In Bangladesh, the practice of registering a company or conducting business under a corporate structure is not yet popular due to complex registration processes, rigid laws, expensive costs. As a result, most businesses are either established as sole proprietorships or formed as partnership ventures by a few individuals. 

Therefore, a partnership business is a popular and effective business structure where two or more individuals come together under a mutual agreement to run a business and share profits or losses. Partnership Act, 1932 is the main Law relating to Partnership business in Bangladesh.

While the concept of partnership is straightforward, you must understand its features, registration process, dissolution procedures. Additionally, the rights and responsibilities of partners is crucial for ensuring smooth business operations. We will discuss these aspects into more detail.

Key Features of a Partnership Business

Partnership Agreement – A partnership must have a written agreement known as a Partnership Deed. This Agreement outlines the objectives of the business, profit-sharing ratio, duties and responsibilities of partners and many other important features of the business.

Minimum Two Partners – There must be at least two individuals for a partnership. The maximum number of partners allowed is 20 for general businesses and 10 for banking businesses.

Unlimited Liability – Partners in a partnership business are personally liable for debts incurred by the business unlike a limited company

Mutual Trust and Cooperation – Since each partner acts as an agent of the business, trust and cooperation are fundamental to success. Business decisions are taken collectively by the partners, promoting a sense of shared responsibility.

Non-Perpetual Entity – A partnership business can be dissolved if a partner resigns, passes away, or becomes insolvent unless a new agreement is formed.

Taxation – Unlike corporations, partnership firms are not taxed separately. Instead, individual partners are taxed on their portion of income.

Drafting the Partnership Deed

The agreement is the basic foundation of a partnership business. The Partnership Deed must be printed on a non-judicial stamp paper worth BDT 4,000. The partnership agreement should be written in such a way that even if any problem arises in the near future, the solution or guidelines are described and must include:

1. Name of the partnership
2. Partnership business address,
3. Nature, purpose and scope of the business,
4. Geographical scope of the business’s current and future operations,
5. Duration of the transaction/business
6. Names, addresses and occupations of partners,
7. Amount and nature of the business capital
8. Capital contribution provided by the partners and the method of raising new capital
9. Whether the partners will be able to withdraw any money from the partnership business
10. Whether interest or profit will be paid or charged on deposit/withdrawal of money, and if so, at what rate,
11. Method of distributing profits and losses among the partners of a partnership business, including the rate,
12. Rules related to business conduct and management,
13. Maintenance and inspection of financial records, including rules for bookkeeping
14. The name and title of the person who will conduct the banking activities, including the bank where partnership funds will be held
15. Names of the person authorized to sign partnership documents for various purposes,
16. Process of taking out a loan for partnership business needs,
17. Rights, responsibilities and duties of partners?
18. Whether any partner will receive a lump sum or time-based remuneration for any work,
19. Process of adding or removing partners,
20. Provisions for evaluating the brand value and reputation, including the start and end of the organization’s financial year
21. If a partner retires or dies, the partnership business is liable to him, including the payment of his earnings,
22. Procedure for making any changes to the partnership agreement,
23. Determine how disputes will be resolved if they arise regarding any matter not mentioned in the partnership agreement,
24. Finally, Procedure for the dissolution of the partnership business, including the valuation and distribution of assets upon dissolution.

While drafting the partnership Deed some additional Documents may be required:

• National IDs of the partners.
• Proof of Address of the partners and the business
• Photographs of partners.
• Bank/Financial transactions of the partners/firm.

Notarization of the Deed: The deed should be notarized by a lawyer to become legally valid.

Who cannot be a partner in a partnership?

The basic foundation of a partnership is an agreement. Therefore, the partners must be qualified to do a partnership, and must first be qualified to make an agreement. According to Contract Law in Bangladesh, a partnership must be formed for a legitimate purpose. Additionally, the partners must be adults, of sound mind, and not declared legally incompetent.

Apart from these, there are three qualifications of the partnership agreement, i.e. the partners can be:

• Minors, persons of unsound mind, or those declared legally incompetent. However, a minor may be a beneficiary of the Agreement but cannot be a party to any agreement.
• Institutions or artificial entities –, i.e. the partner has to be a natural person or human being.
• Foreign enemy – This point has no practical application; however, citizens of enemy countries are ineligible for partnership business, and
• Ambassadors or envoys – ambassador or envoy who represents their country in Bangladesh is ineligible as a partner.  

Registration Process of a Partnership Business in Bangladesh.

Should you register a partnership firm?

Registration of a partnership firm is not mandatory in Bangladesh, and there are no penalties for non-registration. However, you’ll miss out on a number of benefits for non-registration.

A registered partnership firm enjoys legal recognition, full access to banking facilities, and greater ease in obtaining financial services. Also, if unregistered, you may not be able to sue any third party or go to Court against anybody in the capacity of your partnership firm. And many more.

The registration process for a partnership business in Bangladesh is done with the Registrar of Joint Stock Companies and Firms of Bangladesh (“RJSC”).

Step 1: Choosing a Business Name

Name Clearance is Mandatory for registration. As the first step, you must reserve a name for the Partnership Firm. The name must not be identical to any other registered business and must not imply government affiliation.

Step 2: Submitting Application

After selecting a name, you must submit your application for registration via the RJSC. Required documents include:

✔ Form I (Statement of Firm Registration)

✔ The Partnership Deed

✔ Copies of partners’ National ID Cards

✔ photographs, and other documents.

✔ Applicable registration fee

Once, the RJSC has received the documents and prescribed fees, the Registrar will confirm that the Documentation is correct and issue Certificate of Registration. Otherwise, they will request further information if necessary.

After you have obtained the Certificate of Registration/Incorporation, your partnership firm will need to obtain a Trade License from the local municipal authority or union council is mandatory for business operations. Apart from obtaining TIN, VAT, Fire/Environment licenses, you may also require other necessary business licenses and permission depending on your business nature and operation.

Dissolution of a Partnership Business

A partnership business may be dissolved for several reasons, including mutual agreement, contract expiration, poor financial standing or legal orders. The key ways to dissolve a partnership are:

1. Mutual Agreement

If a majority of partners unanimously agree that continuing the business is not viable, they may dissolve the business via written agreement.

2. Expiration of the Agreement

If the partnership was created for a specified amount of time, it will dissolve at that time, unless extended.

3. Legal Intervention

So if there are serious disputes, the partnership is doing illegal things, or the finances are being mismanaged, a court can order the partnership to be dissolved.

4. Financial Insolvency

It can then be dissolved legally if the firm goes bankrupt and can’t make financial obligations.

5. Death or Retirement of a Partner

In case one of the partners dies or decides to retire, the company may either be dissolved, or continued with a new agreement.

Note: After death of the partners, the inheritance may not be liable in that Section 35 of the Partnership Act states that the estate of the deceased shall not be liable for all the activities and debts of the business after the death of a partner. Again, Section 37 states that if the dues of the deceased partner are not paid, his heirs shall be paid 6% of the profit for as long as the due assets are used in the business.

In Bangladesh, a partnership business is one of the most flexible and convenient ways of running a business, especially for small and medium enterprises (SMEs). But partners should be fully aware of their legal rights, liabilities, and financial commitments. There are no shortcuts: proper registration with relevant authorities, appropriate drafting of the partnership agreement and clarity of roles among partners are key, and must be paid attention to with long-term growth in mind.

In the case of a partnership dissolution, it should be done in a fair and legal manner in order to avoid disputes.

LegalBD can help partners navigate the intricacies of business formation and dissolution with ease.

Frequently Asked Questions (FAQs) on Partnership Business in Bangladesh

1. What is a partnership business?

A partnership business is a form of a business – where two or more persons agreed to run a business together and share profits and losses according to the terms of an agreement either in writing or orally.

2. How many partners are needed for starting partnership business in Bangladesh?

And you need at least two partners. It is 20 partners for general business and 10 for banking business.

3. Benefits of a Partnership Business

✔ Formed Easily – A partnership is more convenient and cheaper to establish than a company.

✔ More Capital Available– With partners contributing, capital accumulation becomes a little bit easier.

✔ Joint Several Risk – Financial risk is pooled across all partners.

✔ Complementary Skills – Different partners contribute unique skills, leading to improved decision-making.

✔ Family Relationships – Partners who are blood relations often work better together.

4. Disadvantages of a Partnership Business

✖ Risk of Disputes – Differences in opinions may lead to conflicts among partners.

✖ Unlimited Liability – Partners are personally responsible for business debts; personal assets can be used to settle debts..

✖ Lack of Continuity – The business may dissolve upon a partner’s exit.

✖ Limited Options for Raising Fund – Raising large-scale capital is difficult compared to corporations.

5. Is partnership registration mandatory in Bangladesh?

No, registration is not mandatory, but it is recommended as it provides legal protection, credibility, and access to banking and financial services.

6. Where do I register a partnership business in Bangladesh?

No, registration is not mandatory, but it is advisable as it offers legal protection, credibility, and access to banking and financial services. You need to register with the Registrar of Joint Stock Companies and Firms (RJSC) if you want to obtain legal recognition.

7. What documents are required to register a partnership?

• Partnership deed (on BDT 4000 non-judicial stamp paper)
• National ID copies of all partners
• Form-I (Partnership Firm Registration Statement)
• Registration fee payment receipt

8. Can a company be a partner in a partnership firm?

No, a partnership can only be between human beings (individuals), not through an artificial entity, like a company or NGO. However, partnerships can enter contracts with companies.

9. What happens if one partner wants to leave the business?

If a partner wishes to leave, they must comply with the provisions set forth in the partnership agreement. In some cases, approval from other partners may be required.

10. How is a partnership business taxed in Bangladesh?

Partnerships are not taxed separately. Instead, each partner pays separate income tax depending on their share of profits.

11. Can a partnership firm take a loan from a bank?

Yes, but most banks need the partnership to be registered with RJSC. They may also ask for the partnership deed, trade license and TIN (Tax Identification Number).

12. What happens if a partner dies?

The matters in such scenarios are usually outlined in the partnership deed. In the absence of such a provision, the default rule would be dissolution or continuation of the business by the remaining partners.

13. Can a partner transfer their ownership to someone else?

No, unless the other partners agree. A partner cannot sell or transfer his stake without the consent of the other partners.