A partnership is a type of business structure where two or more partners start an entity to do business. For a partnership to exist, there must always be two or more partners.
A Partnership is defined by the Partnership Act, 1932, (the “Partnership Act”) as ‘the relation between persons who have agreed to share profits of the business carried on by all or any of them acting for all’. This definition gives three minimum requirements to constitute a partnership:
- there must be an agreement entered into orally or in writing by the persons who desire to form a partnership,
- the object of the agreement must be to share the profits of business intended to be carried on by the partnership, and
- the business must be carried on by all the partners or by any of them acting for all of them. The term ‘person’ is not defined by the Partnership Act.
It is not compulsory to register your partnership firm as there are no penalties for non-registration. However, it is advisable since the following rights are denied to an unregistered firm:
- A partner cannot file a suit in any court against the firm or other partners for the enforcement of any right arising from a contract or right conferred by the Partnership Act
- A right arising from a contract cannot be enforced in any Court by or on behalf of your firm against any third party
- Further, the firm or any of its partners cannot claim a set off (i.e. mutual adjustment of debts owned by the disputant parties to one another) or other proceedings in a dispute with a third party.
Partnership – Quick Facts
- A partnership is considered as a separate legal identity (i.e. separate from its owners) in Bangladesh only if the partnership is registered.
- All the partners of a partnership are liable severally and jointly for the liability of the partnership.
- The concept of Limited Liability Partnership does not exist in Bangladesh.
From a tax perspective, partnerships in Bangladesh are not taxed at the entity level and profits are treated as part of each partners’ personal income and are taxed at personal income tax rates.
Members & Management
- There must be a minimum of 2 partners and maximum of 20 partners.
- The partners can be natural persons or companies.
- Unlike private or public limited companies, a partnership in Bangladesh does not have directors, shareholder or secretary, instead the partners own and run the business.
Partnership – Documents Required
In order to register a partnership in Bangladesh, the following information/documents are needed:
- Proposed partnership name;
- Partnership agreement duly notarized;
- Form I;
- Particulars of the partners;
- Residential address of the partners;
- Details of the registered address for the partnership; and
- Percentage of the share of profit of each partner.
Partnership – Registration Procedure
A partnership may be registered with Registrar of Joint Stock Companies and Firm of Bangladesh (“RJSC”).
The partnership registration process consists of two steps: a) name reservation; and b) registration of the entity. Under normal circumstances, a partnership registration can be completed within one/two days.
Step 1- Choosing the Partnership Name
The partners are free to choose any name as they desire for their partnership firm subject to the following rules:-
- The names must not be too identical or similar to the name of another existing firm doing similar business so as to lead to confusion. The reason for this rule being that the reputation or goodwill of a firm may be injured, if a new firm could adopt an allied name.
- The name must not contain certain words expressing or implying the sanction, approval or patronage of Govt.
Once you select a name, you should apply for name clearance using the website of RJSC.
Step 2 – prepare a Partnership Deed
You should prepare a partnership deed. Usually, a partnership deed contains the following clauses:
- Name and Address of the firm as well as all the partners;
- Nature of business to be carried on;
- Date of Commencement of business;
- Duration of Partnership (whether for a fixed period/indefinite time);
- Capital contribution by each partner;
- Profit sharing ratio among the partners;
- Rules to be followed in case of retirement, death and admission of a partner; and
- The above are the minimum essentials which are required in all partnership deeds. The partners may also mention any additional clauses.
The Partnership Deed should be on a stamp paper in accordance with the Stamp Act and should be signed by all partners. Then it should be notarized.
Step 3- Register Partnership deed with RJSC
The partnership deed and filled up Form I should be filed with RJSC. These documents will be reviewed by the officials of the RJSC. When the officials are satisfied with the points stated in the partnership deed, he shall record an entry of the statement in a register called the Register of Firms and issue a Certificate of Registration.