Registration Of Partnership Firm
Partnership remains a common mode of business enterprise in Pakistan for small to medium business set-ups. Partnerships are normally formed where there is a desire to have some structural flexibility along with some formality of relationship between partners. Nonetheless some litigation and tax related consequences and advantages are linked to a registered partnership. Legal regime for establishment and regulation of partnerships in Pakistan is stated in the Partnership Act, 1932 which defines a partnership in the following terms:
“as 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.”
Any twenty or less persons desiring to carry out a lawful commercial activity or a profession may form a partnership except in certain cases e.g. where twenty or more persons may form partnership to undertake practice as lawyers or accountants or any other practice which cannot be carried out as a limited liability company under the provisions of law. In all other cases where the number of intended partners increases beyond the figure of twenty a company should be incorporated.
A partnership may be registered with the Registrar of Firms of an area where the office of the firm is situated or proposed to be situated. A statement in prescribed form must be delivered to the relevant Registrar stating:
Place or principal place of business of the firm
Names of any other places where the firm carries on business
Date when each partner joined the firm
Names in full and permanent addresses of the partners with CNIC & NTN
Duration of the firm
The aforestated statement must be signed by all the partners of the firm for the time being or any authorized agent on their behalf. Furthermore, the statement must be verified by the persons signing it. Once Registrar is satisfied that the above mentioned requirements have been complied with he records entry of the statement in Register of Firms and files the statement.
The registration of partnership is not compulsory by law. It is optional and there is no penalty for non-registration. Maximum numbers of partners are limited up to 20 members. However there are disadvantages for not registering. If any dispute arises among the partners or ex-partners they may not resolve the issue through the civil courts. An unregistered firm cannot institute a suit to settle these disagreements. Neither can an unregistered firm sue a third party for the enforcement of any rights arising from a contract, e.g. the recovery of the price of goods supplied. It must be noted however, that a third party may file suit against the partnership. Even in this case, the partnership can not mention any monies that may be outstanding to them in court. There is no protection to the partners’ liability either. As there is no formal documentation stated that they are in partnership, if one decides to deny the existence of the partnership, there is not much that can be done about it legally. Registering during any suit cannot subsequently cure this effect. Prior registration is necessary.
Limited Liability Partnership
Limited liability Partnership “LLP” is a new corporate structure, it registered through SECP like a Limited Company, that combines the flexibility of a general partnership and the advantages of limited liability of a company at a low compliance cost. In other words, it is an alternative corporate business vehicle that provides the benefits of limited liability of a company, but allows its members the flexibility of organizing their internal management on the basis of a mutually arrived agreement, as is the case in a general partnership firm. Owing to flexibility in its structure and operation, LLP would be useful for small and medium enterprises, in general, and for the enterprises in services sector, in particular. Internationally, LLPs are the preferred vehicle of business, particularly for service industry or for activities involving professionals. Introduction of LLP in Pakistan is expected to enable entrepreneurs, professionals and enterprises providing services of any kind or engaged in scientific and technical disciplines, to form commercially efficient vehicles suited to their requirements.
COMPARISON BETWEEN GENERAL PARTNERSHIP AND LLP
LLP is a partnership in which all the partners have limited liability in an incorporated entity and is a legal entity separate from its partners. Existence of LLP is not dependent upon its members/partners because it has recognition of legal person as per law. It, therefore, shows elements of general partnerships and company. In LLP, one partner is not responsible or liable for another partner’s misconduct or negligence whereas in partnership registered under Partnership Act 1932 all the partners are liable, jointly with all the other partners and also severally, for all acts of the firm done while they are partners. Unlike corporate shareholders, the partners in an LLP have the right to manage the business directly. In contrast, corporate shareholders have to elect a board of directors to manage the affairs of company.
Joint ventures are an appropriate vehicle of carrying out a business in Pakistan in cases where two or more parties do not intend to form a separate entity to deal with a venture, however, they merely agree to act together in a specific manner and under certain terms and conditions. In such a case each party retains its own individual identity which may be in the form of a company or a partnership. In a joint venture, therefore, these parties agree to enter into a consortium or a joint venture agreement. Relationship between the parties is created on the terms and conditions as stated in this agreement and no relationship that is beyond the ambit of this agreement comes into existence. Rights, liabilities etc. of each contracting party are also determined according to the terms and conditions of the agreement. There is no requirement under the law of Pakistan for registration of such Agreements. However, the entities which form Joint Venture may themselves be required to be registered under the relevant law.