What is a partnership firm?
The persons who own the partnership business are individually called ‘partners’ and collectively they are called as ‘firm’ or ‘partnership firm’. The name under which partnership business is carried on is called ‘Firm Name’. In a way, the firm is nothing but an abbreviation for partners.
Definition of partnership:-
The Indian Partnership Act, 1932, Section 4, defined partnership as “the relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all”. The Uniform Partnership Act of the USA defined a partnership “as an association of two or more persons to carry on as co-owners a business for profit”.
Main features of partnership firm:-
The main features depends on the above definition are as follows:-
1. More Persons
2. Profit and Loss Sharing
3. Contractual Relationship
4. Existence of Lawful Business
5. Utmost Good Faith and Honesty
6. Unlimited Liability
7. Restrictions on Transfer of Share
8. Principal-Agent Relationship
Is registration of partnership firm mandatory?
No, Registration of partnership firm is not mandatory under the part VII of the Indian Partnership Act, 1932, though it is usually done as registration brings many advantages to the firm. It is optional for the partners to set the firm registered and there are no penalties for non-registration.
Effects of Non-Registration:-
However, section 69 of the act which deals with the effects of the Non-registration denies certain rights to an unregistered firm. Under the act:-
A partner of an unregistered firm cannot file a suit in the court against the firm or other partners for the enforcement of any rights arising form the contract or the right conferred by the partnership act unless the firm is registered and the person suing is or has been shown in the register of the firms as a partner in the firm.
No suits to enforce a right arising from a contract shall be instituted in any court by or on behalf of a firm against any third party unless the firm is registered.
Pros:-
- Easy to form (No legal formalities)
- Availabities of large resources
- Flexebility in operation
- Better decision
- Sharing risk
Cons:- - Limited Capital
- Absence of Legal status
- Dissolution
- Mutual Trust
- Sharing of Profit
Procedure for Registration of the partnership firm:-
- Make an Application
- Prescribed form of incorporation in FORM 01 and AFFIDAVIT
- Partnership deed with certified copy as well the ownership copy
- Documents for registration