(L-13) Registration and Dissolution of Firm

Registration of Partnership Firm
• As per the Partnership Act 1932, it is not compulsory to register a partnership firm. However,
registration is the definite proof of the existence of the firm and its legality.
Procedure of Registration(Sec 58)
According to the India Partnership Act 1932, there is no time limit as such for the registration of a firm.
The firm can be registered on the date when it is incorporated or any such date after so. The procedure
for such a registration is as follows:
1] Application to the Registrar of Firms in the prescribed form (Form A). Nowadays this facility is even
available online. Such an application must contain certain basic details about the firm such as,
Name of the Partnership Firm
Name and address of all partners
Place of business (address of main and branch offices)
Duration of the partnership
Date of joining of partners
Date of commencement of business
2] The duly signed copy of the Partnership Deed (which contains all the terms and conditions) must be
filled with the registrar.
3] Deposit/pay the necessary fees and stamp duties.
4] Once the registrar approves the application, the firm will be entered into the records. And the
registrar will also issue a certificate of incorporation.Thus, the firm will attain legal recognition.
EFFECTS OF NON-REGISTRATION
• If the firm is not registered there are the following consequences or
effects:
• 1.No suit by a partner : Under Section 69(1), a partner or any person
on his behalf cannot file a suit against the firm or a partner of the firm
to enforce a right arising from a partnership contract unless the firm is
a registered one and the person has his name filed as a partner in the
register of firms.
• 2.No suit by the firm: Under Section 69(2), a firm or any other person
on its behalf cannot file a suit against a third party for enforcing any
contractual rights unless that firm is a registered. This can be
overcome only by registration of the firm before filing a suit. But any
person can bring a suit even against an unregistered firm or any of its
partners.
• 3.No claim of set-off or other proceedings to enforce a right arising
from a contract : Under Section 69(3), a claim of set-off or any other
proceeding(arbitration) to enforce a right arising from a contract
cannot be filed unless the firm is a registered firm. Ex- if in a dispute,
one of the partners referred the matter to arbitration as per the
agreement clause but the other partner did not agree, the suit to
enforce the arbitration agreement would fail as the firm wasn’t a
registered firm.
Exceptions
• Non -registration of a firm does not affect the following rights:
• Suit for dissolution of firm and accounts : Section 69(3)(a) permits a suit for the
dissolution of firms and accounts thereof. A partner can sue another partner after the
dissolution of the unregistered firm for settlement of accounts .
• Suit for realization of the property of an insolvent partner: An official assignee receiver or
Court, may bring an action to realize the property of an insolvent partner.
• Suit by a firm whose place of business is out of India or where the Act is not operative: If
a place of business of the firm is somewhere where the Act does not extend, no disability
due to non-registration applies.
• Suit in which value does not exceed Rs. 100: In case of a small claim upto Rs. 100, the
disability to due to non-registration does not apply.
• E. Right of third party to sue the Firm or any other partner.

Dissolution of a Firm
• When the partnership between all the partners of a firm is dissolved, then it is called
dissolution of a firm. The relationship between all partners should be dissolved for the
firm to be dissolved.
• Modes of Dissolution of a Firm: A firm can be dissolved either voluntarily or by an order
from the Court.
• Voluntary dissolution can be of four types.
• 1. By Agreement (Section 40) :Partners can dissolve the partnership by agreement and
with the consent of all partners.
• 2.Compulsory Dissolution (Section 41) : It is compulsory for the firm to dissolve under
following circumstances:
a) where all the partners are declared as insolvent.
b) where it is unlawful for the business to be carried on.
• However, if a firm carries on more than one undertakings and one of them becomes
illegal, then it is not compulsory for the firm to dissolve. It can continue carrying out the
legal undertakings.
• 3. On the happening of certain contingencies (Section 42): The
happening of any of the following contingencies can lead to the
dissolution of the firm:
• Some firms are constituted for a fixed term. Such firms will dissolve on
the expiry of that term.
• Some firms are constituted to carry out one or more undertaking. Such
firms are dissolved when the undertaking is completed.
• Death of a partner.
• Insolvent partner.
• 4. By notice of partnership at will (Section 43) : If the partnership is at
will, then any partner can give notice in writing to all other partners
informing them about his intention to dissolve the firm. In such cases, the
firm is dissolved on the date mentioned in the notice. If no date is
mentioned, then the date of dissolution of the firm is the date of
communication of the notice.
• Dissolution of a Firm by the Court: According to Section 44 of the
Indian Partnership Act, 1932, the Court may dissolve a firm on the suit
of a partner on any of the following grounds:
• 1. Insanity/Unsound mind :If an active partner becomes insane or of
an unsound mind, and other partners files a suit in the court, then the
court may dissolve the firm. Two things to remember here:
• The partner is not a sleeping partner
• The sickness is not temporary
• 2. Permanent Incapacity: If a partner becomes permanently
incapable of performing his duties as a partner, and other partners file
a suit in the court, then the court may dissolve the firm.
• 3. Misconduct :When a partner is guilty of conduct which is likely to
affect prejudicially the carrying on of the business, and the other
partners file a suit in the court, then the court may dissolve the firm.
• 4. Persistent Breach of the Agreement : A partner may willfully or persistently commit a breach
of the agreement relating to Embezzlement, Keeping erroneous accounts, Holding more cash
than allowed, Refusal to show accounts despite repeated requests etc. In such cases, the other
partners may file a suit against him in the court and the court may order to dissolve the firm.
• 5. Transfer of Interest : A partner may transfer all his interest in the firm to a third party or allow
the court to charge or sell his share in the recovery of arrears of land revenue. Now, if the other
partners file a suit against him in the court, then the court may dissolve the firm.
• 6. Continuous/Perpetual losses : If a firm is running under losses and the court believes that the
business of the firm cannot be carried on without a loss in the future too, then it may dissolve
the firm.
• 7. Just and equitable grounds : The court may find other just and equitable grounds for the
dissolution of the firm. Some such grounds are:
• Deadlock in management
• Partners not being in talking terms with each other
• Loss of substratum (the foundation of the business)
• Gambling by a partner on the stock exchange.
Consequences of Dissolution
• Section 45: Liability for acts of partners done after dissolution: The
dissolution of partnership firm does not mean that the partners can
escape the liability to the third party or parties for their actions unless any
public notice is issued informing about the same. Any partner who has
died, declared insolvent, retired from the firm or been removed from the
firm are not liable under this section from the date their partnership
ended.
• Section 46: Rights of partners to have business wound up after
dissolution: After the dissolution of partnership firm every partner or
their representative have the right over the firm’s property to pay off the
debts and other liabilities of the respective firm. Surplus amount left is to
be distributed among all the partners or their representatives according
to the share they hold in the firm.
• Section 47: Continuing authority of partners for purposes of winding
up: In spite of the dissolution of a firm, the authority to bind the firm
and all the other obligation and mutual rights of the partners remains
unaffected, so far as may be considered necessary for winding up the
undertakings of the firm and to conclude all the transactions that
remained unfinished at the time of firm’s dissolution.
• Section 48: Mode of settlement of accounts between partners: The

losses shall be paid by the firm first and then out of the partner’s
capital and lastly, if required, by the partners individually which will be
proportional to their profit sharing in the firm. The firm’s assets and
the residue amount left after settlement of claims, shall be divided
among the partners according to the profit sharing ratio.
• Section 49: Payment of firm debts and of separate debts : When a
firm has joint debts due and any partner has separate debts due, the
firm’s property shall be applied firstly for paying the debts of the firm
and after that if any amount is left, then it shall be given to them
according to their shares to pay their separate debts.
• Section 50: Personal profits earned after dissolution: After the
dissolution of a firm, if any partner earns some personal profit from
the firm’s transactions then he has to share the profit with other
partners or their representatives.
• Section 51: Return of premium on premature dissolution: On

dissolution of the firm before the fixed term, the partner liable to get
back the amount he paid as premium when he entered into the
partnership for the fixed period. However, he cannot claim it if
dissolution was an outcome of his misconduct.
• Section 52: Rights where partnership contract is rescinded for fraud
or misrepresentation: When a partnership contract is rescinded on
the ground of misrepresentation or fraud, then the other partners can
use certain rights such as lien on the firm’s surplus assets, indemnify
the debts and also has the right to become the creditor for the
payments of the firm.
• Section 53: Right to restrain from use of firm name or firm property:
After the dissolution of partnership firm, every partner has the
authority to stop other partner from using the firm’s name to
continue a similar business and from using the firm’s property for any
personal benefit, till the business of the firm has been completely
wrapped up. But this can be done only when there is no contract to
oppose it.
• Section 54: Agreements in restraint of trade: After the firm’s
dissolution, partner can enter into an agreement for imposing
reasonable restrictions on all or some partners like not to undertake a
similar business as that of firm for specific time period or within the
specified geographical limits.
• Section 55: Sale of goodwill after dissolution : Goodwill is considered

as an asset when the firm’s accounts are settled after dissolution. It
can either be sold separately or along with the firm’s other property.
The partners may carry on the same business after selling the
goodwill but cannot use the name of the firm.

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Registration of Partnership Firm

• E. Right of third party to sue the Firm or any other partner.

• Section 48: Mode of settlement of accounts between partners: The

• Section 51: Return of premium on premature dissolution: On

• Section 55: Sale of goodwill after dissolution : Goodwill is considered

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