Unlike the Company Act of 2013 or the English Law, the Indian Partnership Act
of 2013 doesn't necessarily require the firm's registration. An unregistered
firm is still a legitimate firm under the eyes of the law. But indeed, this
significant advantage isn't outright, and the firm gets subjected to many
disabilities and limitations.
This research paper has attempted to delineate the consequences a firm might
suffer because it isn't registered. This paper also outlines the liabilities of
an unregistered partnership firm and provides insight into the 69th section of
the Indian Partnership Act. The 69th section of the Indian Partnership Act,
2013, has outlined the disabilities of a partnership firm that isn't registered.
The constraints persuade the company to write itself. It is deemed unregistered
if a company does not follow the fundamental incorporation processes.
The customer or other third parties don't regard an unregistered firm as
credible even after it is legitimate under the eyes of the law, which is unlike
a registered partnership firm. Members of an unregistered partnership can't sue
the business or any of its members (past or present) for breach of contract, and
the firm can't sue its customers for breach of contract. They are also not
allowed to convert into another entity. These are just a few among the many
disabilities highlighted in this paper.
What is a Partnership?
A partnership is when at least two individuals work together with the end goal
of creating benefits and profits. The partners provide the capital on their
terms and consequently share the duty of maintaining the business on assertion
between its partners.
Partnerships are primary in indistinguishable organisations from sole owners.
Yet, a partnership keeps up the leeway of having the capacity to raise capital
since each partner can make a money related commitment or any monetary
contribution. The partners are all in charge of any liabilities of the business.
Companies typically support partnerships for the assessment of taxation
The partnership structure does not consider an expense on the benefits of the
business by virtue of the way that it is disseminated to the partners. In any
case, this relies upon the Partnership structure and the laws under which it
works. By and large, owners of a partnership are presented with a more prominent
degree of individual obligation than investors of an enterprise would be A
partnership is a legally binding agreement between two or more persons to
govern, run, and manage a business and benefit from it.
There are a few different types of collaboration strategies. In certain
partnerships, all partners share the same liabilities and rewards, whereas
partners have restricted responsibilities in others. There's also the ostensible
"silent partner" who isn't involved in the company's day-to-day operations. A
partnership might be any effort shared by numerous persons in a broader sense.
Governments, non-profit businesses, organisations, and private people might all
be involved. The goals of a partnership can also change over time.
There are three primary classifications of partnership in a narrower meaning, a
profit-driven endeavour taken up by at least two people: The general
partnership, limited partnership, and limited liability limited partnership are
three types of partnerships.
All participants have the same legal and financial duties in a general
partnership. The persons are the ones who are in charge of the partnership's
liabilities. Benefits are distributed in a similar manner. The specifics of
benefit-sharing will very certainly be stretched out and written down in a
Limited partnerships are frequent among professionals such as accountants,
lawyers, and drafters. This technique keeps partners close to personal liability
so that if one partner is sued for misconduct, the interests of the other
partners are not jeopardised. The distinction between equity and salaried
partners is further clarified in certain legal and accounting firms. Salaried
partners have a higher status than associates, even though they do not control
the firm. They are typically reimbursed in accordance with the partnership's
On the other hand, limited partnerships are a cross between general and limited
liability companies. A general partner must have a minimum of one partner who is
fully responsible for the partnership's responsibilities. A silent partner,
whose risk is confined to the amount invested, is another form of partner. This
silent partner stays out of the partnership's administration and day-to-day
tasks for the most part.
Finally, the aptly termed limited risk limited partnership is an additional and
typically great selection. This limited partnership provides excellent
protection from liability for its general partners. Individuals entering into
any transaction are not required to be recognised as partners under the
authority of Keth Spicer Ltd v Mansell. However, if they engage in numerous
activities supporting a partnership, the court may reach a different result.
In Ross v. Parkyns, Jessel M.R. stated the law as follows: "It is said (and
that there is no doubt) that the mere participation in profit inter se affords
cogent evidence of a partnership. But it is now settled by the case of Cox v.
Hickman Buller v. Sharp that although a right to participate in profits is a
strong test of partnership, and there may be cases where upon a single
presumption, not of law, but fact, that there is a partnership, yet whether the
relation of partnership does or does not exists must depend upon the whole
contract between the parties, and that circumstances are not conclusive."
Benefits of a Partnership Firm
- Ease at making a Decision.
The decision-making process of every company is critical. Because a partnership
business has no idea of resolutions, decision-making might be quicker. Partners
in a partnership business have broad rights and, in most cases, can perform
transactions on behalf of the firm without the consent of the other partners.
- Ownership instils a sense of responsibility.
Each partner's firm's operations are owned and managed by them. Workers in a
Partnership Firm are united for the same purpose, even though their jobs may
differ. Employees have a sense of responsibility due to ownership, which allows
them to work more conscientiously.
- Simple to Begin
A partnership is one of the most accessible forms for companies to create. In
most cases, the sole need for founding a partnership business is a partnership
deed. As a consequence, forming a partnership on the same day is doable. An
L.L.P. registration would take 5 to 10 working days due to the M.C.A.'s
requirements for digital signatures, DIN, Name Approval, and Incorporation.
- Funding Sources
Compared to a single proprietorship, a partnership business may readily raise
funds. With a more significant number of partners, all partners may make more
reasonable contributions. Furthermore, when it comes to loan approval, banks
view more favourably on a partnership than a single proprietorship.
The research's scope and utility provide deeper insight into and knowledge of a
particular subject matter. It will help us better understand the curriculum of
our syllabus as it relates to partnership and its registration. As so, the
consequences provide a thorough comprehension of the subject.
the issue, we were unaware of several aspects; it has dramatically helped us
become well-versed in the topic's provisions. It will also help us in the future
with our understanding of Special Contracts and the Indian Partnership Act of
The research project addresses the many characteristics and scopes of a
partnership and how being an unregistered Partnership has various negative
implications for a corporation. It mainly discusses the ramifications of having
an unregistered partnership firm and the responsibilities that the partners face
at such times.
The paper delves deeply into all of the requirements in the
Indian Partnership Act of 1932 concerning partnership and its unregistered
status. Case laws and other essential judgments put down by courts in situations
of unlisted partnership firms in the context of law are used to illustrate the
This project is based on doctrinal research. Dr S.N. Jain defines this form of
research as "a study involving examination of case laws, arrangement, organising,
and systematising legal ideas, and study of legal institutions through legal
reasoning or rational deduction." A pure theoretical research approach is
another name for it.
According to Jain & Jain, a Doctrinal Legal Research is a
study of a legal doctrine by analysing statutory provisions and cases using
Bare Essentials to carry on a Doctrinal Research:
- Statutory documents
- Committee reports
- History of law
- Judgements, Case reports
- Case Digests
- Standard references
- Legal periodicals
- Government Reports
- Only conventional sources of data are used.
- The use of secondary data is vital.
- Ascertainment of Law is required.
- Research into Legal concepts and principles.
Our previous knowledge about the unregistered status of a firm comes from the
study of the Indian Partnership Act of 1932, which talks about how a partnership
is entered into when two or more individuals work together on the same business
terms with pre-determined contractual clauses and liabilities.
The Act states that being unregistered is legitimate under the eyes of the law.
Still, while being legitimate, this benefit isn't absolute and arises many
consequences that can be detrimental to the firm. The consequences are mentioned
in the 69th section of the Indian Partnership Act of 1932.
Objectives of the research:
- What is meant by an unregistered partnership firm?
- Is registration of a partnership firm mandatory?
- What is the difference between registered and unregistered?
- Which section of the Indian partnership act provides a deeper insight
into the state of unregistered firms?
- What are the consequences of being an unregistered firm?
The main objective of this research is to find out the answers to various
questions and doubts about the Partnership act, partnership, and Dissolution of
Partnership. It will help increase the understanding of contractual relations
between partners and the consequences, liabilities, gains, procedures involved,
and outcomes of dissolution of a Partnership for a partner.
Unregistered Partnership Firms and the consequences of being unregistered:
Let's look at what registration entails before going on to non-registration. The
process of establishing a firm may be described as registration. The method for
incorporation is inscribed in the 58th section of the Indian Partnership Act of
1932. Non-registration, on the other hand, is the polar opposite of
registration, referring to when a business does not go through the formation
process or begins operating without being registered.
Registration of a firm:
The method for incorporation of a firm is outlined in the 58th section of the
Indian Partnership Act of 1932, which requires the partnership firm first to
fill out a form that includes the following information:
- The firm's name,
- The address of the members who are underlined,
- The firm's lifespan,
- The firm's original site, as well as
- The location where the firm will conduct all of its operations.
The form is then sent to the registrar, who approves it and completes it by
recording the data in the register, which contains the details of registered
firms. This procedure is inscribed in the 59th section of the Indian Partnership
Act of 1932. One more crucial aspect of the incorporation process is that all
members must sign the registration application.
Consequences of non-registration:
As previously stated, the ability to operate a business without going through
the incorporation process has advantages, but it also has drawbacks. An unlisted
firm doesn't have the same legal privileges as a registered firm. Its operation
differs from a registered company, and a non-registered company's rights are
limited. The 69th section of the Indian Partnership Act of 1932 specifies the
consequences of a firm's failure to register.
It has several repercussions, which are as follows:
- There will be no legal action to enforce the rights under the Act:
A partnership that has not gone through the incorporation process cannot sue
another company or a third party. When it comes to launching a lawsuit, an
unlisted company does not have the same rights as a registered company.
Another important consideration is that the individual or third party suing
the unregistered partnership firm must be registered as a business.
- There will be no suit to assert rights against any third party:
An unlisted partnership business cannot sue any third parties in any court,
nor can they sue any party, nor can they be sued if registered with the
registrar. In any Indian court, there is no means to get a matter heard.
- No proper relief:
If the corporation is not registered, a third party cannot set off a claim
above Rs100. Hence the party has no recourse. A privilege like this is only
available to registered businesses.
- Partners are unable to sue each other in court:
Disgruntled partners in an unregistered firm cannot sue one another because
they lack the legal competence to bring a lawsuit or the power to enforce
Powers granted to unregistered firms:
Unregistered firms have some capabilities that aren't as broad as those held by
registered firms, but they exist.
The unregistered firm is granted the following powers and control:
- Even if the firm isn't registered, a third party can nevertheless file a
lawsuit against it
- In the event of dissolution and account settlement, unregistered firms
allow each partner the right to initiate a lawsuit against the other.
- The court can order the partner's bankrupt property to be released,
taking legal action against it.
Cases Pertaining To The Impact Include:
S.H Patel v. Hussenibhai Mohammad (1935)
The court decided in this particular case that "The right that the partner
wishes to enforce is not an acquired right that he has obtained as a partner.
Meaning that it does not govern a person's rights but instead establishes a new
right that is not dependent on the rights that a partner may have while being
one." Creating a fresh right is an entirely distinct activity than what
unregistered businesses may be able to engage in.
D.D.A. v. Kochhar Construction Work and Anr (1996)
Even though it is now a registered organisation, the court determined that
simply because a court case was initiated for its non-registration, the
necessity to be registered as a corporation does not erase the initial error.
Despite this, there was no one from the court's institution engaged. Because the
firm was unregistered, it was brought to court. The plaintiff's case will be
considered useless and irrational if it is discovered that the initial defect
has been rectified.
Shriram Finance Corporation v. Yasin Khan and Ors. (1989)
The court dismissed the current partners' complaint since they were recruited
after completing the registration. They could not file a lawsuit since their
names were not recorded in the company's registration of formation. According to
Section 69(2) of the Indian Partnership Act, 1932, "A third party's name must be
recorded in the firm's registration register before they may sue. As a result,
the allegation was determined to be unfounded."
T. Savariraj Pillai v. R.S.S. Vastrad & Co. (1989)
The proceeding under Section 20 of the Arbitration Act is widely assumed to be
void ab initio, meaning that it will not exist from the start; just because it
must register itself does not mean that appropriate action will be taken and the
suit will be maintainable; it will not cure the original defect.
Padam Singh Jain v. Chandra Brothers (1989)
The court held that "An unregistered firm could file an eviction petition
because it is a statutory right, not an enforcement of a right under an
agreement that is not provided to an unregistered business", so section 69 of
the Indian Partnership Act does not apply.
As stated in the article, unregistered firms have a disadvantage since they lack
the legal authority to operate as a business. A corporation's operation is more
complex than that of a corporation. Unregistered enterprises are not permitted
in the company. From the law's viewpoint, a company that has not gone through
the registration procedure does not exist. Despite the drawbacks of being
unregistered, the Indian Partnership Act of 1932 gives unregistered businesses a
lot of power.
List of statutes:
- Indian Partnership Act, 1932
- Indian Companies Act, 1956
- Keth Spicer Ltd v Mansell, 1970, 1 AII ER 462
- Ross v. Parkyns, 1875, 20 Eq 331
- Cox v. Hickman Buller v. Sharp, 1860, 8 HLC 268
- S.H Patel v. Hussenibhai Mohammad, 1935
- D.D.A. v. Kochhar Construction Work and Anr, 1998, 8 SCC 559
- Shriram Finance Corporation v. Yasin Khan and Ors., 1989, S.C.R. (3) 484
- T. Savariraj Pillai v. R.S.S. Vastrad & Co., 1990, AIR 1990 Mad 198
- Padam Singh Jain v. Chandra Brothers, 1989, A.I.R. 1990 Pat 95 ghdas
Award Winning Article Is Written By: Mr.Eshaan Gupta
Authentication No: OT230245643003-29-1022