REGISTRATION OF A FIRM/PARTNERSHIP
REGISTRATION OF A FIRM/PARTNERSHIP in pakistan
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 can not 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 can not subsequently cure this
effect. Prior registration is necessary.
The mutual rights and obligations of all partners must be documented in the
shape of a “partnership deed”. This needs to be signed by all the partners and
subsequent copies held by each partner. At the time of registration, a copy of
the deed has to be submitted with an application to the Registrar of Firms in
the concerned area. This document may also be referred to as an “Article of
partnership”. A partnership deed usually contains the following format:
a) The name of the firm
b) The nature of business that is to be carried out by the firm
c) The address at which the firm intends to conduct it’s business
d) The amount of capital that each partner contributes. The form of capital
whether that be cash or property needs to be documented. If the capital is
property, a full description of the property and the valued amount should be
e) The names and addresses of each partner should be given
f) The duration of the partnership if any
g) The ratio of sharing profits and losses
h) The amount or percentage of interest, if any, which is to be allowed on
i) The amount of salary each partner is to receive
j) The manner in which a partnership is to be dissolved, and the subsequent
distribution of property among the partners.
k) In the case of insolvency the valuation and treatment of goodwill
l) Provisions regarding the accounting system and the fiscal year to be used
m) Rules to be followed in the case of retirement, death and admission of a
n) The method of settling disputes if any among partners. I.e. whether or not
an arbitrator is to be appointed
o) Method of calculating amount issued to a deceased partner, and whether
this is to be paid in full or in installments to his legal representative.
p) In the case of breach of duty by one partner, powers of other partners to
expel him from the firm
q) The keeping of proper books of accounts and periodical preparation of
r) Any provisions to prevent any future misunderstanding and ill will.
Notes: A Partnership deed can be obtained in the form of Judicial papers that
cover all the points mentioned above. This in turn can be signed and
submitted to the registrar as mentioned.
ADVANTAGES OF REGISTRATION
of rights arising from a contract
2) The registered firm attracts large capital resources from the public.
3) Where there is dispute among the partners or between the partner and the
firm or between partners and ex-partners, the partners of a registered firm
can file suit in the court of law.
4) The registered firm can claim any outstanding balances from a third party
thorough a court of law.
5) In case of registered firm, any new partners have the security of liability and
may resort to the court of law in case of a dispute.
6) In the case of partners leaving the firm, they can not be made liable for any
debts incurred after leaving. This is only seen in the case of a registered
DIFFERENT TYPES OF PARTNERSHIPS
1) Ordinary Partnerships
2) Limited Partnerships
3) Partnership at-will
1) Ordinary Partnership: – All information so far discussed is with regards to
an ordinary partnership. Any variations would then lead to the below
2) Limited Partnership: – In this kind of partnership one or more partners
have limited liability and at least on of the partners has unlimited liability.
The liability of the limited partner is limited to the extent of his investment
in the business.
a) It is formed under Limited Partnership Act 1907 (of England)
b) One or more partners have limited liability
c) There is at least one partner with unlimited liability
d) The firm must be registered. Once this is done the rights and duties of
the partners are also recognized.
e) A limited partner has no right to take an active role in the management
of the partnership.
f) The capital invested by the limited partner will not be returned to him as
long as he remains a limited partner on the firm.
g) The limited partner can inspect the accounts of the firm at any time.
h) A new partner can be introduced into the firm at any time without the
consent of the limited partners.
i) The partnership should not consist of more than 20 partners (whether
limited or not) except in the case of banking where they should not
j) The registrar of Joint Stock Companies shall be the registrar of Limited
3) Partnership at-will: – The essence of a “partnership at-will” is that the
partners do not limit the duration of their partnership, and are free to break
their relationship at any time they see fit. It is a partnership for indefinite
period. The partnership may be dissolved at any point as long as the partner
gives notice to all the other partners. An ordinary partnership becomes a
partnership at-will under the following circumstances:
a) If the partnership is of a indefinite period
b) If a partnership is formed for a limited period of time, and the firm
continues to function after the expiry of this period.
c) If a partnership is formed to conduct a particular venture, and then
continues to function after the venture is complete.
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