Registration of a partnership firm is not compulsory. A partnership between 2 or more people is an arrangement where they agree on an object and are bound by agreed terms while performing their duties to achieve a common goal.

Partnership can be formed for any purpose. If you want to promote any social activity with your friend, you can form a partnership. In most of the cases, a partnership firm is referred to partnership firms formed for carrying a business.

If you have started a partnership business with your friend, the very first question you will have is how to register your partnership firm.

You do not have to compulsorily register your partnership firm, but registration have its own benefits.

You can carry on the business even without registering your partnership firm. To start your business without registering your firm, you can simply put down the partnership agreement on a stamp paper and apply for PAN. Once PAN card is received, you can proceed for opening of a bank account.


If you are not satisfied with an unregistered partnership, read this article to understand what is registration and how to do it.

In this article I will explain you everything about registering you partnership firm.

Registration of a partnership is compulsory?

No, registration of a partnership firm is not mandatory.

A partnership is a binding agreement, and law has given the option to partners to whether they want to register their agreement or not.

It is not compulsory that you have to register your partnership.

What is registration?

Registration is the process of registering your documents/agreements/deeds etc. with a registrar.

Even if you register your agreement with registrar the status remain same. Whether you register or not, your status will remain as partners and your association will be as a partnership firm.

For example, A and B came together to form a partnership to run a business.

Now A and B are confused on type of documents they are suppose to create to form a partnership firm and represent to outside world.

A and B have to enter into an agreement in written. Once they have entered into agreement on a written document, they have formed their partnership firm!!!

Yes, its that simple. Forming a partnership is second easiest thing after proprietorship.

Why do people register partnership firms if it is not compulsory to register?

You with your friend drafted an agreement on a stamp paper and are carrying your business. World is dealing with your firm.

You business is growing and nothing seems to be wrong.

If everything is going smooth, then why do few register partnership deed and few not?

Your question is very valid. If a partnership deed is not registered and without registration of deed one can do business then why one has to register the firm.

Well, everything has a value. Registering a deed cost very little money but it has value of money spent.

Consequences of not registering a partnership deed

  • Partners cannot sue unregistered firm
  • Partners cannot sue each other
  • Firm cannot sue any third party
  • No arbitration or set off possible in case of suit filed by any third party

However, any third party can always sue the unregistered firm or its partner.

Hope, now it makes sense that registering partnership deed is important. If you are dealing at a small level and risks, rewards are not very high you can continue with an unregistered partnership firm, however once your business grows and your contract list grows it is a wise decision to register your partnership deed.

How to register a partnership firm or partnership deed?

  • Draft agreement on a stamp paper,
  • File application with Registrar of firms for registration of deed and
  • Once your firm name is entered in register of firms, certificate of registration is issued.

Lets break these steps further.

Drafting a partnership agreement

To enter into a partnership, first you have to draft an agreement. Agreement should contain all possible duties, rights and goals of partnership.

For example, a partnership agreement should contain at least following points.

  • Name, age, and address of partners,
  • Place of agreement,
  • Date on which partnership comes in force,
  • Object of partnership,
  • Nature of activities to be carried out,
  • Duties of partners,
  • Rights of partners,
  • Name of the firm,
  • Place of business,
  • Tenure of the partnership.

Above list is just a basic framework. Partnership agreement should contain all possible events that could arise in future and your all future disagreements should find answer in your partnership deed.

Registering partnership agreement/firm/deed with registrar of firms

Registering a partnership firm or a partnership agreement is very straight forward.

You have to make an application to registrar of firms in Form No. 1.

Registration fee has to be paid. Fee differs in each state. You can visit your nearest Registrar of firm located in your area or check state revenue website for fee details.

For example, in Karnataka fee to be paid to registrar of firms in mentioned in website.

Registrar will enter the name of firm in register of firms and issue certificate.

Anyone from public can view your firm details available with registrar with payment of a fee.

Registering Partnership firm with Income Tax Department

Registration with registrar of firm is second step in entire registration cycle. Whether you have registered your firm with registrar or not, you should register your firm with Income tax department to file you income tax returns.

Registering with income tax department is very easy.

To register your firm with income tax department, you to apply for PAN (Permanent Account Number).

You can apply for PAN online or offline. To apply for PAN offline you have to download application in form 49A.

Fill the application and attach your partnership deed or registration certificate as proof of existence of firm. You need to speed post the form to PAN processing center in Pune.

You can also apply online for PAN on NSDL website.

Conclusion

It is not compulsory to register your partnership firm with registrar.

However as a precautionary measure you should register your firm with registrar to avoid any mishap in future. For instance any contract gone wrong, you will not be in a position to sue your business partners.

In case of startups engaged in digital or E-commerce sector (includes every business on internet), liability can arise at any point of time.

What if your hosting company lost your data, if your partnership firm is not registered, you may not be able to sue them.

Author
Posted by Pulkit Sharma under Legal

A Chartered Accountant by qualification. I am founder of KnowyourGST.com to provide free resources to enable smooth compliance by Tax Payers. You can use GST Invoicing application developed by m...Contact

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