Legal Guide

What are the consequences of the non-registration of a partnership firm?

by Bhavya Choudhary · 3 min read

consequences of non registration of partnership firm

Introduction

  • A partnership is a formal understanding between two or more individuals who want to maximize profits by sharing capital and liabilities equally. It can be a verbal agreement or a written one.
  • The firm’s legal position is not compromised, even if it is a non-registered firm. 
  • A non-registered firm is one that did not go through the process of getting authorization or incorporation. However, the partnership firms which are legally registered enjoy a few beneficial factors as they come across to be reliable for the investors, customers, creditors, and third parties. 
  • There are a few consequences of the non-registration of partnership firms which we will be mentioned in this article. 
  • It is always suggested to be safe and secure by taking online legal advice because it will be a convenient way of learning more about the regulations of a partnership firm and the consequences of non-registration of the partnership firm.
  • According to the Indian Partnership Act 1932, it is not mandatory to register a company for legal value. 
  • It is a mutual decision between the partners whether they want to get it registered or not. The legal status is not affected by registration or non-registration. However, a few consequences of non-registration of partnership firm incurs with time.

The registration of a “Partnership Firm.”

A partnership firm can be registered or unregistered. However, there are some consequences of the non-registration of the partnership firm. Therefore, one must get the partnership firm registered. For registering with the registrar online or offline, a few simple steps are mentioned:

  • The name of the partnership firm: the name is decided by mutual agreement of all the partners or will be mentioned in the deed itself, which was prepared beforehand.
  • The location where the firm is situated and from where the business will be managed or commenced.
  • Mention the address of any branch that might be added for the respective firm to expand business opportunities.
  • The details of all the partners such as name, address, and Id proof.
  • The dates on which each partner was approved in the business or accepted should be mentioned. When completing the firm registration online, the signature certificate would be needed to authorize. The firm can face consequences of non-registration of a partnership firm if not regulated.
  • The duration of business and till when it will prolong.
  • The partnership deed copy, which is attested by each of the partners, and the documents which need to be verified
  • Clearing the registration fees, stamp duty, and necessary charges.
  • Firm registration online can also be completed with necessary documents submitted to the registrar.

There are registration benefits, and equally, some face the consequences of the non-registration of a partnership firm.

How is a registered partnership firm beneficial?

There are several benefits of registration of a partnership firm and similarly, there are consequences of non-registration of a partnership firm.

The power to file suit against the firm or other partners

  • Any partner of a partnership firm can file a case in the Court of Law against other partner/partners or the firm or any ex-partner of a firm in case of any dispute.
  • If the conflict arises because of the contract (partnership deed) or the right mentioned in Partnership Act 1932, then a partner of any registered firm can sue another partner or file a case against the criminal proceedings (if any).
  • Power to file a case against third parties: The partner of a registered firm can sue other third parties in the court of law or any other partner of the firm for its claim enforcement. 
  • This, however, cannot be practiced in unregistered firms, and it is a consequence of the non-registration of partnership firms. Third parties herein can also sue the firm for claim enforcement.
  • According to the Income Tax Acts, a registered firm is entitled to claim specific benefits.
  • A partnership firm is also allowed to change its current entity into a private limited company or LLP in regards to rules and regulations.
  • Investors, creditors, and banks also have a positive outlook on partnership businesses which allows them to obtain loans for expansion or investment.
  • Using the set-off credibility when a third party sues the firm for any debts. The company can use the set-off principle and adjust the balance regarding what the third party owes to the firm. This advantage is not exercised in an unregistered firm, therefore, it is a consequence of the non-registration of a partnership firm.

Consequences of non-registration of a partnership firm

There are several advantages of running a partnership firm, but it is not without some disadvantages which may occur while non-registration. The consequences of non-registration of partnership firm are as follows:

  • The consequences of non-registration of partnership firm include that the firm or partner has no right to legally sue another partner or the firm.
  • a case against the third parties cannot be filed, which is also a big consequence of the non-registration of a partnership firm.
  • No claim can be enforced in a court of law by the partner of an unregistered firm which adds up as a consequence of the non-registration of a partnership firm.
  • Any claim which exceeds Rs 100 cannot be set off, and this is also a major consequence of the non-registration of a partnership firm. 
  • No adequate relief is provided to any party as the sum cannot be exceeded by Rs 100 and cannot be claimed that acts as a consequence of the non-registration of a partnership firm.
  • The third-party can still sue the firm even if it is unregistered. The firm cannot sue the third party according to the Act, but it does not make it immune from the other third parties who can file cases in the court of law against the unregistered firm.

Conclusion

There are many advantages and many consequences of the non-registration of a partnership firm which make the firm vulnerable, yet they function sufficiently. The structure of work for a company is much more complex than that of a firm. 

The company has no legal power in law, yet it still enjoys many advantages under the Partnership Act 1932. These consequences of non-registration of partnership firms can be a setback for many firms, so it is suggested to take online legal advice if a query is unresolved and clarity is needed.

The process of registration of a firm online can be tricky, and one should receive clarity in such situations. Taking legal consultation is the best bet for any individual aiming for lucrative growth.

Bhavya Choudhary

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Bhavya Choudhary

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