The Indian Partnership Act, 1932

Basics of Partnership

Objective

After going through this lesson, you shall be able to understand the following concepts: • Meaning and Contents of Partnership Deed • Registration of Firm • Consequences of Non-registration

Before going through this lesson, let us read the meanings of the difficult words that we will come across in this lesson.

Introduction We have discussed that partnership comes into existence through a contract between parties who agree to carry on the operations mutually and share the proceeds accordingly. It means the various terms and conditions that are necessary to carry on business are discussed beforehand by the partners so that there are fewer chances of conflicts between them. And even if any conflict arises, the mode of settlement of the same is prefixed by them. However, don’t you think there are numbers of things that need to be discussed by the partners agreeing to enter into partnership and oral agreement might not solve the purpose?

In order to make the terms, rights and liabilities of the partners very clear and the partnership enforceable under law, all these terms are taken in the written form. In this lesson, we will discuss about this along with the registration of firm with the registrar for seeking some benefits under the act.

Partnership Deed

 A partnership deed is a written document containing various terms of the partnership as agreed upon by the partners. In other words, this is the document that contains the respective rights and obligations of each partner in the firm. However, the Indian Partnership Act, 1932 provides for certain important points that must be given due consideration while drafting a partnership deed. They are as follows:

• The deed must be stamped in accordance with the Indian Stamp Act. • It should be accompanied with the registration of the firm. This is because in absence of the registration of the firm, the partners cannot enforce the terms as laid down in the deed. • It must be duly signed by the partners.

       Let us have a look at the following graphic.

Contents of Partnership Deed

As discussed above, a partnership deed is a written document containing the rights and obligations of all its partners. However, the Indian Partnership Act, 1932 provides following rules and terms that must be covered by every partnership deed:

• Name of the firm • Names and addresses of the partners who compose it • Nature and place of the business • Date of commencement of the partnership • Duration of the partnership • Amount of capital contributed by each partner and the methods of raising finance in future if required • Profit sharing ratio • Interest on partner’s capital, partner’s loan and interest, if any, charged on drawings • Salaries, commission, etc., if any, payable to any partner • Rules to be followed in case of retirement, death and admission of a partner • Method of preparing accounts and arrangement for audit and safe custody of cash, etc. • Expulsion of partners in case of gross breach of duty or fraud • Circumstances under which the firm would stand dissolved • Rules as to whether a partner is allowed to carry on any business, whether competing with the business of the firm or not • Arbitration in case of dispute among the partners

It must be noted that the terms and contents of the deed may be varied as per the agreement between the partners, i.e. with the consent of all the partners.

Registration of Firms

Registration refers to getting the partnership registered with the Registrar of Firms of the concerned area where the business of the firm is situated or proposed to be situated. Before the enactment of the Indian Partnership Act, 1932, there was no such provision as registration of firm in India. Accordingly, if a third party wanted to claim against the members of a partnership firm, it was difficult for it to prove its existence. Hence, it is necessary to get the firms registered.

However, due to existence of a large number of small partnership firms in India, the registration of such firms does not seem to produce much benefits to the public. Accordingly, the present act has made the registration of the partnership firms optional. But it should be noted that an unregistered firm suffers from various disabilities that will be discussed later in this lesson. Hence, it is desirable for a firm to get registered.

When and how to get a firm registered?

Time of registration: The Indian Partnership Act, 1932 does not specify any particular time for getting the firm registered. It may take place any time during the continuance of the partnership firm or at the time of the formation of partnership.

However, in case a firm wishes to file a suit in the court of law, it is essential that the firm is registered before it can file a suit in the court of law. In case the firm files a suit before the registration, it would have to first withdraw the suit, get the firm registered and then file a fresh suit.

In addition to this, it should be noted that the registration of firm becomes effective from the date the duly signed and verified statement along with the prescribed form and payment of required fees is filed in the office of the registrar and not from the date of issue of the certificate of registration. The following graphic explains the points related to registration of a firm.

Procedure of registration: The procedure of registration is provided in Section 58 of the Indian Partnership Act, 1932. For registration, an application in the prescribed form, signed by all the partners along with the prescribed fee, has to be submitted to the Registrar of Firms of the state in which any place of business of the firm exists or is proposed to be situated. However, the Indian Partnership Act, 1932 provides that the following particulars must be contained in the application filed for registration: • Name of the firm • Place or principal place of business of the firm • Names of any other places where the firm carries on business • Date when each partner joined the firm • Partners' names in full and their permanent addresses • Duration of the firm The Registrar examines the application and upon satisfaction that all the provisions of Section 58 have been duly complied with, an entry is made in the Register of Firms. A certificate of registration is issued later. It must be remembered that the details provided in the application must be true in all respects, else the act is punishable with imprisonment for up to three months or fine or both.

Moreover, it is important that a change, if any, in the particulars filed with the Registrar should be duly notified to the Registrar so that the same can be incorporated in the Register of Firms. In addition to this, any admission, retirement, death, expulsion of partner, election of minor as partner or not on attainment of his majority and dissolution of the firm should also be informed to the Registrar of Firms. Example 1: Which of the following alternatives is incorrect in the context of partnership deed?

(a) It must be stamped in accordance with the Indian Stamp Act.

(b) It should be signed by any one of the partners who may act on behalf of the others.

(c) The contents of the deed are laid down by the partners with the consent of all the co-partners.

(d) None of the above

Solution

The written partnership deed is stamped in accordance with the Indian Stamp Act and its contents are prepared by the partners with the consent of all the co-partners, i.e. the written partnership must be signed by all the partners. Hence, the correct answer is option (b).

Example 2: Complete the following sentences.

1. If an unregistered firm files a suit in the court of law, its first step should be to ________.

2. If the details provided in the application form for registration of the firm are not true, then ________.

3. A partnership firm may get itself registered _________.

Solution

1. If an unregistered firm files a suit in the court of law, its first step should be to withdraw the suit from the court.

Explanation: An unregistered firm cannot sue a third party, so it should first withdraw the suit, get itself registered and then file a fresh suit in the court of law.

2. If the details provided in the application form for registration of the firm are not true, then the partners may be subject to imprisonment for three months or fine or both.

Explanation: It must be noted that the details of the application form must contain the true details of the partners. However, if the same are not true, then such an act is punishable with imprisonment for up to three months or fine or both.

3. A partnership firm may get itself registered anytime during the life of the business.

Explanation: There is no specific time for registration of a firm. It may get itself registered any time during the continuance of the partnership firm.

Effects of Non-registration

As discussed above, although registration is not compulsory, non-registration of a firm leads to certain disabilities for the firm. The following are some of the disabilities suffered by an unregistered firm as provided b