Consequences of Non-Registration of A Firm

Consequences of Non-Registration of A Firm

Consequences of Non-Registration of A Firm

It is clearly highlighted in The Companies Act 2013 that the key essential for any organization to turn into a company is to get itself registered. A company cannot come into existence without getting registered. However, no such requirement has been imposed for firms by the Indian Partnership Act, 1932. If a firm is not registered it does not cease to be called a firm, it will still exist in the eyes of law. Certainly, such a huge advantage is not absolute but is subjected to a lot of restrictions.

Basically the registration means the procedure of incorporation of any firm. Registration can be the procedure through which it brings the firm into its existence. Registration has not been clearly defined in any statute but the Indian Partnership Act, 1932 under section 58 deals with the procedure of incorporation. Similarly, the meaning of non-registration is the totally opposite of registration, which means when a firm starts carrying on activities without getting registered or does not go through the process of incorporation.

The Indian Partnership Act, 1932 under section 4 lays down that when two or more partners come in contact with each other to carry out activities are called a partnership, and when such partners come together collectively then it is called a firm. In other words, a firm means a collection of partners coming together to carry out or to perform business activities.

Procedure for Registration

The Indian Partnership Act.1932 under section 58 provides the procedure for incorporation of a firm in which the firm has to initially fill a form which shall include different details about the firm which are the following as under:

  1. Name of the firm,
  2. The duration of the firm,
  3. The address of the underlining members,
  4. The original place of the firm,
  5. The place where the firm will carry out all its functions.

After the completion of registration, the form is submitted to the registrar, who then receives the form and registers the form by finishing it through writing the details in the registration register. This procedure is mentioned in section 59 of the Indian Partnership Act,1932. Another prime essential which needs to be taken care of during the incorporation is that the registration application must be duly signed by all the members.

Effects of Non-Registration:

The working of a firm without the procedure of incorporation is an advantage but it is subjected to restrictions. A non-registered firm cannot avail of all the rights of a registered firm. The working of a non-registered firm is different from that of a registered firm and the right of a non-registered firm is limited. The effect on a firm for not being a registered one is provided under section 69 of the Indian Partnership Act,1932. There are some consequences to it which are the following as under:

  1. No suit to enforce rights under the Act: A firm that has not undergone the procedure of incorporation will not be able to file a suit against any other firm or third party. A non-registered firm does not have the right to file a suit like all other registered firms. An important point to note is that the person or the third party suing the non-registered firm shall be already registered in the register as a firm.
  2. No suit to enforce rights against any third party: A non-registered firm does not have a right to file a suit against a third party in any court, neither they have a right to file any suit against any party and nor any party can sue them if they are registered in the register of the registrar.
  3. No proper relief: The claim exceeding Rs100 cannot be set off by a third party if there is no registration of the firm. Thus, there is no relief in this regard to the party. Such a right can be only enjoyed by the registered firm.
  4. Partners cannot bring legal action against each other: An aggrieved partner of a non-registered firm does not have a right to bring legal action towards each other as they have the power to enforce any right or are in no position to file a suit in the court of law.
  5. Powers that are given to the unregistered firms: Though being subjected to many restrictions, unregistered firms still possess certain powers that may not be as absolute as with the registered ones but they do exist. Some rights and power are given to the unregistered firm which is following as under:
    1. Even if the firm is unregistered, a third party can still bring out a legal action towards them.
    2. Unregistered firms give power to the partner to file a suit against another one in cases of
    3. dissolution and for settling the accounts.
    4. The court can release the insolvent property of the partner and bring legal action to it.
Case laws 

Padam Singh Jain v. Chandra Brothers 21 April 1989

In this case, the court was of the opinion that an unregistered firm can file a petition for eviction as it is not an enforcement of right in an agreement that is not permitted to an unregistered firm rather it is a statutory right and hence section 69 of the Indian Partnership Act is not applicable here.

In Shriram Finance Corporation v. Yasin Khan and Ors. (1989) 

In this case, it was held by the court that the suit filed by the current partners was not maintainable as the current partners were recruited after the registration and their name was not mentioned under the register of incorporation which makes them not in the position to file a suit.


Registration of a firm is never made mandatory, but it is an extremely essential part of the Indian Partnership Act. If a firm is not registered, it loses the right to sue a third party or its partners in case of any violation of contractual rights. Thus, it is crucial to get the firm registered along with all its partners so that it can exercise its rights in the long run.