Partnership and Firm

Rights and liabilities of the partners

INDIAN CONTRACT ACT TERM PAPER

RAJIV GANDHI SCHOOL OF INTELLECTUAL

PROPERTY LAW
IIT KHARAGPUR

BLESSAN(16IP63016)

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INTRODUCTION
In common parlance, partnership is a business owned and managed by
two or more people. To form a partnership, each partner normally
contributes money, valuable property or labor in exchange for a
partnership share, which reflects the amount contributed. Section 4 of
Indian Partnership Act 1932 defines Partnership as follows -

Section 4 - Partnership is the relationship between persons who have

agreed to share the profits of a business carried on by all or any of
them acting for all. Persons who have entered into partnership with
one another are individually called partners and collectively called a
firm and the name under which their business is carried on is called
firm name.

Examples -

1. A and B buy 100 bales of cotton to sell later on profit which they
agree to share equally. A and B are partners in respect of such
cotton.
2. A and B buy 100 bales of cotton together for personal use. There
is no partnership between A and B.
3. A, a goldsmith, agrees with B to buy and provide gold to B to work
on an ornament and to sell and that they shall share the profit. A
and B are partners.
4. A and B are carpenters working together. They agree that A will
keep all the profits and will pay B a wage. They are not partners.
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 5. A and B jointly own a ship. This circumstance does not make them
partners.

Section 5 of IPA 1932 says that the relation of partnership arises from
contract and not from status. Thus, if there is no specific contract, there
can be no partnership. As per Section 6, to determine whether a
partnership exists between a group of persons, we have to look at the
real relation between them as shown by all relevant facts taken
together. It further says that sharing of profits or of gross returns
arising from a property owned jointly by them does not by itself makes
them partners.

Based on these definitions, in Helper Girdharbhai vs Saiyed M Kadri

and others AIR 1987, J Sabyasachi of SC identified that the following
elements must be there in order to establish a partnership - there must
be an agreement entered into by all the parties concerned, the
agreement must be to share profits of the business, and the business
must be carried on by all or any of the person concerned for all. These
three aspects can be discussed under four heads -

1. Agreement - There has to be an agreement between two or more

people to enter into partnership. The agreement is the source of
the partnership. It is not necessary that the agreement be formal
or written. An agreement can be express or implied. Further, such
agreement must follow all the requirements of a valid contract
given by Indian Contract Act 1872. This includes the parties must
be competent to contract and the object of the agreement
should be legal.

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2. Business - They must intend to start or do a business. A business
is a very wide term and includes any trade, occupation, or
profession. Business may not be of long duration or permanent
and even a single activity may be considered a business. Thus, if
two persons are not partners, they can engage is a transaction
with an intention to share profits and can become partners in
respect of that transaction. For example, if two advocates are
appointed to jointly plead a case and if they agree to divide the
profits, they are partners in respect to that case. Section 8 also
mentions that a person may become partner with another in
particular adventures of undertaking.
It is however necessary that a business exists. If a business is
simply contemplated and has not been started, the partnership is
not considered to be in existence. In Ram Priya Saran vs
Ghanshyam Das AIR 1981 All, two persons agreed that after their
tender is passed they will construct the dam in partnership. In
order to deposit earnest money, the plaintiff gave 2000 Rs. The
tender was not accepted. It was held that since a business was
only contemplated and not started, there was no partnership and
so the plaintiff was entitled to get 2000 Rs from the defendant.
However, in Khan vs Miah 2000 WLR, two persons obtained loan
from the bank to start a restaurant. They also entered into a
contract to purchase equipement and laundary for the restaurant.
But their relationship terminated before the opening of the
restaurant. It was held that there is no rule of law that parties to a
joint venture do not become partners untill they actually embark
on the activity in question. It is necessary to identify the venture
in order to decide whether the parties have actually embarked
upon it but it is not necessary to attach any name to it. Many
business require a lot of investment and activities before the

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 actual trading begins. This does not mean that the business has
not started until the trading begins. It was held that in this case
the activity of the business had begun and so the partnership was
in existence.
3. Sharing of profits - Normally, an activity is done in partnership
with a goal to make profits. Thus, for a valid partnership to exist,
the partners must agree to share the profits according to their
investment. Here, profits include losses as well.
4. Mutual Agency - The firm must be managed by the partners and
thus when any partner acts, he acts on behalf of the firm and thus
on behalf of other partners. Therefore, a partner is considered an
agent of others. In absence of such mutual right of agency, a
partnership cannot exist. This was held in Cox vs Hickman 1860.
In this case, two person carried on business in partnership. Due to
financial crisis they obtained loans. Having unable to repay the
loans they executed a trust deed of properties in favor of the
creditors. Some of the creditors were made trustees of the
business. This included Cox and Wheatcroft. They were
empowered to enter into contracts and execute instruments to
carry on business and to divide the profits among the creditors.
After the recovery of debts, the property was to be restored to
the two original partners. Cox never acted as trustee and retired,
while Wheatcroft acted as a trustee for some time and retired.
Other trustee then became indebted to Hickman and executed a
bill of exchange, which was not accepted and paid. Hickman sued
the trustees for recovery of the money for materials supplied. The
trustees could be held liable if they were partners. However, it
was held that they were not partners. They observed that in
partnership every partner is an agent of another and in this case
this element was absent.
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 As we can see, a partnership requires all the above ingredients to
have legal validity, and so a mere sharing of profits is not a conclusive
proof of a partnership. It must have the other three elements also. As
mentioned in Section 6, merely sharing of profits arising out of a jointly
owned property does not necessarily create a partnership. For
example, if two persons own a house and give it on rent, the sharing of
the rent does not create a partnership. Similarly, a payment to a person
contingent upon profits also does not necessarily create a partnership
until the element of mutual agency is not present. This is the case when
profits is shared with the lender of money for business. In case
of Mollow March Co vs The Court of Wards 1872, a Hindu Raja loaned
some money to Watson & Co. In return, he was to get a % of profit and
was to exercise control on some aspects of the business. He was not
empowered to direct the transactions of the company. It was held that
although sharing of profits is a very strong test, yet whether a relation
of partnership exists depends on the real intention and conduct of the
parties.

Duty/Liabilities of the partners

1. General Duties - According to section 9, every partner is liable to

carry on the business in the best interest of the firm, to be just
and faithful to each other, and to render true accounts and full
information affecting the firm to any partner or his legal
representative. During the course of business no partner can do
any act which may be against his duty to work to greatest
common advantage.
In Bentlay vs Craven 1853, it was held that if a partner was
authorized to purchase goods for the firm and if he supplies the
goods from his own stock and makes a profit, he is liable to give

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 the profit to the firm. This matter is further clarified in section 16
which says that subject to contract between the partners, if a
partner derives any profit for himself from any transaction of the
firm or from the use of the property or business connection of the
firm, he shall pay that profit to the firm. Further, if a partner
carries on any business of the same nature as and competing with
that of the firm, he shall pay all such profit to the firm. Subject to
contract means, partners can choose to modify this rule while
entering into partnership. For example, the partnership contract
may specify that a partner may be allowed to use firm's property
for personal use.
2. Duty to indemnify for loss caused by fraud - According to section
10, every partner shall indemnify the firm for any loss caused to it
by his fraud in the conduct of the business of the firm. For
example, a firm of A and B enter into a contract with the
government. Later on, due to B's conduct, the govt. cancels the
contract and gives it to B. Here, the contract obtained by B in his
own name will be for the benefit of the partnership. Further, if
the second contract is of the lesser value, B is personally liable to
the firm for the difference.
3. Duties imposed by contract - As per Section11 any special rights
and duties may be given or imposed by the contract between the
partners.
4. Duty relating to the conduct of business - According to section
12, every partner is bound to attend to his duties diligently. Thus,
if a partner is assigned some task, he must do it to the best of his
abilities. Further, if any difference arises in respect of ordinary
business matter, it may be decided by majority. However, no
change in the nature of business can be made without the

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 consent of all the partners.
In Suresh Kumar vs Amrit Kumar AIR 1982, Delhi HC held that
majority cannot trample on the opinion of minority in the key
matters of the partnership. Thus, majority cannot replace the
managing director of the firm because it is a key business
decision. It can be done only with the consent of all the partners.
5. Duty to contribute equally to the losses - According to section
13(b), partners shall contribute equally to the losses sustained by
the firm.
6. Duty to indemnify for loss caused by his willful neglect
- According to section 13 (f), if a partner neglects the business
activity willfully, he must compensate the firm for the loss caused.
It has been long held that if a partner during the course of
business commits breach of duty, or fraud, or culpable negligence
and causes harm to the firm, even if he is not liable in law, he
must be held liable to indemnify the firm in equity. This does not
mean that a partner, when acting in good faith, makes an error in
judgment and causes loss to the firm, is liable. However, this is
subject to the contract among the partners. This means that the
contract may specify that a partner is a sleeping partner and may
excuse him from doing any work.
7. Duty in respect of application of property of the firm - According
to section 15, the property of the firm shall be held and used
exclusively for the purposes of the business. If a partner uses it for
personal benefits, he shall account for and pay such profits to the
firm.
8. Duty in respect of personal profits - According to section 16(a), if
a partner derives any profit for himself from any transaction of
the firm or from any property or business connection of the firm,
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 he shall account for that profit and pay it to the firm, subject to
the contract.
9. Duty not to compete with the firm - According to section 16(b), if
a partner engages in a business in competition of the firm, he
should pay the profits to the firm. But if a partner does a private
act, which is not in the scope of the business of the firm, he is not
liable to the firm for the profits.

Rights of the partners

The partners of the firm have following rights -

1. Rights given by contract - As per Section11 any special rights,

such as right to remunerationmay be given by the contract
between the partners.
2. Right to take part in the conduct of business - As per section
12(a), subject to the contract between them, a partner has a right
to take part in the conduct of business. Only way to restrain a
partner from getting involved in the business is to specify it in the
contract of partnership. Even courts cannot, through an
injunction, restrain a partner.
3. Right to have access to and inspect and copy books of the firm
- As per section 12, every partner has a right to inspect the books
and make a copy if he wants.
4. Right to share in profit - As per section 13, subject to contract, a
partner is entitled to an equal share of the profit.
5. Right to receive interest on the capital subscribed - As per
section 13, subject to contract, where a partner is entitled to
interest on the capital subscribed by him, such interest shall be
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 payable only out of profits. Further, if a partner pays any money
to the firm, beyond the amount of capital, he is entitled to 6%
interest.
6. Right to indemnity in respect of payments made and liabilities
incurred - According to section 13, the firm shall indemnify a
partner in respect of payments made and liabilities incurred by
him in the ordinary and proper conduct of business or in doing
such act, in an emergency, for the purposes of protecting firm
from loss as would be done by a person of ordinary prudence in
his own case under similar circumstance.
Implied authority of a partner
As held in Cox vs Hickman 1860, if two or more agree to carry on a
business, each of them is a principal and each is an agent for the
other. Further, each is bound by the other's contract in carrying
on the trade as much as a single principal would be bound by the
act of an agent. This principle has been incorporated in section 18
of IPA 1932. It says that a partner is the agent of the firm for the
purposes of the firm. Its complimentary principle is incorporated
in section 25 which says that every partner is liable jointly with all
other partners and also severally for all acts of the firm done
while he is a partner.
This brings us to the implied authority of the partners. Since, a
partner is an agent of the firm, his act binds every other partner and the
firm. For example, if a partner A gives a check in the firm's name to a
creditor and if the check is unpaid, partner B is equally liable even though
B's signature does not appear on the check. This authority to bind the
firm is called "implied authority". It has been incorporated in section 19
of IPA 1932, which says that the act of the partner which is done to carry

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on, in the usual way, business of the kind carried on by the firm, binds
the firm.
The following essential conditions are required for the exercise of
Implied Authority to bind the firm -

1. Usual way - The act must be done to carry on the business in the
usual way. Any drastic action, which is out of ordinary, requires
the consent of all the partners. For example, if a firm deals in coal,
a partner has the implied authority to enter into a contract to buy
and sell coal, but not gold. The implied authority of partners is
limited to only those acts which are done in usual way and related
to the business of the kind carried on by the firm.
2. Mode of doing act to bind firm - Section 22 specifies that in order
to bind the firm, the act must be done in firm's name or in any
manner expressing or implying the intention to bind the firm. For
example, if a partner A obtains a loan in his name without
mentioning anything about the firm, it will not bind the firm. It
must be clear from the action that it is intended as being done by
the firm.
In Devji vs Magan Lal AIR 1965, a partner had taken a sublease in
his own name instead of the firm's name. Further, there did not
seem to be any intention to bind the firm. SC held that the firm
was not bound by the lease as the parties did not intend to bind
the firm by this transaction.

Power of implied authority also has the following restrictions -

There are two kinds of restrictions - Statutory restrictions, as
imposed by section 19 (2) and Restrictions imposed by
partnership deed and those imposed by the agreement between
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 the partners. Statutory restrictions are binding upon all the
partners whether they know them or not, while the second type
of restrictions are applicable only when the partners have
knowledge about them.

Statutory restrictions - In the absence of any usage or custom of

trade to the contrary, a partner is not allowed to -
The following essential conditions are required for the exercise of
Implied Authority to bind the firm -

1. Usual way - The act must be done to carry on the business in the
usual way. Any drastic action, which is out of ordinary, requires
the consent of all the partners. For example, if a firm deals in coal,
a partner has the implied authority to enter into a contract to buy
and sell coal, but not gold. The implied authority of partners is
limited to only those acts which are done in usual way and related
to the business of the kind carried on by the firm.
2. Mode of doing act to bind firm - Section 22 specifies that in order
to bind the firm, the act must be done in firm's name or in any
manner expressing or implying the intention to bind the firm. For
example, if a partner A obtains a loan in his name without
mentioning anything about the firm, it will not bind the firm. It
must be clear from the action that it is intended as being done by
the firm.
In Devji vs Magan Lal AIR 1965, a partner had taken a sublease in
his own name instead of the firm's name. Further, there did not
seem to be any intention to bind the firm. SC held that the firm
was not bound by the lease as the parties did not intend to bind
the firm by this transaction.

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 Power of implied authority also has the following restrictions -
There are two kinds of restrictions - Statutory restrictions, as
imposed by section 19 (2) and Restrictions imposed by
partnership deed and those imposed by the agreement between
the partners. Statutory restrictions are binding upon all the
partners whether they know them or not, while the second type
of restrictions are applicable only when the partners have
knowledge about them.

The following essential conditions are required for the exercise of

Implied Authority to bind the firm -

1. Usual way - The act must be done to carry on the business in the
usual way. Any drastic action, which is out of ordinary, requires
the consent of all the partners. For example, if a firm deals in coal,
a partner has the implied authority to enter into a contract to buy
and sell coal, but not gold. The implied authority of partners is
limited to only those acts which are done in usual way and related
to the business of the kind carried on by the firm.
2. Mode of doing act to bind firm - Section 22 specifies that in order
to bind the firm, the act must be done in firm's name or in any
manner expressing or implying the intention to bind the firm. For
example, if a partner A obtains a loan in his name without
mentioning anything about the firm, it will not bind the firm. It
must be clear from the action that it is intended as being done by
the firm.
In Devji vs Magan Lal AIR 1965, a partner had taken a sublease in
his own name instead of the firm's name. Further, there did not
seem to be any intention to bind the firm. SC held that the firm
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 was not bound by the lease as the parties did not intend to bind
the firm by this transaction.

Power of implied authority also has the following restrictions -

There are two kinds of restrictions - Statutory restrictions, as
imposed by section 19 (2) and Restrictions imposed by
partnership deed and those imposed by the agreement between
the partners. Statutory restrictions are binding upon all the
partners whether they know them or not, while the second type
of restrictions are applicable only when the partners have
knowledge about them.

Statutory restrictions - In the absence of any usage or custom of

trade to the contrary, a partner is not allowed to -

1. Refer a dispute to arbitration.

2. open a banking account on behalf of the firm in his own name.
3. compromise or relinquish any claim or portion of the claim by the
firm.
4. withdraw a suit or proceeding filed on behalf of the firm.
5. admit any liability in a suit or proceeding against the firm.
6. acquire immovable property on behalf of the firm.
7. transfer immovable property belonging to the firm.
8. enter into partnership on behalf of the firm.
9. Contractual Restrictions - As per section 20, Partners may, by
contract, put additional restrictions or give additional powers to
the partners. However, any act which falls under the implied
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 authority but is restricted by the contract, will bind the firm unless
certain conditions are satisfied. A firm can avoid its liability in such
case, if the person dealing with the partner knows the restriction
or the person dealing with the partner does not know or does not
believe that the partner is a partner in the firm.
In Sanganer Dal & Flour Mill vs F C I AIR 1982, a partner of the who
had the implied authority to enter the contract with FCI to purchase
goods, entered in to a contract with FCI to purchase Dal. The contract
had an arbitration clause. In this case, the question was whether the
partner had the power to enter into such a contract? It was held by
SC that the partner was within his implied authority to enter into a
contract to purchase goods from the corporation because it was
normal for their business and the contract was done in the usual way.
Thus, the contract was valid even if it contained an arbitration clause.
Admission of Partners (Section 23)
Since a partner is an agent of the firm and can bind the firm by his
acts, an admission or representation by him concerning the affairs
of the firm, is evidence against the firm. This is incorporated in
section 23, which says that an admission or representation made
by a partner concerning the affairs of the firm is evidence against
the firm if it is made in ordinary course of business.
The key factor in this is that the admission or representation must
be made in ordinary course of business. This will also not include
the representation by which a partner increases his scope of
authority. For example, if a partner executes a bill of exchange for
payment of his personal debts and on inquiry he makes a false
statement that the other partners have authorized him, the said
bill of exchange will not bind the firm.

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 Incoming partners
The mutual relations of the partners is based on the principle that
they have to be just and fair to each other and are bound to carry
on the business of the firm to the greatest common advantage.
Thus, it is important for each partner to have trust in each other.
Therefore, section 31 lays down a general principle that a partner
cannot be introduced into a firm without the consent of all the
existing partners. However, the existing partners may, by
contract, authorize a partner to introduce a new partner. A
contract may also be made that upon death of a partner, a new
partner may be nominated in his place. If there are only two
partners and one of them dies, there is no question of nominating
a new partner because the partnership ends as soon as the
partner dies.
Also, a new partner is not liable for any act of the firm done
before he became a partner.
Outgoing partners
In many situations, a partner may have to leave the partnership. A
partner may leave in the following ways -

1. With the consent of all other partners - According to section

32(1) (a), a partner may retire with he consent of all the other
partners.
2. With an express agreement by partners - Section 32 (1)(b)
provides that a partner may retire with an express agreement by
partners. This means that if there is a provision in the contract
deed of partnership that allows a partner to retire, a partner can
retire using that agreement.

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 In Vishnu Chandra vs Chandrika Prasad Agarwal AIR 1983, the
question before SC was whether a partner was entitled to retire
on the basis of partnership deed. The deed provided that a
partner may retire by giving one month notice and that a partner
cannot retire within one year of commencement of business and
if he does so, his capital will not be returned. SC held that it is
consistent with the provisions of section 31(1)(b) and the partner
can retire according to the deed.
3. By giving notice to all other partners in case of partnership at
will - According to section 32(1)(c), a partner may retire where
the partnership is at will, by giving notice in writing to all the
other partners of his intention to retire.
4. By Expulsion (Can a partner be removed? How?) - According to
section 33 (1) a partner may not be expelled by any majority of
the partners, save in exercise of good faith of powers conferred
by contract between the partners. Thus, to expel a partner by
majority of the partners, the following two conditions must be
satisfied -
1. Such a power must be conferred by contract between the
partners. This means, the contract of partnership must
clearly give this power to the partners otherwise, a partner
cannot be expelled.
2. The power to expel a partner conferred under the contract
must be exercised in good faith. Thus, if majority of the
partners try to expel a partner with evil intention and
without any reasonable cause, it is not possible.
In Carmichael vs Evans 1904, a partner was caught traveling without
ticket and was convicted on this charge. He was expelled by the majority

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of the partners. It was held that the expulsion was justified.
In Blisset vs Daniel 1953, a partner was expelled by the majority of the
partners because he opposed the appointment of the son of a partner
on the post of manager. It was held that the expulsion was invalid.
5. On insolvency of a partner - According to section 34(1), where a
partner in a firm is adjudicated an insolvent he ceases to be a
partner on the date on which the order of adjudication is made,
whether or not firm is thereby dissolved.
6. By Death - Upon death of a partner, his association with the firm
ends and he ceases to be a partner. His estate will not be liable for
the acts of the firm after his death. According to section 42(c),
subject to the contract between the partners, a firm is dissolved
by the death of a partner. This means that partners may by
contract that by death of a partner the firm will not be dissolved
but if there is no such contract, the firm will be dissolved.
Liability of a retired partner
The liability of a retired partner may be of two types - For acts
done before retirement and for acts done after retirement.

1. Acts before retirement - The general rule is that a partner is

liable for all acts done before retirement even after he is retired.
However, a retiring partner may be discharged of his liabilities for
act before retirement by an agreement between the retiring
partner and the remaining partners. The agreement should
specify that all such liabilities will be borne by the remaining
partners. A notice to this effect must also be given to the
creditors.

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2. Acts after retirement - The general principle is that a retired
partner is not liable for the acts of the firm done after his
retirement. However, he must give a public notice of his
retirement to escape liabilities.

Partnership with a minor

By virtue of section 10 and 11 of Indian Contract Act 1872, a
minor is not considered capable of giving consent and thus any
contract with a minor is void ab initio. Therefore, a contract of
partnership with a minor is also void. In other words, a
partnership cannot be done with a minor and a minor cannot
become a partner of a firm. However, a minor can be admitted to
the benefits of the partnership as per section 30 (1), by the
consent of all the partners. In Venkatarama Iyer vs Balayya AIR
1936, it was held that there must be some positive act of the
partners so that the court may infer that the minors have been
admitted to the benefits of the partnership. Merely assuming that
the minors were admitted would be an error in law and is not
sufficient.
Further, in Addl Commr. of Income Tax vs Uttam Kumar Pramod
Kumar 1975, a partnership deed was not signed by minor or
anybody on his behalf. It was held that to admit the minor to the
benefits of partnership it is necessary to have an agreement
between the partners and the minor. Since the property and
money of the minor can be used for the firm, an agreement is
necessary between the partners and someone on behalf of the
minor.

Rights and Liabilities of a minor

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 He has the following rights -

1. to such share of the property and of the profits of the the firm as
may be agreed upon.
2. to access, copy, and inspect the records of the firm.
3. his share is liable for the acts of the firm but he is not personally
liable for them.
4. may sue the partners for his share of profits of the firms when
severing his connection with the firm.
5. As per Section 30(5), he has a right of election to become or not
to become the partner of the firm after becoming a major. Upon
attaining the age of majority, the minor can, within six months ,
give public notice that he has elected to become or not to become
a partner of the firm. If he fails to give such notice, he will be
become partner of the firm at the expiry of six months.

Illustration - In Shivganda R Patil vs Chandrakanth Neelkanth

Sadalge AIR 1965, C a minor was admitted to the benefits of the
partnership between A and B. The partnership became indebted
and was dissolved while C was still a minor. Upon majority, C did
not exercise the option of election. Later on, the creditor started
insolvency proceedings against the partners and impleaded C as
well in the proceedings. It was held that a minor cannot be
impleaded in insolvency proceedings against the firm on the
ground that he had become a major after dissolution of the firm.
At the time of his majority the firm had ceased to exist and thus
there was no question of electing to become or not to become a
partner.

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 Registration of a firm
Chapter 7 of IPA 1932 deals with the registration of firms. Under
this act, registration of firms is not compulsory. There is no
penalty for not registering. However, the effects of non-
registration are so severe that usually firms opt to register.
Consequences of not registering

1. Suits between partners and Firm - A per Section 69 (1) unless a

firm is registered and the party is shown as a partner, no suit can
be filed by or on behalf of any partner against the firm.
In Loonkaran Sethia vs Mr Ivan E John AIR 1977, the firm was not
registered and the plaintiff filed the suit to enforce an agreement
entered into by a partner of the firm. The suit was filed on behalf
of the firm and was for its benefit. SC observed that a partner of
an unregistered firm cannot bring a suit to enforce a right arising
out of a contract falling within the ambit of section 69. It held that
the suit was unmaintainable.
2. Suit between firm and third parties - Until the firm is registered,
no suit can be filed by the firm against third parties. In Ram Adhar
vs Rama Kirat Tiwary AIR 1981, the plaintiff sold bricks to the
defendant. The defendant did not pay the price to the partnership
firm and so the firm filed the suit. It was held that since the firm
was not registered the suit was unmaintainable.
3. Bar to claim set off and other proceedings - According to section
69(3), suit cannot be filed for claim of set off or other proceedings
to enforce a right arising from a contract.
Exception
According to section 69(3)(a), the provisions of section 61(1) and
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 (2) shall not affect the enforcement of any right to sue for the
dissolution of the firm, or for accounts of the dissolved firm or any
right or power to realize the property of dissolved firm. Thus, a
partner of a dissolved firm can sue a third party for releasing the
property of the firm.

Procedure for registration

As per section 58, registration of a firm can be done any time by
sending a statement in prescribed form by post or delivering to
the registrar of the area in which any place of business of the firm
is situated or proposed to be situated. The form should also be
accompanied with the prescribed fee. The form must contain -

1. the firm name

2. place or principal place of the business of the firm.
3. the names of any places where the firm carries on business.
4. the date when each partner joined the firm.
5. the names in full and permanent address of the partners.
6. the duration of the firm.
The statement must be signed by all of the partners or by their
agents specially authorized in this behalf. Each person signing the
statement shall also verify it in the manner prescribed. There is a
restriction on the name of the firm that it cannot contain certain
words such as Crown, Emperor, Empress, King etc. that give an
impression that the firm is associated with the govt.

When the registrar is satisfied that the provisions of section 58

have been fulfilled, he shall record an entry in the Register of
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 Firms and shall file the statement.

Dissolution of the firm

As per section 39, the dissolution of the partnership between all the
partners of a firm is called the dissolution of the firm. The firm is
dissolved when all the partners stop carrying on the partnership
business. It is possible that some partners may decide to disassociate
from the firm while others carry on the business. In this case the
partnership is not dissolved.

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After dissolution of the firm, the partnership between the partners
does not completely end. It continues for the purpose of realization of
assets or properties of the firm. Also, after the dissolution, the right and
power of the partners of the firm to bind the firm exists as is necessary
to wind up the operation and for the acts that started before the
dissolution but have not yet ended.
1. Dissolution by agreement - According to section 40, a firm may
be dissolved either with the consent of all the partners or in
accordance with a contract between the partners.
2. Compulsory Dissolution - According to section 41, a firm will be
compulsorily dissolved if
1. all the partners or all but one of the partners become
insolvent - This happens because if a partner becomes
insolvent, he becomes incompetent to contract and so he
ceases to be a partner as per section 34(1). Thus, if all or all
but one partners become insolvent the firm will
compulsorily dissolved because for a partnership, at least
two partners are required.
2. If the business of the firm becomes unlawful - It is possible
that due to legislation, the business may become unlawful.
For example, liquor sales may become unlawful in a
particular state. In such a case, a partnership that sells liquor
will be dissolved.
3. Dissolution upon contingencies - According to section 42, subject
to the contract, a firm is dissolved on the happening of following
contingencies -
1. By Expiry of fixed term - A firm is dissolved, if it is
constituted for a fixed term, which that term expires.

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 2. On completion of adventures or undertakings - In many
cases, a partnership is started with a specific goal to
accomplish or for a particular task. Upon completion of such
task, the partnership gets dissolved.
3. By the death of a partner - Subject to the contract between
the partners,a partnership gets dissolved if a partner dies.
4. By the adjudication of a partner as an insolvent - If a
partner becomes insolvent and if there is no provision in the
contract to keep the partnership alive in such case between
the solvent partners, the partnership is dissolved.
4. Dissolution by notice of partnership at will - According to section
43, a partnership at will can be dissolved any time by any partner
by giving a notice of such intention to other partners.
5. Dissolution by court - According to section 44, the court may
dissolve a partnership if -
1. a partner becomes of unsound mind - In such a case, the
next friend of the person with unsound mind may request
the court to dissolve the firm.
2. a partner becomes permanently incapable - At the suit of a
partner, the court may dissolve the firm on the ground that
a partner other than the one suing has become permanently
incapable of performing the duties of partnership.
3. a partner is guilty of conduct likely to affect prejudicially
the carrying on of business - At the suit of a partner the
court may dissolve a firm on the ground that a partner other
than the one suing, is guilty of conduct which is likely to
affect the business prejudicially. For example, in partnership
of doctors, if one doctor is guilty of immorality towards
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 some patients, it is possible for the court to dissolve the
partnership upon suit of other partners.
In Carmichael vs Evans 1856, a partner was convicted of
traveling without ticket and the court dissolved the firm on
this ground.
4. willful or persistent breach of agreements relating to the
business or management of the affairs of the firm - If a
partner willfully or persistently commits breach of the
agreements related to the firm, or the conduct of its
business, or conducts such that it is not reasonably practical
for other partners to carry on the business, the court may
dissolve the firm upon suit by other partners.
5. transfer of the whole interest in the firm by a partner to a
third party - At the suit of a partner the court may dissolve a
firm on the ground that a partner other than the one suing,
has in any way transferred the whole of his interest in the
firm to a third party.
6. perpetual loss - At the suit of a partner, the court may
dissolve the firm on the ground that the business of a firm
cannot be carried on without incurring loss. It is indeed
impractical to run a business that is continuously going in
the loss. Thus, if a partner of such a business desires, he can
request the court to dissolve the firm.
7. Just and Equitable cause - As per section 44(g), the court
may dissolve the firm on any just and equitable ground upon
request by a partner. This gives very wide powers to the
court because the court has to decide whether there is a just
and equitable ground for dissolving a firm.

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 Consequences of Dissolution
Liabilities of the partners for acts done after dissolution - As per
section 45, until public notice is given of the dissolution, partners
remain liable for their acts as they were before dissolution. It is
therefore essential to give notice of dissolution if the partners want to
escape liability for the acts of the firm.
Right of partners to have business wound up after dissolutions -
Upon dissolution of the firm, every partner is entitled, as against other
partners, to have the property of the firm applied in payments of debts
and other liabilities of the firm and to have the surplus distributed to
the partners as per the contract.
Continuing authority of partners for purpose of winding - Each
partner continues to enjoy implied authority but for the acts done in
the process of winding up of the business.
Settlement of accounts - Upon dissolution, the accounts of the
firm will be settled as per the agreement of the partners.
Payment of debts - where there are any joint debts, the property
of the firm will be first applied to clear those debts and then it will be
applied to any separate debts due to a partner.

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