What is the Registration of a Partnership?
A partnership is the most common business structure, whereby two or more people voluntarily assume the risks, rewards, and responsibilities of a business. Official registration means in law that the partnership form of business has been recognized by the appropriate authorities. This process allows the recognition of partners who obtain legal rights upon registration and adds credibility to the partnership. The registration of a partnership firm is not compulsory in all jurisdictions. However, it offers advantages like dispute resolution options, taxation benefits, and access to funds. This article has covered all aspects on registration procedure of partnership firm in India.
Why Register a Partnership?
Partnerships have the option of operating without registration according to various jurisdictions, but this does not come without the advantages of registration. These include the following:
- Legal Recognition and Protection
Registration of a partnership places the partnership itself in a position to enter into contracts, sue third parties, or defend itself in court. Partners can also have protection for their interests legally, in case of disagreements and disputes.
- Dispute Resolution
Only registered firms have the right to take legal recourse when disputes arise, regardless if such disputes were caused by clients, suppliers, or even co-partners. s.
- Access to Business Credit
They are seen as secured by financial institutions, therefore securing loans and credit lines or grants.
- Business Continuity
This will guarantee that the business will continue functioning without interruption even in the event of death or withdrawal of a partner.
- Enhanced Credibility
Other players, such as clients, suppliers, and many other stakeholders, are more likely to do business with a properly formalized registered business than an unregistered one.
Steps to Register a Partnership Firm
1. Create a Partnership Deed
The partnership deed is the written document that lays down the terms and conditions within which the partnership is to operate. It should contain the following:
- Names and addresses of all partners
- Name of the business
- Nature of the business
- Capital contributions
- Profit-sharing ratio
- Responsibilities of each partner
- Duration of the partnership, if applicable
The deed is to be signed by all partners and serves as the foundation of the business relationship.
2. Choose a Business Name
Every name used for a business has to be different from existence registered or trademarked names.
3. Submit Registration Forms
Once the partnership deed and the name of the business are done, the next step is to fill in the registration form of the Registrar of Firms or that of an equivalent authority. Usually, the form asks for the following details:
- Partnership name
- Location of the principal place of business
- Names and addresses of all partners
4. Provide Required Documents
The partners must also provide the following documents along with the registration form:
- A partnership agreement is signed by all partners.
- Identification and address proof of each partner, such as a passport, utility bills, etc.
- Proof of business address, i.e., rental agreement or utility bill
5. Pay Registration Fees
Most jurisdictions require a fee for the registration process. The registration fees vary according to the country or state, but are usually nominal.
Verification and Certificate of Registration
The Registrar, after submission of the registration form and other requisite documents, shall verify all the particulars. If satisfied, the Registrar shall issue a Certificate of Registration as prima facie evidence of the existence of the law partnership.
Consequences of Not Registering a Partnership
Even though partnerships without registration can function, their functionality is limited:
- Inability to Sue or Be Sued
Unregistered partnerships have no means to take recourse in case of any dispute, which limits their ability to protect their interests.
- Limited Business Operations
The registration excludes the opportunity to maintain a business bank account or to borrow from any bank. It may also be difficult to enter into contracts or make agreements with clients or suppliers formally.
- Lack of Tax Benefits
An unregistered partnership is not allowed to enjoy tax benefits like the deduction of business expenses, exemption for some activities, and tax credits that are allowed in the case of registered firms.
- Reduced Credibility
Unregistered partnerships struggle to create a trust base from clients, suppliers, and investors who are likely to partner with a legal business.
Key Considerations After Registration
After the partnership has been otherwise registered then considered to be a legal entity, for effective functioning, it should:
- Ensure Compliance with Tax Laws
Registered partnerships must comply with the local restrictions for taxes by conducting return filings and tax payments on time.
- Update Changes to the Partnership
Partners’ coming in and going out are changes to the partnership. The change must be registered in the appropriate offices.
- Maintain Accurate Records
It is important to keep records of all business activities, transactions, and all alterations regarding the partnership agreement, duly and accurately updated.
Get Started with TaxDunia
Making a registration of the partnership is a necessary step towards formalizing the business. In many cases, registration is not a compulsory requirement, but indeed, there is more to gain from it than without it. Registration, partners availed legal recognition, methods of dispute settlement, business credit, as well as greater levels of credence. On the contrary, there are many disadvantages that a partnership that is not registered suffers such as law and operational. Reach out to TaxDunia to get yourself registered as your partnership firm and file ITRs.
