Firm Consultant
The registration of firms is a compulsory step that needs to be taken by the partners in order to legalise their firm. In simple words, firm registration is the register of firms in the jurisdiction they operate under just like company registration. In this article we will discuss what firm registration is and why it is compulsory.
What is a Firm?
An organisation that sells or buys services or products to consumers in order to make profit is called a firm. For example corporation, limited liability company (LLC), or partnership. Most of the firms just have one location. However there are many firms that have more than one location.
The word “firm” is usually associated with enterprises that provide accounting and law services. Nevertheless, the term is applicable for a wide range of enterprises such as finance, marketing, consulting etc.
What is the difference between a firm and company?
Both terms are used interchangeably and often appear as synonymous, however there is a difference between a firm and a company. A company can be any business or trade that sells services or goods to generate profit. Furthermore, it includes all types of business structure, for example sole proprietorship, corporations and partnerships. Contrary, a firm often refers to a for- profit business controlled by two or more partners providing professional services, such as a legal firm, and normally excludes the sole proprietorship business.In some scenarios, a firm can be a corporation.
What are the different types of firms?
The name of the firm is often used for business purposes, but the level of legal protection for owners or employees depends on the ownership structure that was used to establish the company.
Corporations, for example, offer a higher level of legal protection than other types of organisation.
Firms can presume numerous types based on their ownership structures:
1. SOLE PROPRIETORSHIP OR SOLE TRADER: An individual owns a sole proprietorship or sole trader, and that person is also responsible for all liabilities and financial commitments. There are certain sole proprietorship enterprises that function like firms, however that is very rare.
2. PARTNERSHIP: A partnership is an enterprise that is owned by two or people; however there are no limitations to the number of partners that can avail stake in ownership. Each and every partner is liable for all business obligations, and jointly owns everything that belongs to the business.
3. CORPORATIONS - In a corporation, the financials of the business and the owners are kept apart. A corporation’s owners are not responsible for any expenses,legal fees, or other debts incurred by the business. Governments or individuals may own corporations.The functions of corporations can be similar to those of individuals, even though they are business entities. For instance, enter into contract agreements, they may take out loans and pay taxes.Any firm that has many owners is called a company.
4. FINANCIAL COOPERATIVE - A financial cooperative is very much like a corporation as its owners have limited liability, however the difference is that in financial cooperative investors have a say in the operations of the company.
In this post we will focus on firm registration under Indian partnership act 1932. Well discuss its benefits, procedures and documents required for the same.
What is the Indian Partnership Act 1932?
A partnership firm can be created when two or more people join forces as partners.
The provisions of Indian Partnership Act, 1932 apply to this partnership firm. In situations and circumstances where the partnership act, 1932 is silent, the Indian Contract Act also applies to the partnership.
The partners have the sole authority to decide whether to register their partnership. The Partnership Act does not make registration a requirement that must be followed.
Nonetheless, it is always better to register the firm under the act because it grants the firm numerous benefits that imply the act favours registered firms over unregistered firms. The firms registered under this act are only considered existing legally.
The registration of the firm can be done at any moment before or after the partnership’s continuation.
Another situation in which registration of the firm is necessary is when the firm wants to more readily adopt a new organisational structure, such as an LLP or company more easily.
Describe the meaning of “Partnership Deed”?
A partnership deed regulates both the relationship between the partners and the partnership firm under the contract between the partners. Partnerships are based on partnership agreements.
A partnership agreement establishes the legal relationship between the partners for the purpose of carrying out the firm's business. Written contracts are known as partnership deeds, but oral agreements are known as partnership agreements.
The details included in a partnership deed are :
Firm name and address, as well as business address.Partners' names and addresses.
Partners' rights, duties, and obligations.
Ratio of sharing profits and losses.
contribution of capital by each partner.
Rate of interest on loan, drawings and capital.
Account reconciliation in the event of a firm's breakup.
Mode of settlement in the event of conflicts among partners.
Payable to partners are salaries and commissions.
What are the Advantages/Benefits of firm registration?
POSSIBILITY OF SUING THE FIRM OR THE OTHER PARTNERS: If there is a dispute that takes place between the partners, and firm itself provided the dispute so arising is out of the terms stipulated in the partnership deed or the dispute is regarding the rights bestowed on the partner by virtue of Partnership Act, then a partner belonging to the firm in which the partnership is registered can always bring a claim against the firm.
A partner in an unregistered firm is not granted this right, albeit he may bring a criminal case against the wronged partner(s).
THE FIRM'S ABILITY TO SUE THIRD PARTIES: A registered firm is capable of bringing legal action against the other parties.
In a registered firm, any partner may sue when one of their contracts is broken. This leniency is not extended to the partners of an unregistered firm.
RIGHT TO APPLY THE SET- OFF PRINCIPAL : If a partnership firm receives a summons from another party to recover a debt owed to that party, the firm may utilise the set-off principal against the other party as long as the latter owes a debt to the partnership firm as well. The amount the registered partnership owes to the third party can simply be offset. If the partnership firm is not registered, this arrangement is not possible
BETTER CREDIBILITY: A registered partnership firm has a greater level of trustworthiness in the eyes of potential clients, even if the partnership Act makes both registered and unregistered firms legitimate.
CONVERTIBILITY INTO AN ENTITY: A registered partnership firm is always capable of easily transforming into a Limited Liability Partnership (LLP) or a private company. An unregistered firm is not granted this ease of conversion.
What Is The Procedure Of Firm Registration?
STEP 1 CHOOSE THE FIRMS NAME
Pick a name that is unique, different and easy to remember. It is recommended to check first for any existing trademark applications in order to avoid overlapping.
The following should be kept in mind before finalising the name of the firm:
The firm name should not be similar or identical to any of the existing firms. The names of the members listed in the member register may appear in the partnership firm's name. The name of the partnership firm should be in accordance with the rules and regulations of The Names and Emblems (Prevention of Improper Use) Act, 1950. The firm name should end with suffixes such as “and associates”, and company” and Co.
STEP 2 DRAFTING OF THE PARTNERSHIP DEED
The next step is to draft a partnership deed. It is the most important document of the partnership.Therefore there is an immense need for drafting it.
The following are the important components of partnership deed:
Name of the firm.Partners details along with name and address.
The date of establishment.
Interest on investment.
The partners' respective capital contributions.
Payable salary.
settlement of unpaid debts with estate executors.
Method of calculating the goodwill.
The steps involved in choosing a partner and retiring a partner.
In case if there is no partnership deed then the following regulations shall apply irrespective of the approval or rejection by partners.
Distribution of profit and loss equally.
None of the partner shall be provided with the salary.
No interest on capital paid.
The firm will, upon mutual agreement, pay a 6% annual interest rate to the partner who has an advanced loan.
There are, however, a number of additional crucial provisions that help the partnership deed be legally binding and prevent future disputes.
STEP 3 THE DEED NEEDS TO BE NOTARIZED AND EXECUTED
To avoid any technical errors, the deed must be checked by the partners and, if necessary, by professionals after it has been completed. Depending on the value of the properties included in the deed, the final Deed must be printed on non-judicial stamp paper with a value of 100 or more. The state stamp duty statute of the state in which it is registered is therefore demanded by the parties.
To eliminate the discomfort of physically stamping, the process of E-Stamping must be completed. The new recording agent for India's electronic stamping process is Stock Holding Corporation of India Limited.
The deed may also be carried out by franking. It is a procedure that stamps the document and produces the same results as stamping. The required sum must be paid at the closest bank before the parties sign the deed. The deed must bear a stamp from the bank attesting to the payment of the stamp duty.
The deed must be signed by all of the partners or their authorised representatives in the presence of the other partners and the witness. Every partner usually keeps a copy of the original, duly executed deed for their records. The witness's signature is then acquired.Although the notarization of the deed is not required under the partnership act, it is recommended because it gives the deed more credibility. Simply by notarizing the deed, disputes over its authenticity will be averted. It's just a standard procedure in our profession.
STEP 4 PAN APPLICATION
The partnership firm is not a separate legal entity from the owners or shareholders like a joint stock company. The partnership firm must still obtain a distinct PAN in order to comply with the law, nevertheless.
PAN acquisition is possible both before and after firm registration. But in other states, getting a PAN is a must before completing the registration process. Even if the business is not registered, it must obtain a PAN.
STEP 5 PARTNERSHIP DEED NEEDS TO BE REGISTERED
A Form must be completed by the partners in accordance with Section 58 and Rule 3 of the Indian Partnership Act of 1932. The following information needs to be filled in the form: Firms full Name ,Address, Full name and details of the firm,The firm's duration,The firm's location,Other locations where the business transaction takes place.
STEP 6 DOCUMENTS REQUIRED FOR REGISTRATION
THE FOLLOWING DOCUMENTS ARE REQUIRED FOR THE FIRM REGISTRATION:-
A partnership deed can be unwritten, however it is better written in order to avoid any kind of dispute. The partnership deed is made on a judicial stamp paper acquired from the respective state Registrar Office and it needs to be signed by all the partners. It consists of rights and duties of the firm and its partners.
A PAN card of a firm is required. For that the partners need to apply. They have to fill form 49A. It can be applied offline or online. In the process of online filling of the form. The partners sign the application using a digital signature certificate. In the offline process the application and the required documents are sent to the nearest processing centres
If the registered place happens to be rented then these two documents needs to be submitted One Utility bill like water bill, gas receipt, electricity bill, property tax bill etc. Rent agreement And, NOC from the landlords needs to be submitted as well. If the registered office happens to be of the owner, a utility bill that mentions the name of the owner along with the NOC from the owner has to be submitted.
It is mandatory for the partners to submit their Aadhar card.
The firm also needs to apply for GST registration, For attainment of GST registration, a firm needs to submit the following documents, PAN number, address proof and identity (aadhar card) along with address proofs of the partners. The authorised signatory will put a signature to the application using either a digital signature certificate or E- Aadhar verification.
The firm also needs to open a current bank account. For that the firm is required to submit the following documents Partnership deed,Partnership firm PAN card,Address Proof of the partnership firm,Identity proofs of all the partners,Partnership registration certificate,Any registration document issued by central or state government (usually GST certificate is submitted),Copy of electricity bill, telephone bill or water bill (it should not be more than 3 months old),Authorization letter on the letterhead of the firm authorizing a partner as an authorised signatory for the bank account.
An affidavit is also necessary to be submitted that certifies that the details mentioned in documents and partnership deed are correct.