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.
Types of Partnerships in Pakistan
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 an indefinite period. The partnership may be dissolved at any point as long as the partner gives notice to all the other partners.
Particular Partnership: If a partnership is entered into for a particular purpose or undertaking, it is then referred to as a particular partnership. This type of partnership is usually formed for a single transaction or enterprise as opposed to carrying on a general business by a partnership.
Format of a Partnership Deed in Pakistan
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 “Articles of partnership”. A partnership deed usually contains the following format and information:
- The name of the firm
- The nature of business that is to be carried out by the firm
- The address at which the firm intends to conduct it’s business
- 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 given also.
- The names and addresses of each partner should be given
- The duration of the partnership if any
- The ratio of sharing profits and losses
- The amount or percentage of interest, if any, which is to be allowed on capital
- The amount of salary each partner is to receive
- The manner in which a partnership is to be dissolved, and the subsequent distribution of property among the partners.
- In the case of insolvency the valuation and treatment of goodwill
- Provisions regarding the accounting system and the fiscal year to be used
- Rules to be followed in the case of retirement, death and admission of a partner
- The method of settling disputes if any among partners. i.e. whether or not an arbitrator is to be appointed
- 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.
- In the case of breach of duty by one partner, powers of other partners to expel him from the firm
- The keeping of proper books of accounts and periodical preparation of accounts.
- Any provisions to prevent any future misunderstanding and ill will
Application for Partnership Registration
The procedure of registration is comparatively simple. An application for registration by filling out Form No. 1 of the Partnership Act 1932 has to be submitted to the Registrar of Firms. All the partners must sign the application. The application or statement must contain the following primary particulars, along with other information specified in the form.
- The name of the firm
- The place or principal place of business of the firm
- The names and addresses of other places where the firm may conduct business
- The partner’s date of joining the firm
- The duration of the firm
- The names and addresses of the partners
Once the registrar is satisfied with the application, a certificate of registration is issued to the partners. As mentioned previously this is not required to commence business.
If at any time there are changes to the firm in relations to the partners, place of business, insolvency etc. the registrar must be notified.
Advantages of Registration of Partnership Agreement
- The registered firm can file a suit against the third party for the enforcement of rights arising from a contract
- The registered firm attracts large capital resources from the public.
- Where there is a dispute among the partners or between the partners and the firm or between partners and ex-partners, the partners of a registered firm can file a suit in the court of law.
- The registered firm can claim any outstanding balances from a third party thorough a court of law.
- In case of a registered firm, any new partners have the security of liability and may resort to a court of law in case of a dispute.
- 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 firm.