Should you register your partnership?
After reading the title, you may wonder. Is it possible to run a partnership business without registration?
The answer is yes, unregistered partnership can legally run business in Bangladesh.
Partnership is the most convenient vehicle for carrying out business by more than one person. In comparison with company, partnership has less obligations in terms of both tax and Register of Joint Stock Companies and Firm (“RJSC”) return filling. It also cost less to maintain a partnership than a company.
In Bangladesh, the relevant law for regulating partnership is the Partnership Act 1932 (“Partnership Act”).
You might find it interesting, the Partnership Act does not need even a written agreement between the partners.
Section 4 of the Partnership Act states: Definition of “partnership”, “partner”, “firm” and “firm name”
4. “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”.
At various times, the court decided that it is not necessary that there should be a formal or written agreement. An agreement to create a partnership may as well arise from the conduct of the parties concerned.
It is not required for a partner to contribute capital in a partnership to become a partner. The validity of a partnership firm does not depend upon capital contribution. A person can become a partner without having to make any contribution towards the capital of the firm. A person may contribute the following to become a partner:
intellectual property rights;
skill and experience; or
labour or any other thing.
Let’s get back to the question of registration.
As I said earlier, registration of partnership firm is not compulsory. It is optional and there is no penalty. Technically you can run an unregistered partnership as long as you want.
However, registration becomes necessary at one time or the other. Because, Section 69 of the Partnership Act seriously cuts short the capacity of an unregistered firm and its partners to sue.
Section 69 of the Partnership Act states:
Effect of non-registration
69.(1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.
(2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.
(3) The provisions of sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not effect-
(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to realise the property of a dissolved firm, or
(b) the powers of an official assignee, receiver or Court under the 5[ Insolvency (Dacca) Act, 1909, or the] Insolvency Act, 1920, to realise the property of an insolvent partner.
(4) This section shall not apply-
(a) to firms or to partners in firms which have no place of business in Bangladesh, or whose places of business in Bangladesh are situated in areas to which, by notification under section 56, this Chapter does not apply, or
(b) to any suit or claim of set-off not exceeding one hundred Taka in value which, is not of a kind specified in the Second Schedule to the Small Cause Courts Act, 1887, or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim.
As you can see from section 69(1), a partner of an unregistered firm cannot sue the firm or his/her present or past co-partners for the enforcement of any right arising out from a contract or conferred by the Partnership Act. Only a partner of a registered firm, whose name appears in registration can sue for enforcement of such rights.
Section 69(2) suggests that an unregistered firm cannot sue any third party for the enforcement of any right arising from a contract. A suit can be brought only by or on behalf of a registered firm and that also by persons whose names appear as partners in the register of firms.
So, suppose you have a unregistered partnership. And you want to take legal action in any civil court against your partner or any third party to enforce a contractual right. You will have hard times, pretty hard times to do that.What about criminal action?
Again, the law is not for an unregistered firm. Just because a partnership firm is unregistered, it does not protect that firm and its partners from criminal liability.
Any party may file criminal suit under section 138 of the Negotiable Instruments Act 1882 against the partners of an unregistered firm.
There are some exceptions. However, in this post, I am not going to discuss those.What does that mean for you?
If you want to start a business in the form of partnership or already have a partnership business which is not registered, you should consider registering it.
Registration of partnership firm is not a complicated process. There is not much paperwork and you don’t need a bag full of cash for that. RJSC are the designated registrar for partnership firms.