What Are The Effects Of Registration And Non-Registration Of Partnership Firms In Pakistan?

Effects Of Registration And Non-Registration Of Partnership Firms
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According to the law, a partnership is a relationship between two or more people who decide to split profits while operating a business. The people who enter a partnership in this way are partners. Moreover, they work as an entity or a firm. Compared to sole proprietorship, it is entirely different. There may be some ties between partnerships and sole proprietorships.

Although, laws may need these partners to register their firm for better benefits. However, the law does not need partnership entities to register. Even if a business chooses not to register, it would still be able to operate legally.

In the case of private firms, experts consider registration as establishing the existence of the company. As previously indicated, partnership firms do not operate similarly. When a business chooses not to incorporate, we call it a non-registered business. To customers and other stakeholders, a registered partnership firm appears more reliable.\

Registration Of A Partnership Firm:

You may require the following information to register a partnership firm with the Registrar of Firms.

  • The company’s name
  • the location where the primary operations will take place.
  • Names of the sites where the company would be opening its branches.
  • The partners’ names and addresses.
  • The day the company will officially launch.
  • Dates that various firm partners first joined.
  • Length of time of the partnership
  • Partnership agreement with properly affixed signatures from the partners.

The concerned person must submit the application with the required documentation and payment.

Benefits Of A Registered Partnership Company:

Comparing a partnership firm to a private company or a proprietorship firm reveals several benefits.

  1. A partnership can be established more quickly because there are few prerequisites. Most of the time, a partnership document would be sufficient. On the other hand, an LLP would need things like a DIN (Director Identification Number) and digital signatures.
  2. Private businesses have a more complicated decision-making procedure involving the board of directors and passing resolutions all around. In a partnership firm, this is not necessary. Compared to proprietorship enterprises, raising money is considerably easier for partnership firms, and collecting the money for the firm is more difficult when there are several partners.
  3. Banks prefer partnership firms over proprietorship firms when providing credit facilities because partnerships may raise more capital and seem more dependable.

The firm’s partners collaborate with the same intent and share a shared objective. A shared sense of ownership guarantees greater credibility and increases the likelihood of operating a successful firm. Moreover, the Punjab Revenue Authority receives all of the partnership’s records after it is established, securing the partnership’s legal protection.

Disadvantages Of A Non-Registered Partnership Firm:

Although the laws do not require partnership registration, the suggestion that partnership firms be registered should cause one to consider the ifs and buts of not doing so. The law gently exerts persuasive pressure on partnership firms to register. A particulate section outlines a few drawbacks of failing to register the business. This section outlines the disadvantages of not having the firm registered and is reasonably detailed and explanatory. It’s possible that the purpose of this model is to make registering partnership firms passively compulsive.

1. A Co-Partner Or A Third Party Cannot Be Sued:

A firm will undoubtedly encounter difficulties at some point. There may be conflicts or disagreements between the partners or problems like a breach of contract brought on by other parties. Unfortunately, a partnership firm that neglected to register in this instance cannot receive any legal assistance.

In such cases, the firm forfeits its ability to bring a lawsuit against a partner or third party. In such a case, neither the partners nor any other individual may act on the firm’s behalf. According to law, the company or the partner in question must have their name registered with the Registrar of Firms to file a lawsuit. However, the parties can use arbitration to settle their disagreement.

2. No Set-Off Claim Against Third Parties:

Different laws explain the concept of set-off claims. The debtor adjusts the mutual obligations with the creditor and might present reciprocal claims in a set-off claim.

However, this approach cannot be applied when a partnership firm is not registered.

3. The Unregistered Partnership Firm May Not Be Stopped from Being Sued by Third Parties:

Although an unregistered partnership firm is not permitted to sue a third party, the Act does not bar the opposite. As a result, a third party may still bring a lawsuit against the unregistered partnership firm. The firm is not immune to legal actions brought by other parties simply because it lacks the power to sue.

4. Partners May Not Retaliate Against One Another:

A partner cannot file a lawsuit against a co-partner in an unregistered partnership firm. In the case of unregistered partnership firms, the law cannot be used to resolve any contractual violations or conflicts of interest. The partners are unable to assert their rights in an unregistered partnership firm.

5. Change To Another Entity Is No Longer Possible:

A registered partnership firm can change its corporate status to one of any other types, such as an LLP. Partnership firms that are not registered are not eligible for this benefit.

The main reason that many firms choose a partnership firm is that it is simple to set up and does not need to be registered. However, the partners will pay a steep price if they decide to ignore it and do nothing about it. Unregistered partnership firms are lawful in the eyes of the law and can still conduct business as usual, but they come with many more drawbacks than positives. 

A business cannot operate in an ideal environment for long since it is prone to conflicts. To resolve these conflicts, the firm and its partners must take legal action, which they would be unable to do without the firm’s registration. As a result, the partners must exercise caution while choosing and registering their partnership firm early.

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