What are the Consequences of Non-Registration of a Partnership Firm?

The following are the points in Section 69 of the Partnership Act that pertain to the effect of a Non Registration of a Partnership Firm:

Partners Cannot Sue Another Partner

In an unregistered partnership firm, a partner cannot sue a co-partner. In the case of unregistered partnership firms, any breach of contract or conflicts of interest cannot be resolved by the law. The partners in an unregistered Partnership Firm are unable to assert their rights.

Cannot Make a Set-Off Claim Against Third Parties

Section 69(3) of the Partnership Act of 1932 explains the principle of set-off claims. In a set-off claim, the debtor makes adjustments and can assert reciprocal rights against the creditor in mutual debts. This approach, however, cannot be applied when a Partnership Firm is not registered.

Conversion To Another Entity Becomes Impossible

A registered Partnership Firm can choose to be converted to another corporate entity, such as an LLP (Limited Liability Partnership). Unregistered partnership firms are not eligible for this benefit.

Third Parties are not barred from bringing a lawsuit against an unregistered partnership firm

The Act does not restrict an unregistered partnership business from suing a third party, but it does not prevent the opposite. As a result, a third party may still initiate a lawsuit against the unregistered partnership firm. The fact that the firm lacks the legal power to sue does not make it immune to legal action brought by other parties.

Cannot File a Lawsuit Against a Co-Partner or a Third Party

Every firm will experience difficulties at some point. There could be arguments or conflicts between the partners, or there could be concerns such as a contract breach brought on by other parties. Unfortunately, a Partnership Firm that has failed to register will be unable to obtain legal assistance in this situation. In such cases, the firm’s power to sue a third party or a co-partner is forfeited. In such a case, neither the partners nor anyone else can act on behalf of the firm.