaborated on in the course of this research.

Objectives
This research aims to examine the process of registration of a Partnership firm, as delineated by the Indian Partnership Act 1932. Each stage of the process will be discussed in detail along with its pre-requisites to obtain a true picture of the practical registration process. Prior to the aforementioned, the meaning of partnership and the importance of registering such a firm is enlarged upon.

Conceptual Framework

• Partnership is a form of business entity where two or more persons come together to provide the requisite resources and share the profits in an agreed ratio.
  
  Section 4 of the Indian Partnership Act 1932 defines partnership as: “The relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.
  
  Persons who have entered into partnership with one another are called individually, partners and collectively a firm, and the name under which their business is carried on is called the firm-name.[1]
  
  Every partner can carry on business on behalf of the other. Partnership firms are not separate legal entity while the partners are. A partnership firm cannot be a debtor or creditor and cannot own any property.[2]
   
• Who makes decisions in the partnership firm?
  Under partnership form of business, there is no separation of ownership and control. The partners act in confidence to each other and act of one partner is binding on another. Partners monitor and manage the firm without any interference. The decision making in case of a firm is relatively a fast process in comparison to that of the Private Limited company, Limited Liability Partnership (LLP).
   
• Minimum Requirements of Partnership Firm
  
  • Minimum Two Person
    A minimum of two persons is required to become partners of the firm. However, maximum 20 partners are allowed in a firm (10 in banking business). The partners must come together to carry on any legal business with the motive of earning profits.
    
    A partnership agreement can be applied between two or more persons who are qualified to contract for the business plan i.e.
    Every person in the age of majority according to the law.
    A person not suspended from contracting by any law to which he is eligible to enter into a partnership.[3]
     
  • No FDI is Allowed
    Foreign investment in a partnership firm is not permitted. In the firm, only Indian citizen can become the partner and start the partnership firm.
     
  • No Minimum Capital
    No minimum capital is prescribed; it must be based on the business requirements. The Stamp Duty on the deed is based on the capital of the firm. However, the firms constituted with a capital upto two thousand rupees are not eligible to claim a set-off or other proceedings to enforce a right arising from the partnership.[4]
     
  • Unique Name
    Name of the firm should be unique, and it must not same or similar to the name of any existing trademark which is registered or applied.

Types of Partnership Firms
The partnership business is regulated under Indian Partnership Act, 1932 which prescribes possibility of two types of partnership firms: unregistered firm, and registered firm. An unregistered firm is formed by entering into an agreement between two competent persons, known as partners, where the firm is not registered with the registrar of firms.

Whereas the firms which subsequently get registered with the registrar of firms by submitting the copy of partnership deed and KYC of partners and the registered office is known as the Registered Partnership Firm.

Under which Government Authority, the application of Partnership Firm Registration is submitted?
The application for registration of partnership firm is filed with the Registrar of Firms having jurisdiction over the place of business of the partnership firm. The registrar of firms after receipt of the application complete in all aspects with all required documents registers the firm within 1-2 weeks and issues the Certificate of Registration of Firm.

Advantages of Registering
Though the Indian Partnership Act, 1932 does not make registration of partnership mandatory, section 69 places certain disadvantages to an unregistered firm.

Following are the disadvantages of an unregistered firm:

• Only a registered partnership firm can claim a set-off [5]
• An unregistered partnership cannot recover any sum due from third parties if the amount in question is more than Rs. 100/-[6]
• The partners of an unregistered firm cannot file suit against another partner of the firm or the firm itself. [7]

In Pradhan Traders v Balaji Provision Stores[8], the high court dismissed the petition on the grounds of sec 69(2) as the plaintiff was not a registered firm thus the suit was not maintainable.

Hence, it is strongly recommended to register the partnership firm with the registrar of firms (ROF). An unregistered firm can be registered at any time. Every state government has established the office of the registrar of firms, which is vested with the powers to register the firm and issue the Certificate of Registration of the Firm and a copy of the extracts of the register of firms where the partnership name has been entered.

Literature Review
Section 58 of the Partnership Act speaks regarding the matters of application for registration i.e. a statement is to be sent in the prescribed form, along with the prescribed fee and a true copy of the deed of partnership, by post or delivering to the Registrar of the area in which any place of business of the firm is situated or proposed to be situated.

There is no one-stop application portal for registering your firm. Each state follows its own registration process - in some states it can be done online and for others application needs to be filled manually. For manual applications, the process time can get extended up to 1 month.[9]

Each stage of the registration process is discussed in detail, along with its pre-requisites, in the portion to follow.

1. Documentation:
   The process starts with documentation of the partners and the place of business where from where the firm shall be operating its business in India.
   
   Documents Required For Partnership Registration
   Documentation plays a pivotal role to fast partnership registration. Registered address proof (Electricity, Mobile, Telephone Bill) of the partnership firm must be recent.[10]
   
   • Basic Documents to Start a Partnership
     
     1. Notarized Partnership Agreement
     2. Proof of Registered Address (not older than 2 months)
     3. NOC from the Owner of Premises
         
   • Documents of all partners of the Firm
     
     1. Two Photographs
     2. Copy of PAN Card
     3. Valid Identity Proof
     4. Latest Address Proof
        
        The submitted documents must be authentic as they are under high scrutiny at all points of time. Before the registration, the registrar verifies them and files a statement only when he is satisfied and after recording the statement, they are open to everyone. Section 66 of The Partnership Act mentions the inspection of Register and filed documents. The Register of Firms is open to inspection by any person on payment of the prescribed fee. [11] Further, all statements, notices and intimations filed under this are open to inspection, subject to the previously stated conditions.[12]
         
2. Selection of Name
   The selection of a suitable name for the firm is the next step. A Partnership is started by its partners with a separate name in the deed, which is known as the name of the firm. While deciding a name, care should be exercised to check the distinctiveness.
   
   As per section 58(3) of the Indian Partnership Act, 1932:
    
   • A partnership firm's name should not contain words like Crown, Emperor, Empire, Empress, Imperial, King, Queen, Royal or any other words that indicate sanction or approval by the government.
      
   • The name should not be too similar to any of the names of the existing firms engaged in similar businesses. The idea behind such a rule is to avoid injuring the reputation or goodwill of the existing firm if the new firm adopts a similar business name.
      
   • Any name which, in the opinion of the Registrar, for reasons to be recorded in writing, is undesirable.[13]
     
     The name of the partnership firm should be cross-checked with the trademark registry to avoid any infringement of someone else's Trademark or brand name. A trademark is a unique mark or sign that represents a business and it is used to distinctively identify a company from another and build its credibility among the consumers. If one does not register its trademark, brand name, logo, tagline etc then an imitator cannot be stopped from confusing the public by using the same or similarly deceptive name or mark, which may result in financial and economic loss to the business in the long-term.[14]
      
3. Drafting of Partnership Deed
   Section11 of Indian Partnership Act, 1932 talks about a ‘contract between the partners'. This is popularly known as a Partnership Deed. The Partnership Deed is the main document of the firm and is also considered as the Constitution of the firm in which the mutual rights and duties of the partners, among themselves, are determined. It also specifies the capital and profit sharing ratio and how the firm shall be operated by the partners.
   
   Such a contract may be express or implied by a course of dealing.[15] Thus, a partnership deed can be written or oral, whilst it is prudent to have a partnership deed in written form, in order to avoid any probable conflicts in the future. Further, it helps to avoid any discrepancy or disagreement with regards to the role of each partner and the benefits that accrue to them.[16]
   
   It is also stated that such contracts may restrict a partner from carrying out any business other than that of the given firm for the duration for which he is a partner in the firm.[17] Thus notwithstanding any provision contained in section 27 of the Indian Contract Act, 1872[18]
   
   Section 58 mandates the deed to state the following standard, key information: [19]
   
   1. the firm-name and the nature of business of the firm;
   2. the place or principal place of business of the firm,
   3. the names of any other places where the firm carries on business,
   4. the date when each partner joined the firm,
   5. the names in full and permanent addresses of the partners, and
   6. the duration of the firm.
      
      The law is flexible when it comes to the content included in the partnership deed, it is up to the partners what they agree and reduce in writing at the time of starting their partnership firm. The partnership once entered can be changed any number of times. However, each amendment of the deed must be filed with the registrar for its registration.
      
      Beyond the basics, there are additional clauses that one can include in their partnership deed, depending on the needs or desires of the partners. Additional clauses typically cover hypothetical circumstances that may arise over the course of the partnership and provide a process for dissolving the partnership. Examples of some other areas are: [20] [21]
      
      • Procedures for admitting or introducing a new partner
      • Division of powers and responsibility among the partners
      • The capital contribution of each partner
      • The profit-sharing ratio among the partners
      • Method of dissolving the partnership in case of termination of the business
      
      Audit procedures
      
      • Procedures in the event of the retirement or death of a partner
      • How to resolve disputes
       
4. Payment of Stamp Duty for the Partnership Deed
   As per section 71 of the Act, the State government is free to make rules regarding the fees to be given to the Registrar along with the other documents for registration. Different states impose different stamp duty on the partnership agreements/deeds, it means while creating a partnership instrument (Deed) the partners must purchase stamp paper of appropriate value as may be applicable in the respective state, to be annexed with the agreement.
   
   After the draft partnership agreement is approved and adopted by the parties the stamp duty on the partnership deed has to be paid which varies from state to state and on the capital of the partnership agreement.
    
5. Signing and Notarizing Partnership Deed
   Next, the partnership deed is signed by the partners in the presence of two witnesses and thereafter the deed should be notarized by presenting the same before a notary public.
   The stamp duty on the partnership deed varies from state to state, and within one state it further varies based on the capital of the firm. You must correctly consider the applicable stamp duty on the partnership deed. The notary of the deed is an essential requirement for partnership registration.
    
6. Entry of Statement by the Registrar
   Finally, as per section 59 of the Act, the Registrar makes an entry of the Statement in a register called the Register of Firms. The Register of Firms contains up-to-date information on all firms and can be viewed by anybody upon payment of certain fees. After filing the Statement, a Certificate of Registration is issued. However, this is undertaken only after the Registrar is satisfied that the application of registration complies with all the necessary provisions.[22] The date on which the Registrar records and files the Statement is considered as the date of registration of the Partnership firm.
   
   Hereafter, the firm, which is registered, is required to use the word “Registered” in brackets, immediately after its name.[23]
    
7. Post Registration Requirements:
   PAN Number Allotment:
   It is important to note that registration with the Registrar of Firms is not the same as the registration with the Income Tax Department. Income Tax Return is necessary to be submitted at the end of the financial year and within Due Date of filing. However, Unlike Limited Company or LLP, there is no need to file the annual return for a partnership firm.
   
   It is necessary for all the firms to apply for registration with the Income Tax Department and obtain a PAN Card. The PAN is a ten-digit alphanumeric number allotted by the Income Tax Department. The partnership firm needs to make an application in the prescribed form before the Income Tax Department for the allotment of PAN. The acknowledgement of the application for the partnership firm is received within the same day; however, the PAN is allotted within a week's time.
    
8. TAN Number Allotment
   The TAN is a number allotted for TDS Compliance. TAN number is a permanent number allotted to business for complying with the provisions of withholding tax. You are required to deduct TDS while making payments; hence the next step is to obtain TAN number, which is mandatory to submit TDS Returns. [24]
    

Taking into account all the required steps, the registration process 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 Partnership Firm is subject to Government processing time which varies for each State.[25]

Conclusion
Through the means of this research, we have accomplished the 6 key steps of getting a Partnership firm registered under the Indian Partnership Act 1932. These steps are documentation; selecting a unique name for the firm; drafting a partnership deed which must include basic information about the partners as well as the firm; payment of stamp duty which varies across different states; signing and notarizing the partnership deed; entry of statement in register and issuance of a Certificate of Registration. After this, it is required to put “(Registered)” after the firm's name. This is followed by applying for and getting allotted a PAN and TAN number by the Income Tax Department.

References:

• http://judgmenthck.kar.nic.in/judgmentsdsp/bitstream/123456789/37896/1/CRP432-14-08-01-2015.pdf
• https://cleartax.in/s/partnership-registration-india-explained
• https://economictimes.indiatimes.com/small-biz/resources/startup-handbook/incorporation-of-partnership-firm/articleshow/59335520.cms
• https://legaldocs.co.in/partnership-firm
• https://quickbooks.intuit.com/in/resources/legal/partnership-firm-registration/
• https://www.indiafilings.com/learn/delhi-partnership-firm-registration/
• https://www.startupindia.gov.in/content/dam/invest-india/Templates/public/Tools_templates/internal_templates/in_hindi/Instructions_on_contracts_and_agreement.pdf
• Indian Contract Act, 1872
• Indian Partnership Act, 1932 https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf
• Partnership Firm Registration, Firm Process, Fees & Documents – Setindiabiz https://www.setindiabiz.com/partnership-firm-registration

End-Notes:

1. Indian Partnership Act 1932, s4
2. https://legaldocs.co.in/partnership-firm
3. https://www.indiafilings.com/learn/delhi-partnership-firm-registration/
4. Indian Partnership Act 1932, s69(3)
5. Indian Partnership Act 1932, s69(3)
6. Indian Partnership Act 1932, s69 (4)(b)
7. Indian Partnership Act 1932, s69 (1)
8. CRP No. 432/2014 - http://judgmenthck.kar.nic.in/judgmentsdsp/bitstream/123456789/37896/1/CRP432-14-08-01-2015.pdf
9. https://economictimes.indiatimes.com/small-biz/resources/startup-handbook/incorporation-of-partnership-firm/articleshow/59335520.cms
10. Partnership Firm Registration, Firm Process, Fees & Documents – Setindiabiz
    https://www.setindiabiz.com/partnership-firm-registration
11. Indian Partnership Act 1932, s66(1)
12. Indian Partnership Act 1932, s66(2)
13. Indian Partnership Act 1932, s58(3)
14. https://www.setindiabiz.com
15. Indian Partnership Act 1932, s11(1)
16. https://quickbooks.intuit.com/in/resources/legal/partnership-firm-registration/
17. Indian Partnership Act 1932, s11(2)
18. s27 of the Indian Contract Act states that “every agreement by which any one is restrained from exercising a lawful profession, trade or business of any kind, is to that extent void”
19. Indian Partnership Act 1932, s58(1)
20. https://www.startupindia.gov.in/content/dam/invest-india/Templates/public/Tools_templates/internal_templates/in_hindi/Instructions_on_contracts_and_agreement.pdf
21. https://cleartax.in/s/partnership-registration-india-explained
22. Indian Partnership Act 1932, s59(1)
23. Indian Partnership Act 1932, s59(2)
24. Partnership Firm Registration, Firm Process, Fees & Documents – Setindiabiz
    https://www.setindiabiz.com/partnership-firm-registration
25. https://cleartax.in/s/partnership-registration-india-explained

Written By : Riya Gupta