Effects of Non-registration of a Partnership Firm -The Companies Act of 2013 emphasises that registration is the most important step for any organisation to do in order to reclassify itself as a business. A corporation is created when it is registered. Instead, the Indian Partnership Act of 1932 did not impose this condition on businesses. Even if a company isn’t registered, it can still be referred to as a business because it still has legal standing. These considerable benefits do have certain limitations, but they are by no means unqualified. Later, we’ll go over this in more detail.
The process of establishing a business is the fundamental definition of registration. The action of registering is what creates the corporation. No law specifically defines registration, however, section 58 of the Indian Partnership Act of 1932 deals with the incorporation process. Similar to how registration is the complete opposite of non-registration, non-registration occurs when a firm either skips the creation process or starts operating before it is registered.
Non-registration of a firm simply implies that the business bypasses the formalities of formation and so ceases to exist legally. These constraints and implications are described in Section 69 of the Partnership Act.
Registration Procedure
Section 58 of the Indian Partnership Act of 1932 addresses the establishment of a firm. In this procedure, you must first fill out a form including various facts about your organisation.
- 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 finished, the form is given to the registrar, who approves it and registers it by filling out the form and recording the data in the registration register. Section 59 of the Indian Partnership Act of 1932 describes this procedure. Another key consideration when incorporating is that the registration application is signed by all members.
You Can Also Click Here To Get Your Partnership Firm Registration Today.
Advantages of a Partnership Firm:
A partnership firm offers several benefits over a private corporation or a proprietorship organisation.
It is simple to create a partnership due to few constraints. A partnership agreement is generally sufficient. LLP, on the other hand, need documents such as a DIN (Director Identification Number), a digital signature, and so on.
The decision-making process in private corporations is complex by including the board of directors in making choices and approving resolutions all around. Partnerships do not require this.
Finance for partnerships is much easier to understand than it is for single proprietorships. Having several partners makes it more challenging to get money for the company.
Banks prefer partnerships to grant credit lines because they may generate more money and look to be more reliable than sole proprietorships.
The partners in the company work together toward the same goal. Shared accountability increases reliability and opportunities for financial success.
Consequences of Not Registering a Partnership Firm:
The actions and rights of an unregistered firm are distinct from those of a registered firm. Although the Partnership Act of 1932 does not mandate the registration of a partnership, the suggestion that a partnership business should be registered may prompt one to explore the ifs and buts of not doing so. The Law makes it quite clear that partnership enterprises must register. Section 69 of the Act includes a list of some of the consequences of failing to register the business. This part, which describes the drawbacks of not establishing a business, is quite thorough and helpful. It’s possible that the regulation was intended to serve as a passive limit on the registration of partnerships. No company or individual may be sued by a business that has not completed the formation process.
No proceedings Can Be Filed Against Co-Partners Or Third Parties:
A non-registered company does not have the same legal standing as a registered company. Another key component of this sub-point is that the individual or third party suing the non-registered business must already be registered as a firm in the register. In the case of Jagat Mittar Saigal versus Kailash Chander Saigal, the court ruled that in order to litigate, the firm or its affiliated partner must have their name registered with the Registrar of Firms. However, as stated in Umesh Goel v. Himachal Pradesh Co-operative Housing Society Ltd in 2016, the partners can settle the dispute through arbitration.
Cannot Avail Set-Off Claim Against Third Parties:
Section 69(3) of the Partnership Act of 1932 describes the notion of set-off claims. In a set-off claim, the debtor makes changes and may assert reciprocal rights against the creditor in mutual debts. However, if a partnership firm is not registered, this concept cannot be used.
Other Parties Cannot be Forbidden From Suing The Unregistered Partnership Firm:
Although a non-registered partnership business cannot sue a third party, the Act does not prohibit the opposite. As a result, a third party can still launch a lawsuit against the unregistered partnership business. Just because the company lacks the power to sue does not exclude it from legal action brought by other parties.
Partners Cannot Bring Legal Action Against Each Other
A dissatisfied partner in a non-registered business cannot sue each other in court. In the case of unregistered partnership businesses, the law does not address any violation of contract or conflicts of interest. The partners in an unregistered partnership business cannot exercise their rights.
No Proper Relief
Without business registration, the parties will have no recourse because no third party may offset claims in excess of 100 rupees. Such rights are only available to registered corporations..
Conversion To Another Entity Becomes Impossible:
Registered partnerships can be converted to other legal entities, such as LLPs. Unregistered partnership businesses are not eligible for this benefit.
