Effects of Non-registration of a Partnership Firm

The Companies Act, 2013 clearly emphasizes that the most important thing for any organization to transform a company is to get itself registered. A company comes into existence after it is registered. However, the Indian Partnership Act of 1932 did not impose such an obligation on businesses. If a firm is not registered it does not cease to be called a firm, it still exists from a legal point of view. Certainly, these big benefits aren’t absolute, but they do have a number of limitations. We’ll talk more about this in more detail.

The basic meaning of registration means it is the process of setting up a firm. Registration can be the procedure through which it brings the firm into life. Registration has not been well defined in any statute but section 58 of the Indian Partnership Act, 1932 deals with the procedure of incorporation. similarly, the meaning of non-registration is the exact opposite of registration, If the firm has not gone through the incorporation process or started the business without registration.

Non-registration of a firm simply means that the business skips the formalities of incorporation and will no longer exist from a legal point of view. Section 69, under the Partnership Act, describes these limitations and consequences

Registration Procedure

Section 58 of the Indian Partnership Act. of 1932 deals with the process of establishing a firm. In this process, you first need to fill out a form that is said to contain various details about your company. 

Firm name

Underlined member addresses, 

The duration of the firm,

The original location of the firm, and

The original location of the company, and 

When the registration is complete the form is submitted to the registrar, who then accepts the form and registers the form by completing it by entering details through writing in the registration register. This process is described in section 59 of the Indian Partnership Act,1932. Another important factor to consider when incorporating is that the registration application must be duly signed by all the members.

You Can Also Click Here To Get Your Partnership Firm Registration Today.

Advantages of a Partnership Firm:

A partnership firm has a wide variety of advantages as compared to a private company or a proprietorship firm.

It’s easier to start a partnership because of the minimum requirements. In most cases, a partnership agreement will suffice. On the other hand, LLP requires, for example, DIN (Director Identification Number), digital signature, and so on. 

In private companies, the decision-making process is complicated by involving the board of directors in making decisions and passing resolutions all around. This is not necessary for partnerships.

Financing is relatively uncomplicated in partnerships compared to proprietorship firms. If you have multiple partners then it makes it more difficult work to collate the funds for the business.

Banks prefer to use partnerships to provide credit lines because they have the ability to raise more capital and appear to be more stable than proprietorship firms.

The partners in the firm have a communal goal and they work with the same goal. The sense of shared responsibility provides greater reliability and greater opportunities for business success. 

Consequences of Not Registering a Partnership Firm:

A non-registered firm behaves differently from a registered firm and limits the right of a non-registered firm although the Partnership Act, 1932, does not make the registration of partnership mandatory, the fact that it suggests the registration of a partnership firm, should make one consider the ifs and buts of failing to do so. The Law puts substile and compelling pressure on registering partnership firms. Section 69 of the Act, some of the disadvantages of not registering the firm. This section is very detailed and descriptive and describes the drawbacks of not registering a firm.  Perhaps the intent of the law was to be a passive constraint on partnership. registration. A company that has not undergone the establishment procedure cannot file a proceeding against another company or a third party.

No proceedings Can Be Filed Against Co-Partners Or Third Parties:

A non-registered firm does not have the right to sue like other registered companies. Another important aspect of this sub-point is that the person or the third party suing the non-registered firm shall be already registered in the register as a firm. In the case of Jagat Mittar Saigal vs Kailash Chander Saigal, the guideline came that, in order to sue, the firm or its related partner in question must have their name registered with the Registrar of firms. Though, the partners can resolve the argument through arbitral proceedings, as held in Umesh Goel v. Himachal Pradesh Co-operative Housing Society Ltd in 2016.

Cannot Avail Set-Off Claim Against Third Parties:

The principle of set-off claims is described in section 69(3) of the Partnership Act, 1932. In a set-off claim, the debtor makes alterations and can put forward reciprocal claims in the mutual debts with the creditor. Though, when a partnership firm is not registered this principle cannot be put into exercise.

Other Parties Cannot be Forbidden From Suing The Unregistered Partnership Firm:

Although a non-registered partnership firm cannot sue a third party, the converse cannot be prevented by the Act. Therefore, A third party can still go ahead and file a case against the non-registered partnership firm. Just, because the firm does not have the right to sue does not provide it immune to legal suits filed by other parties.

Partners Cannot Bring Legal Action Against Each Other

An aggrieved partner of a non-registered firm cannot bring legal action towards each other. Any breach of contract or conflicts of interest cannot be addressed by the law in the case of non-registered partnership firms. In a non-registered partnership firm, the partners cannot exercise their rights.

No Proper Relief

Without company registration, no remedy will be given to the parties in this regard as no third party can offset claims in excess of 100 rupees. Only registered companies are entitled to such rights.

Conversion To Another Entity Becomes Impossible:

Registered partnerships have the ability to convert to other legal entities such as LLP. This privilege is not available for unregistered partnership firms.