Registration of a firm is effected by the Registrar of Firms by recording in the Register of Firms an entry of the statement relating to registration furnished to him. The Act does not make registration of the firm compulsory, yet the effect of the rules relating to the consequences of non-registration is such as practically necessitates the registration of the firm at one time or other. Certain disabilities have been imposed on partners of an unregistered firm seeking to enforce certain claims in the Civil Courts. A firm which is not registered is not able to enforce its claim against third parties in the Civil Courts; and any partner who is not registered is not able to enforce his claim either against third parties or against the fellow partners. An unregistered partner may, however, sue for the dissolution of the firm or for accounts only if the firm is already dissolved.
Dissolution of a firm means the breaking up or extinction of the relationship which subsisted between all the partners of the firm under various circumstances contemplated by Act. A partnership can be dissolved only in accordance with the manner prescribed under the Act.
TEST YOUR KNOWLEDGE
Multiple Choice Questions
1. Registration of a firm is:
(d) None of the above
2. An unregistered firm cannot claim:
(a) Set on
(b) Set off
(c) Set on and set off
(d) None of the above
3. On dissolution the partners remain liable to till:
(a) Accounts are settled
(b) Partners dues are paid off
(c) Public notice is given
(d) The registrar strikes off the name
4. As per the accepted view, the registration of the firm is considered complete when
(a) Complete application for registration is filed with the Registrar
(b) Registrar files the statement and makes entries in the Register of Firms
(c) Registrar gives notice of registration to all partners
(d) Court records the statement and certifies the entries in Register of Firms
5. A partnership firm is compulsorily dissolved where
(a) All partners have become insolvent
(b) Firm’s business has become unlawful
(c) Thefixed term has expired
(d) In cases (a) and (b) only
6. On which of the following grounds, a partner may apply to the court for dissolution of the firm?
(a) Insanity of a partner
(b) Misconduct of a partner
(c) Perpetual losses in business
(d) All of the above
7. Which of the following do not constitute a ground for dissolution by Court?
(a) Misconduct by partner
(b) Transfer of interest by partner
(c) Just and equitable grounds
(d) Insolvency of a partner
8. Upon dissolution of firm, losses, including deficiencies of capital, shall be paid first-
(a) Out of Profits
(b) Out of Capital
(c) By the partners in their Profit sharing ratio
(d) By the partners equally
9. In settling the accounts of a firm after dissolution, the goodwill of the firm-
(a) Must be included in the assets
(b) May be sold separately
(c) May be sold along with the assets of the firm
(d) All of the above
10. Public notice in case of a firm is not required in case of:
(a) Admission of a partner
(b) Retirement of a partner
(c) Expulsion of a partner
(d) Dissolution of the firm.
11. Which of the following do not constitute ground for dissolution by Court?
(a) Insanity of the partner
(b) Business carried on at a loss
(c) Wilful misconduct of a partner
(d) Expulsion of a partner
12. Dissolution of partnership between all the partners of a firm is called-
(a) Dissolution of partnership
(b) Dissolution of partners
(c) Dissolution of the firm
(d) Reconstitution of firm
Answer to MCQs
1(b), 2(b), 3(c), 4(b), 5(d), 6(d), 7(b), 8(a), 9(d), 10(a), 11(d), 12(c)
Question 1: What is the procedure of registration of a partnership firm under the Indian Partnership Act, 1932? What are the consequences of non-registration?
Question 2: When does dissolution of a partnership firm take place under the provisions of the Indian Partnership Act, 1932? Explain.
Answer to Theoretical Questions
1. APPLICATION FOR REGISTRATION (SECTION 58): (1) The registration of a firm may be effected at any time by sending 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, a statement in the prescribed form and accompanied by the prescribed fee, stating
(a) The firm’s name
(b) The place or principal place of business of the firm,
(c) The names of any other places where the firm carries on business,
(d) the date when each partner joined the firm,
(e) the names in full and permanent addresses of the partners, and
(f) the duration of the firm. The statement shall be signed by all the partners, or by their agents specially authorised in this behalf.
(2) Each person signing the statement shall also verify it in the manner prescribed.
(3) A firm name shall not contain any of the following words, namely-
‘Crown’, Emperor’, ‘Empress’, ‘Empire’, ‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words expressing or implying the sanction, approval or patronage of Government except when the State Government signifies its consent to the use of such words as part of the firm-name by order in writing.
Non consequences of non-registration: Under the English Law, the registration of firms is compulsory. Therefore, there is a penalty for non-registration of firms. But the Indian Partnership Act does not make the registration of firms compulsory nor does it impose any penalty for non-registration.
However, under Section 69, non-registration of partnership gives rise to a number of disabilities which we shall presently discuss. Although registration of firms is not compulsory, yet the consequences or disabilities of non-registration have a persuasive pressure for their registration. These disabilities briefly are as follows:
(i) No suit in a civil court by firm or other co-partners against third party: The firm or any other person on its behalf cannot bring an action against the third party for breach of contract entered into by the firm, unless the firm is registered and the persons suing are or have been shown in the register of firms as partners in the firm. In other words, a registered firm can only file a suit against a third party and the persons suing have been in the register of firms as partners in the firm.
(ii) No relief to partners for set-off of claim: If an action is brought against the firm by a third party, then neither the firm nor the partner can claim any set-off, if the suit be valued for more than ` 100 or pursue other proceedings to enforce the rights arising from any contract.
(iii) Aggrieved partner cannot bring legal action against other partner or the firm: A partner of an unregistered firm (or any other person on his behalf) is precluded from bringing legal action against the firm or any person alleged to be or to have been a partner in the firm. But, such a person may sue for dissolution of the firm or for accounts and realization of his share in the firm’s property where the firm is dissolved.
(iv) Third party can sue the firm: In case of an unregistered firm, an action can be brought against the firm by a third party.
2. Dissolution of Firm: The Dissolution of Firm means the discontinuation of the jural relation existing between all the partners of the Firm. But when only one of the partners retires or becomes in capacitated from acting as a partner due to death, insolvency or insanity, the partnership, i.e., the relationship between such a partner and other is dissolved, but the rest may decide to continue.
In such cases, there is in practice, no dissolution of the firm. The particular partner goes out, but the remaining partners carry on the business of the Firm.
In the case of dissolution of the firm, on the other hand, the whole firm is dissolved. The partnership terminates as between each and every partner of the firm.
Dissolution of a Firm may take place (Section 39 - 44)
(a) as a result of any agreement between all the partners (i.e., dissolution by agreement); (b) by the adjudication of all the partners, or of all the partners but one, as insolvent (i.e., compulsory dissolution);
(c) by the business of the Firm becoming unlawful (i.e., compulsory dissolution);
(d) subject to agreement between the parties, on the happening of certain contingencies, such as:
(i) effluence of time;
(ii) completion of the venture for which it was entered into;
(iii) death of a partner;
(iv) insolvency of a partner.
(e) by a partner giving notice of his intention to dissolve the firm, in case of partnership at will and the firm being dissolved as from the date mentioned in the notice, or if no date is mentioned, as from the date of the communication of the notice; and
(f) by intervention of court in case of:
(i) a partner becoming the unsound mind;
(ii) permanent incapacity of a partner to perform his duties as such;
(iii) Misconduct of a partner affecting the business;
(iv) willful or persistent branches of agreement by a partner;
(v) transfer or sale of the whole interest of a partner;
(vi) improbability of the business being carried on save at a loss;
(vii) the court being satisfied on other equitable grounds that the firm should be dissolved.