Is Registration of Partnership Firm Mandatory

The Indian Partnership Act does not make the registration of partnership compulsory nor does it impose any penalty for non-registration.

However, non-registration of a partnership gives rise to a number of disabilities which are as follows:

1. No suit in a civil court by the firm or other co-partners against any third party: If the firm registration is not done, then the firm or any other person on its behalf cannot file a suit against a third party for breach of contract which the firm has entered into. Further, the person filing the suit on behalf of the firm should be in the register of the firm as a partner.
2. No relief to partners for set-off of claim: Without firm registration, any action brought against the firm by a third party having a value of more than Rs. 100 cannot be set-off by the firm or any of its partners. Pursuance of other proceedings to enforce rights arising from the contract cannot be done either.
3. An aggrieved partner cannot bring legal action against other partner or the firm: A partner of the firm or any person on his behalf cannot bring legal action against the firm or against any partner (or alleged to be a partner) if firm registration is not done. However, if the firm is dissolved, then such a person can sue the firm for dissolution, its accounts, and realization of his share in the firm’s property.
4. A third party can sue the firm: Even if the firm registration is not done, a third party can bring legal action against the firm.

Exceptions: Non-registration of a firm does not affect the following rights:

1. The right of a third party to sue the firm or any partner.
2. Partners’ right to sue the firm for dissolution or settlement of accounts (in case of dissolution).
3. The power of the Official Assignees or the Receiver of Court to release the property of the insolvent partner and bring an action.
4. The right of the firm and partners to sue or claim set-off when the value of the suit does not exceed Rs. 100.
5. The right to suit and proceedings instituted by the legal representative or heirs of the deceased partner of a firm for accounts of the firm or to realize the property of the firm.