What is Partnership?

A “firm” is a relationship between two or more persons who have agreed to share profits of a business according to their participation. The partners are collectively called a “firm” and the name under which they do business is called the “firm name”. Any two or more persons (up to 20) can form a partnership to do any one or more businesses through an agreement in writing. It is not compulsory in law to register a partnership. However, a registered partnership has more advantages than an un-registered partnership.

Registered Partnership:

The registration of partnerships is not compulsory by law. It is optional and there is no penalty for non-registration. However there are disadvantages for not registering. If any dispute arises among the partners or ex-partners they may not resolve the issue through the civil courts. An unregistered firm cannot institute a suit to settle these disagreements. Neither can an unregistered firm sue a third party for the enforcement of any rights arising from a contract, e.g. the recovery of the price of goods supplied. It must be noted however, that a third party may file suit against the partnership. Even in this case, the partnership cannot mention any monies that may be outstanding to them in court. There is no protection to the partners’ liability either. As there is no formal documentation stated that they are in partnership, if one decides to deny the existence of the partnership, there is not much that can be done about it legally. Registering during any suit cannot subsequently cure this effect. Prior registration is necessary.