Last updated: July 17th, 2023 9:07 AM

Is an unregistered partnership deed valid in India?

Yes, an unregistered partnership deed is valid in India. However, there are some important implications to consider. In India, a partnership firm registration can be formed by way of an oral agreement or a written agreement, and an unregistered partnership deed is still considered a valid agreement between the partners. However, partners must be aware of certain limitations to an unregistered partnership deed. Registering a partnership deed with the Registrar of Firms is advisable to avoid any legal complications in the future.

Unregistered partnership deed

As per the Indian Partnership Act 1932, a partnership can be formed by way of an oral agreement or a written agreement. If the partnership deed is in writing but not registered with the Registrar of Firms, it is considered an unregistered partnership deed. An unregistered partnership deed is still a valid agreement between the partners but has certain limitations.

• It cannot be used as evidence to settle disputes between partners or third parties in a court of law.
• Partners cannot enforce rights or obligations under the partnership deed against third parties.
• Partners cannot claim any tax benefits or deductions under the Income Tax Act 1961 unless the partnership deed is registered.
• Partners cannot file a suit against each other or the firm in case of any dispute.

Therefore, it is advisable to register a partnership deed with the Registrar of Firms to avoid any legal complications in the future.

Importance of registering a partnership deed

Registering a partnership deed is essential for several reasons. Here are some of the key reasons why registering a partnership deed is essential:

• Legal recognition: Registering a partnership deed with the Registrar of Firms provides legal recognition to the partnership firm. The partnership firm becomes a separate legal entity from its partners and can enter into contracts, sue, or be sued in its own name.
• Protection of rights and obligations: Registration of the partnership deed protects the rights and obligations of each partner. It clearly explains each partner's role, responsibilities, and profit-sharing ratio.
• Avoidance of disputes: Registered partnership deeds clearly understand the partnership terms, reducing the likelihood of disputes between the partners. In case of any disputes, the registered partnership deed can be used as evidence to resolve the dispute in a court of law.
• Tax benefits: Registered partnership firms are eligible for various tax benefits and deductions under the Income Tax Act 1961. For example, partners can claim deductions for expenses incurred for the business, and the partnership firm is taxed at a lower rate than individual partners.
• Easy transfer of ownership: Registered partnership firms have an easy transfer process. The transfer of ownership requires a simple process of adding or removing partners from the partnership deed and obtaining the necessary approvals.

Procedure to Register a Partnership Deed

The process of registering a partnership deed in India involves the following steps:

• Choosing a unique name for the partnership firm: The partners must choose a unique name for the firm not already registered with the Registrar of Firms.
• Preparing the partnership deed: The partners must prepare a partnership deed, which includes the name of the partnership firm, the names and addresses of the partners, the nature of the business, the profit-sharing ratio, and other terms and conditions of the partnership.
• Payment of stamp duty: The partnership deed must be printed on non-judicial stamp paper of an appropriate value, which varies from state to state. The stamp duty must be paid based on the value of the partnership firm.
• Submission of documents: The partners must submit the partnership deed and the prescribed form to the Registrar of Firms. The form must include details such as the name of the partnership firm, the names, and addresses of the partners, and the date of the partnership deed.
• Verification and registration: The Registrar of Firms verifies the documents and, if satisfied, registers the partnership firm. The partnership deed is then stamped and returned to the partners.

IndiaFilings can help you in preparing and registering the partnership deed.