Scope and Registration of Partnership Firm in Pakistan
Partnership is an entity which is formed by a formal agreement, more commonly known as partnership deed, between two or more persons or companies to do business together.
In Pakistan, Partnership is regulated under the Partnership Act, 1932. The minimum number of persons or partners required to establish and operate a Partnership Firm or Business is 2.
Section 4 of the Partnership Act, 1932 defines Partnership, Partner and Partnership firm. It reads as:
4. Definition of “Partnership” “partner” “firm” and “firm name”.
“Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
Persons who have entered into partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm name”.
Partnership Act, 1932
This Partnership Act, 1932 regulates the whole domain of partnership business. The Act provides the characteristics of a partnership and the procedure of its registration and dissolution. The Act also describes the relationship between partners among themselves and with the third parties, the risks to the partnership and the partners, and the status of minors as partners. In Pakistan, a partnership business is limited to 20 partners.
The Partnership Deed
The formal Partnership Deed or Agreement, ordinarily must provide for these basic terms inter alia; the total capital of the partnership firm as well as the liability of each partner; tenure of partnership, scope of the partnership, object of the partnership business, shares of respective partners, mode and time for sharing of profit, etc. In addition to these terms, partners expressly reduce into writing their rights and obligations against the other partners as well as the limitation on authority of any partner (if any).
The Partnership Deed- A basic draft
A basic draft of a partnership deed must incorporate the following details:
(i) Name of the firm
(ii) Nature of the business to be conducted
(ii) Location or branches of the business
(iii) Details of partners, including their names and addresses along with their CNIC numbers
(iv) The amount of salary, if any, payable to the partners
(v) Work division and responsibilities for management
(vi) The firm’s bank and bank account details
(vii) The duration of the partnership should be stated; if there is no duration or determination, it will be called a ‘partnership at will’
(viii) The profit and loss sharing ratios
(ix) The maximum amounts allowed to partners for withdrawal
(x) Any rules concerning the admission of new, and retirement of existing partners
(xi) Any provisions relating to dispute resolution
(xii) The method of dissolution of partnership
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Features of Partnership
Ø In partnership, the capital of the business is contributed by the partners. Since, a partnership firm does not have a separate legal personality (except in a few cases), the partners are liable for all the debts of the partnership and share in the profits and losses of the group of companies by the terms of the partnership agreement. In other words, the liability of the partners is personal and unlimited.
Ø The setting up and the dissolution of the partnership firm is simple and does not involve a lot of procedural steps. The setting up and the dissolution of the firm is all based on the agreement of partners.
Ø All the partners in the partnership firm take part in the decision making process for the firm as chalked out in the partnership agreement.
Ø Unlike a company, which has a separate legal personality, and continues to be in existence even if all the members of the company die; a partnership agreement comes to an end if any partner is retired or dead. However, the other partners can enter into a new partnership agreement.
Ø The profits and losses arising out of the partnership business are shared among the partners equally or as in the ratio decided among themselves in the partnership agreement.
Ø The partnership firm can benefit from partnering with individuals with expertise in different areas, helping in the growth of the business. Additionally, raising funds is also easier as there are multiple partners.
Rights and Liabilities of Partners
Section 13 of the Partnership Act, 1932 provides for some rights and liabilities of the partner. These are subject to the contract between the partners:
(1) A partner is not entitled to receive remuneration for taking part in the conduct of the business. In other words, he shall not be paid for his services in the business of the partnership firm. He is only entitled to the profit of the firm.
(2) The partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm.
(3) In the event a partner is entitled to interest on the capital subscribed by him such interest shall be payable only out of profits.
(4) Any partner who makes, for the purposes of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest thereon.
(5) The partnership firm shall indemnify a partner in respect of payments made and liabilities incurred by him:
(i) in the ordinary and proper conduct of the business, and
(ii) in doing such act, in an emergency, for the purpose of protecting the firm from loss.
(6) It is obligatory on the partner to indemnify the firm for any loss caused to it by his wilful neglect in the conduct of the business of the firm.
How to Register a Partnership Firm
A partnership firm is registered with the Registrar of Firms in the respective district or city where the firm is set up. An application is required to be submitted to the respective District Registrar Firms for the registration of the partnership firm. Process of Partnership Firm Registration requires for submission of following documents:
If the registrar is satisfied with the application and documents, he will issue the certificate of registration.
Non-Registration of Partnership
Non-Registration of a Partnership does not affect the rights of the partners inter-se. In other words, a valid Partnership firm may be formed without the formal registration of the Partnership Deed. It is not legally mandatory to register a partnership with the registrar of firms. However, an unregistered Partnership firm cannot enforce rights arising from a Partnership Deed in any Court.