As more small and medium-sized enterprises seek consolidation to scale operations, mergers between partnership firms operating across different states are facing increasing legal and procedural challenges, according to legal professionals and business advisory firms.

The Indian Partnership Act, 1932, which governs partnership firms, does not provide a uniform framework for mergers, especially when firms are registered with different state-level Registrars of Firms. Unlike companies and LLPs, which follow centrally governed processes under the Companies Act and Limited Liability Partnership Act respectively, partnership firm mergers must navigate varied state procedures, local compliance standards, and differing documentation requirements.

“In many cases, even if two firms wish to merge amicably, the lack of a codified process for interstate consolidation becomes a major obstacle,” said Advocate Rakesh Menon, a senior partner at a Delhi-based commercial law firm. “There is no formal approval mechanism, and post-merger registration is often refused or delayed due to inconsistencies between jurisdictions.”

Challenges include verifying and aligning Partnership Deeds, capital structures, PAN and GST registrations, and business licenses that may be valid only within specific state boundaries. Additionally, transferring assets and liabilities between two unincorporated entities registered under separate state laws may raise stamp duty, taxation, and re-registration issues, adding financial and legal complexity.

Firms attempting such mergers often resort to dissolution and reconstitution, which can lead to temporary operational disruption, loss of contracts, or tax implications. As a result, some businesses are opting to convert into LLPs or private limited companies, which offer a clearer merger path under centrally administered laws.

Industry bodies and professional associations have urged the Ministry of Corporate Affairs and state governments to consider a harmonized policy framework that would enable smoother cross-state mergers for partnership firms, particularly those looking to expand beyond regional boundaries.

Until such clarity is achieved, experts recommend detailed due diligence, professional legal advice, and early-stage planning for any interstate partnership restructuring or merger initiative.