Partnership Company Registration
The main goal of this article is to explain the nature of partnership business and discuss the registration process of a partnership company. When it comes to partnerships, this is a prevalent business type all around the globe. Partnerships are an unincorporated business type, just like sole proprietorships. There are unique advantages and disadvantages in partnership businesses. We will talk about everything about partnerships in this article.
Definition of Partnership Businesses
According to the Partnership Act of 1890, partnerships are defined as follows.
“Partnership is the relation which subsists between partners carrying on business in common with a view of profit.”
According to the Partnership Act of 1890, we can extract three fundamental features of partnerships.
- A Partnership is a business (Every trade occupation or business)
- It must be carried on in common and with a view of profit.
- There must be a valid agreement.
As we can understand, a partnership is a business carried out by partners depending on the relationship between partners. The relationship of partners is legally accepted, and they are legally bound to the liability of the company’s losses. The legally bound liability means they must settle the company’s liabilities and losses from their personal assets.
In here, you can access the partnership Act of 1890.
Here is the standard information about partnerships.
| Business Type | A business is formed by an agreement between two or more parties who agree to share profits and losses. |
| Incorporation | Not compulsory |
| Owner | Partners are the owners |
| Minimum number of members | Two |
| Maximum number of members | Fifty |
| Liability | Liability is unlimited. Shared among the partners according to the financial stakes involved |
| Lifetime | The business ceased with the death or insanity of any one partner |
| Profit/Loss | Shared in the agreed ratio |
| Legal Position | No legal existence |
There are few laws relating to partnership companies. These laws regulate partnership businesses.
- Partnership Act of 1890
- Frauds Prevention Ordinance (sec.18)
- Registration of Business Names Act (No.07 of 1987)
- Civil Procedure Code (sec.64, 202, 249, 252)
- Companies Act (SEC.519)
Partnerships have unique advantages as well as disadvantages. Those are explained below.
Advantages
- It is significantly simple to form a partnership business.
Unlike private limited companies, partnership businesses have a relatively more straightforward registration process.
- Better decision-making.
In partnerships, just one partner cannot make his own decisions. All partners should contribute to decision-making. So, the partners can make more suitable decisions by discussing.
- More strength to achieve a common goal.
The partnership itself is an agreement to achieve a common goal. Because of it, there is more unity and strength to achieve the target.
- Fundraising.
Partnerships have more capacity to raise funds than individual businesses. It is easy to raise capital from bank loans and venture capital funds.
Disadvantages
- Unlimited Liability
Partnerships are not separate legal entities. So if there is a debt or loss in the business, partners must pay the debts personally.
- Hard to control
Because of the disagreements and conflicts among partners, it may be complicated to make a decision. The business may be hard to control and lack flexibility.
- Limited continuity
A partnership’s lifespan is the same as the partners’ lifetimes. If one partner dies, the business will cease to exist.
- One partner’s activity may affect all of the others.
If one partner performs an illegal activity or decision taken by one partner may affect the whole partnership.
The partnership agreement
The partnership agreement is the terms and conditions agreed upon by the partners. This agreement can be oral, written, and legally binding.
This information should include in a partnership agreement
- Basic information about the business and partners
- Details about the investment of capital by the partners
- Information on sharing profits and losses.
- The objective of the partnership (nature)
- Limitations on partners’ drawings
- Information about interest in capital and drawings.
- Salaries, commissions, or any other amount to be payable to partners and also Duties and Rights of each partner
- Conditions on the investment of the additional capital and the dissolution of the partnership.
- The action to be taken in the event of an admission of a partner, retirement of an existing partner, or the death of a partner.
- Profit sharing ratio
- Contribution of capital
- Dispute resolution procedure
Dissolution of a partnership business
Dissolution of a partnership is an easy process. A partnership can be dissolved with or without any court order.
A partner may apply to the court to dissolve the partnership in the following circumstances.
- When a partner is incapable of managing the firm’s affairs due to a mental disorder.
- When a partner is permanently incapable of performing his duties
- When a partner breaches or breaks a partnership agreement
- When a partner’s conduct is prejudicial (harmful) to carry on the business.
- When the partnership business can be carried out only at a loss.
- If the courts think it is equitable to dissolve the partnership.
And the dissolution of a partnership can be done without a court order in situations like those listed below.
- Expiration or Notice
Any partner can dissolve the partnership by providing notice to other partners in the firm.
- Bankruptcy or death
Due to bankruptcy or the death of any partner, the partnership can be dissolved.
- Charge
- Illegality
In the above, we explained the nature of partnership businesses. Now we will get into the registration process of a partnership company step by step.
Registration of a Partnership business.
Step-01
You should collect and fill out the application form from the divisional secretary.
In here, you can access the application form.
Step-02
And submit the below documents with the application.
- A photocopy of the NIC
- If the business is operated from land owned by you, a copy of the deed of the land
- If you run your business on rented land, you must present your rent agreement.
If the partnership business is running on land owned by a family member, you should obtain a consent letter provided by the land owner and a copy of the NIC of the land owner. The consent letter should contain the permission they gave you to run the business on the stated land.
- Trade Permit
(Trade permit can be obtained from the nearest municipal council or divisional council to the place where your business is located)
- A copy of the partnership agreement
According to the industry in which you perform your partnership business, you should submit the relevant document from the sectors listed below.
- Selling goods or importing/exporting: Mention the types of items you are importing/exporting or manufacturing.
- Spas or guest houses: Obtain a report from the police division relevant to the business and submit it.
- Medicine and perfumes: Get approval from The Medical Supplies Division (MSD), as advised by the Ministry of Health.
- Ayurvedic medical treatment: Submit a letter from the Ayurvedic doctor stating that they are working in the business and a copy of their identity card issued by the Ayurvedic Medical Council
- Businesses dealing with vocational affairs: Submit photocopies of certificates that prove your professional qualifications if your business is dealing with vocational affairs
- Beauty salons and spas: Training certificates
- Nurseries or care centers: The approval from the Early Childhood Development Assistant.
- Restaurant or cafes: Approval from a public health inspector (PHI) under the Medical Officer of Health (MOOH) supervision.
Step-03
As the third step, you should obtain a report from Grama Niladhari from your business’s area. When getting the report from Grama Niladhari, you must certify your ownership of the land and where your business is located. You can submit the relevant document listed below.
- If you are running the business in your place, you can submit them the deed of the land.
- If the land is owned by another party (Maybe a family member), the letter of consent given by the party
- You should submit the rent agreement under your name if you are running your business in a rented building.
Step-04
After Successfully submitting all collected documents to the divisional secretary, your registration is done.
Here you can access our other articles on “Private Limited Company Registration” and “Individual Company Registration”.
