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Indian Partnership Act 1932

Definition of partnership
Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all !

"ssentials of a Partnership
Association of two or more persons Agreement #usiness $haring of profits %utual agency

Association of two or more persons


&ompanies Act provides the ma'imum no of persons( a firm can have)
In case of partnership firm carrying on a ban*ing business

1+ 2+

In case of partnership firm carrying on any other business

If the number of partners e'ceeds the

aforesaid limit( the partnership firm becomes an illegal association

Agreement
Partnership is created by contract ,hus( Partnership agreement li*e any other contract( must have all essential elements of a valid contract &ompetent to contract
the age of ma-ority sound mind and is not dis.ualified from contracting by any law to which he is sub-ect to

#usiness
A partnership can be formed only or the purpose of carrying on some business #usiness includes every trade( occupation and profession ,he business to be carried on by the firm must be legal

$haring of profits
,he ob-ect of partnership must be to ma*e profit Profit must be distributed among the partners in an agreed ratio It also includes sharing of losses It may be agreed that one or more of the partners shall not be liable for losses

%utual agency
,he true test of partnership is the e'istence of /%utual Agency0 relationship( I e the capacity of a partner to bind other partners by his acts done in firm0s name and be bound by the acts of other partners ,hus partnership can be presumed when a ,here is an agreement to share the profits of business and b ,he business is carried on by all or by any of them acting for all

%eaning of %utual Agency


%utual agency refers to the relationship of principal and agent Among partners
"'ample in case of firm of A(# and &

1hen A acts A2 Agent # and &2 Principal

1hen # acts #2 Agent A and &2 Principal

1hen & acts &2 Agent A and #2 Principal

Partnership 3irm is 45, a legal entity


Partnership 3irm is not a legal entity 6partnership6 is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all It is not a distinct legal entity apart from the partners constituting it

3ormation 5f Partnership
%inor Partner) A minor may be admitted to the benefits of partnership with the consent of all the other partners &onsideration) As no consideration is re.uired to create an agency( no consideration is re.uired to create partnership which is an e'tension of the law of agency 3ormation 5f Partnership %ay be formed by oral or written agreement All essential elements of valid contract be present %utual rights and 5bligation to be in Partnership Deed ,he deed to be registered

Partnership deed should contain the following clause


4ame of the parties 4ature of business Duration of partnership 4ame of the firm &apital $hare of partners in profits and losses #an*ing( Account firm #oo*s of account Powers of partners 7etirement and e'pulsion of partners Death of partner Dissolution of firm $ettlement of disputes

1ho may be partners8


"very person who is competent to enter into a contract can become a partner 1ho cannot become partners8 Alien enemy2 9alien friend can become a partner: %inor2 9can become partner with the consent of all partners: Person of unsound mind &orporation9registered company:

;inds of Partnership

5n the #asis of Duration

5n the #asis to the e'tent of the business

Particular Partnership at 1ill Partnership for a fi'ed period Partnership

<eneral partnership

;inds of Partnership
5n the #asis of Duration Partnership at will 2 it is a partnership when no fi'ed period has been agreed upon for the duration of the partnership Partnership for a fi'ed period 21here a provision is made by a contract for the fi'ed period of the partnership 5n the #asis to the e'tent of the business Particular partnership 2 a partnership organi=ed for the prosecution of a particular adventure It comes to end when the adventure is completed <eneral partnership 2 where a partnership is constituted

with respect to the business in general

7egistration of 3irms
7egistration of 3irms not compulsory but advisable Procedure for registration ,he registration of a firm may be effected at any time by filing an application in the form of a statement( giving the necessary information( signed by all partners with the 7egistrar of 3irms of the area( accompanied by the prescribed fee ,he application should state the following - ,he firm name - the place or principal place of business of the firm> - the names of any other places where the firm carries on business> - the date when each partner -oined the firm>

- the names in full and permanent addresses of the partners> and - the duration of the firm

"ffects of non 7egistration 4o suit in a civil court by a partner against the firm or co partner 4o suit in civil court against third parties 3irm or partners cannot ma*e claim to set off other proceeding based upon a contract

7ights of a Partner
1 2 3 ? @ A B C 9 1+ 11 12 13 1? 7ight to ta*e part in business 7ight to be consulted 7ight to access to accounts 7ight to share in profits 7ights to interest on capital 7ights to interest on advances 7ight to be indemnified 7ight to the use of partnership property 7ight of the partner as agent of the firm 4o new partner to be introduced 4o liability before -oining 7ight to retire 7ight not to be e'pelled 7ight of outgoing partner to share in the subse.uent profits

Duties of a Partner
1 2 3 ? @ A B C 9 1+ 11 12 13 ,o carry on the business with common advantage ,o be -ust and faithful ,o indemnify for loss caused by fraud ,o carry out the duties diligently ,o wor* without remuneration ,o share losses ,o indemnify the firm for wilful neglect ,o hold and use firms property e'clusively for the firm ,o account for personal profits derived ,o account for profits for competing business with the firm ,o act within authority ,o be liable -ointly and severally 4ot to assign his rights

7elations of partners to third parties


Authority of a partner means the capacity of a partner to bind the firm by his act 1here the authority to a partner to act is e'pressly conferred by an agreement( it is called e'pressed authority 1here there is no partnership agreement or where the agreement is silent 2 ,his authority of a partner to bind the firm is called implied authority 3or implied authority(
- ,he act done by the partner must relate to the normal or usual business of the firm - ,he act must be such as is done within scope of the business of the

firm in the usual way - ,he act must be done in the name of the firm( or in any other manner e'pressing or implying an intention to bind the firm

,ypes of Partners
Active D actual D ostensible partners
- is actively engaged in the conduct of the business of the partnership

$leepingD dormant partners


- Does not ta*e an active part in the conduct of the business of the firm - Invests capital - $hares profit and e.ually liable for losses - undisclosed principal2 his e'istence is *ept secret from outsiders dealing with firm

4ominal Partner
- 1ho lends his name to the firm( without having any real interest in the firm - Does not invest capital - Does not have any share in profit - Does not participate in management

- Is liable to the outsiders for all the debts of the firm

Partner in profits only


- <et share of profit and not liable for loss - $hare loss only after other partners have given their private resources for the losses

$ub partner
- 1hen a partner agrees to share his profits derieved from the firm with a third person( that third person is *nown as a sub2partner

Partner by estoppel Dholding out


- A person who is not a partner in a firm ( may under &ertain circumstances( be liable for its debts as if were a Partner "g Eonorary presidentship

%inor Partner
- 1ith the consent of all the partners( a minor may be admitted to the benefits of partnership - A minor cannot be a promisor( but he can be a promisee or a beneficiary

Position of a %inor before attaining %a-ority) 7ights of %inor partner - 7ight to share of the property - 7ight to share of the profits of the firm as may have been agreed upon - 7ight to have access to and to inspect( and copy any of the accounts( but not the boo*s of the firm - 1hen he is not given his due share of profit ( he has a right to file a suit for his share of the property of a firm Fiabilities of %inor partner - Eis liability is confined only to the e'tent of his share in

the profits and property of the firm - Ee cannot be declared as insolvent2 only if firm is declared insolvent

Position of a %inor after attaining %a-ority - Ee may ( at any time within si' months of attaining ma-ority( give public notice that he has elected to becomeD not to become a partner in the firm - If he fails to give a public notice( he is deemed to have become a partner in the firm on the e'piry of the said si' months

- 1here he elects to become a partner) Ee becomes personally liable to third parties for all acts of a firm done Eis share in the property and profits of the firm is the share to which he was entitled as a minor partner - 1here he elects not to become a partner) Eis rights and liabilities continue to be those of a minor up to date of the notice Eis share is not liable for any acts of the firm done after the date of public notice

Ee is entitled to sue the partners for his share of the property and profits in the firm

7econstitution of a Partnership 3irm


A partnership firm is said to be reconstituted when any of the following changes occurs and the firm continues) - Introduction of a partner - 7etirement of a partner - "'pulsion of a partner - Insolvency of a partner - Death of a partner

Introduction of a partner A person may be admitted as a new partner either2 - 1ith the consent of all the e'isting partners( or - In accordance with a contract already entered into between the e'isting partners for the admission of a new partner - "g Agreed to enter a partner0s son on attaining age of 21 Fiability of incoming partner - 4o liability for any act of the firm done prior to his admission as a partner - Ee is liable for the acts of the old firm only if( 4ew firm assumes the liabilities of the old firm ,he creditors accept the new firm as their debtor and

discharge the old firm0s liability

7etirement of a partner A partner may retire from a firm - 1ith the consent of all the partners - "'press agreement by the partners - <iving notice in writing Fiable to third parties only until public notice is given of retirement A retired partner need not give a public notice of his retirement to persons who are ignorant of his being a partner in the firm 7ights of the retired partner - ,o carry on competing

business - ,o share subse.uent profits

"'pulsion of a partner A ma-ority of partners can e'pel a partner only if such power is conferred by contract between the partners( and the power is e'ercised in good faith by the ma-ority Insolvency of a partner 1here a partner in a firm is ad-udicated insolvent( he ceases to be a partner on the date on which the order of ad-udication is made( whether or not the firm is thereby dissolved Death of a partner $ub-ect to contract between the partners( a firm is dissolved by the death of a partner

Dissolution of firm and Dissolution of partnership


Dissolution of firm ) It means complete brea*down or e'tinction of the relationship of partnership between all the partners of a firm Dissolution of partnership) It involves only a change in the relation of the partners Partnership between A(# and & If & retires( the partnership between A( # and & comes to end Partnership between A and # comes into being It is called 7econstituted firm

Dissolution of firm Dissolution without the order of court

Dissolution by &ourt

#y agreement

&ompulsory dissolution

5n happening of certain contingencies

#y notice

Dissolution of firm
A &ourt
- Insanity of a partner - Permanent incapacity of a partner - &onduct affecting pre-udicially the businessD %isconduct - #reach of partnership agreement - ,ransfer of interest of a partner - #usiness wor*ing at a loss

# 5thers
- Dissolution by agreement - &ompulsory dissolution in case of insolvency - Dissolution on happening of certain contingency
If constituted for a fi'ed term( by the e'piry of that term If constituted to carry out one or more adventures or underta*ings( by its completion #y the death of a partner 5n insolvency of a partner

#y notice if partnership is at will

7ights of Partner on dissolution 7ight to have business wound up 7ight to have the debts of the firm settled out of the property of the firm 7ight to personal profits earned after dissolution 7ight to return of premium on premature dissolution 7ight where partnership contract is rescinded for fraud or misrepresentation
- 7ight of lien on the surplus assets - 7ight of subrogation9becomes creditor of firm if spend from his own poc*et: - 7ight to be indemnified

7ight to retrain partners from use of firm name or property

Fiabilities of a partner on dissolution If a public notice is not given of the dissolution of a firm( the partners continue to be liable to third parties for any act done by any of them after dissolution
- 4o notice re.uired in case of
Deceased partner Insolvent partner $leeping partner who retires

FiabilityD &ontinuing authority of partners for purposes of winding up


- ,o wind up the business affairs of the firm - ,o complete the transactions begun but unfinished( at the time of dissolution