Coupon Accepted Successfully!


Effects of non-registration

Since under the Indian Law, the registration of firms is optional unlike the British Law, there is no penalty on non-registration of firms. But, an unregistered firm is burdened with certain disabilities and the firms as well as its partners suffer from the following consequences:
  • No suit against other partners and firm: In case of a dispute that arises between two partners or between a partner and a firm, a partner of an unregistered firm cannot file a suit against any of his fellow partners (present or past) or the firm, to enforce his right arising out of a contract or conferred by the Act.
  • No suit by the firm against third parties: An unregistered firm or its partners cannot file a suit against third parties to enforce a right arising out of the contract in the Court of Law, i.e., a right to recover price of goods etc.

Note: If an unregistered firm wants to file a suit to enforce a claim, it will have to get registered first before filing the suit. If the suit has already been filed, it will have to withdraw the suit and get itself registered. Then, a firm can institute a fresh suit against the third party

  • No claim for set-off: The term set-off means a mutual adjustment of the debts of two parties against each other or a cancellation of a cross claim in a suit. If a suit is filed against an unregistered firm for a claim, the firm cannot take advantage of set-off for its own claim on the same party.

‘A & Co.’, an unregistered firm, borrowed ₹ 10,000 from B, a money lender. The firm had also supplied certain goods worth ₹ 1,000 to B on credit. On the firm’s refusal to repay the loan, B filed a suit against it for the recovery of the amount of the loan. In this case, the firm cannot say that ₹ 1,000 owed by B to the firm should be a set-off against B’s claim of ₹ 10,000 against the firm.

Non-registration, however does not affect the following

  • The third party can file a suit against the firm
  • The partners of the firm can file a suit for
    • Dissolution of a firm
    • Accounts of the dissolved firm
    • Realize the property of the dissolved firm
  • Right to set-off where the claim does not exceed ₹ 100
  • The Official Assignee or Receiver of Court may bring an action to realize the property of an insolvent partner

Test Your Skills Now!
Take a Quiz now
Reviewer Name