Registration of a firm
Chapter 7 of IPA 1932 deals with the registration of firms. Under this act, registration of firms is not compulsory. There is no penalty for not registering. However, the effects of non-registration are so severe that usually firms opt to register.
Consequences of not registering
Suits between partners and Firm - A per Section 69 (1) unless a firm is registered and the party is shown as a partner, no suit can be filed by or on behalf of any partner against the firm. In Loonkaran Sethia vs Mr Ivan E John AIR 1977, the firm was not registered and the plaintiff filed the suit to enforce an agreement entered into by a partner of the firm. The suit was filed on behalf of the firm and was for its benefit. SC observed that a partner of an unregistered firm cannot bring a suit to enforce a right arising out of a contract falling within the ambit of section 69. It held that the suit was unmaintainable.
Suit between firm and third parties - Until the firm is registered, no suit can be filed by the firm against third parties. In Ram Adhar vs Rama Kirat Tiwary AIR 1981, the plaintiff sold bricks to the defendant. The defendant did not pay the price to the partnership firm and so the firm filed the suit. It was held that since the firm was not registered the suit was unmaintainable.
Bar to claim set off and other proceedings - According to section 69(3), suit cannot be filed for claim of set off or other proceedings to enforce a right arising from a contract.
According to section 69(3)(a), the provisions of section 61(1) and (2) shall not affect the enforcement of any right to sue for the dissolution of the firm, or for accounts of the dissolved firm or any right or power to realize the property of dissolved firm. Thus, a partner of a dissolved firm can sue a third party for releasing the property of the firm.
Procedure for registration
As per section 58, registration of a firm can be done any time by sending a statement in prescribed form by post or delivering to the registrar of the area in which any place of business of the firm is situated or proposed to be situated. The form should also be accompanied with the prescribed fee. The form must contain -
the firm name
place or principal place of the business of the firm.
the names of any places where the firm carries on business.
the date when each partner joined the firm.
the names in full and permanent address of the partners.
the duration of the firm.
The statement must be signed by all of the partners or by their agents specially authorized in this behalf. Each person signing the statement shall also verify it in the manner prescribed. There is a restriction on the name of the firm that it cannot contain certain words such as Crown, Emperor, Empress, King etc. that give an impression that the firm is associated with the govt.
When the registrar is satisfied that the provisions of section 58 have been fulfilled, he shall record an entry in the Register of Firms and shall file the statement.