BUSINESS LAW

1

INTRODUCTION
The law of partnership is contained in the Indian Partnership Act, 1932, this Act extends to
Whole of India (except the state of Jammu & Kashmir)

Definition
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 (section 4).

Essential Element of Partnership
1. Association of two or more persons: The minimum numbers of persons require to
constitute partnership is two and the maximum number of person in banking business
is ten and in other business is 20(as per section 11 of company act).
2. Agreement: The relation of partners arises by an agreement and not from status.
3. Agree to share profits of the business: The persons concerned must agree to share
the profits of the business.
4. Carry on some business: The partners participate in the business and not with the
business. Every joint venture need no necessarily be a partnership.
5. Carried on by all or any one of them: This is the most essential principal of
partnership. Each partner is a agent of the firm as well as of the other partners.

Kinds of Partners
1. Active Partner :-
A person who provides his share in capital and also takes active part in the management. The
development of business depends upon the active partners.
2. Sleeping or Dormant Partners :-
These partners only provide capital and also share the profit and loss of the business. A
sleeping partner does not take part in the management of a firm. These are not know to public
as a partner.
3. Silent Partner :-
A silent partner is known to the public as a partner. He does not participate in the affairs of
the management. But be is liable to pay debts of the firm.
4. Secret Partner :-
BUSINESS LAW

2

He takes active part in the business but public does not know him as a partner of the firm. He
is liable to pay all the debts of the firm.
5. Nominal Partner :-
These partners do not share the profit and loss the firm. These do not participate in the
management of a firm. A firm only uses the name and goods reputation of the partners. So
these are called nominal partners.
6. Minor Partner :-
A minor may become partner with the consent all the partners. A minor is only admitted in
the profits of the business only. He has no liability of loss.
7. Senior Partner :-
A person who is playing important role in the management according to his ability,
experience and capital, is called senior partner.
8. Junior Partner :-
A person who has small investment in the firm and has a limited experience of business is
called junior partner.
9. Limited Partner :-
A partner whose loss responsibility is restricted to his share only is called limited partner. He
cannot take post in the management of a firm.
10. Unlimited Partner :-
When the liability of the partner is unlimited he is called unlimited partner. The debts of firm
can be paid even by the personal property of the partner.

Procedure for Registration of a Partnership Firm
The law relating to a partnership firm is contained in the Indian Partnership Act, 1932.
Under Section 58 of the Act, a firm may be registered at any time ( not merely at the
time of its formation but subsequently also ) by filing an application with the
Registrar of Firms of the area in which any place of business of the firm is situated or
proposed to be situated.
o Application shall contain:-
name of the firm
place or principal place of business
names of any other places where the firm carries on business.
date on which each partner joined the firm
BUSINESS LAW

3

name in full and permanent address of partners.
duration of the firm
o Application shall be signed and verified by all the partners or their duly
authorized agents.
o Application shall be accompanied by prescribed fee as well as the following
documents:
Prescribed Registration Form for Incorporation of a Company. (Form
No. 1 and Specimen of Affidavit)
certified true copy of the Partnership deed entered into.
ownership proof of the principal place of business
o Name of the firm should not contain any words which may express or imply
the approval or patronage of the government except where the government has
given its written consent for the use of such words as part of the firms name.
Under Section 59 of the Act, when the Registrar of Firms is satisfied that the
provisions of section 58 have been duly complied with, he shall record an entry of the
statement in the Register of Firms and issue a Certificate of Registration.
penalty for furnishing false particulars (Section 70)
Any person who signs any statement, amending statement, notice or intimation under
this Chapter containing any particular which he knows to be false or does not believe to be
true or containing particulars which he knows to be incomplete or does not believe to be
complete, shall be punishable with imprisonment which may extend to three months, or with
a fine or with both.
Any alterations, subsequent to Registration shall be notified to the registrar:-
o Change in firm name and principal place of business (Section 60) shall require
sending of a new application form along with the prescribed fee, duly signed
and verified by all the partners.
o Change relating to opening and closing of branches. (Section 61)
o When a registered firm discontinues business at any place or begins to carry
on business at any place, such place not being its principal place of business,
any partner or agent of the firm may send intimation thereof to the Registrar.
o Change in the name and permanent address of any partner (Section 62)
BUSINESS LAW

4

o When any partner in a registered firm alters his name or permanent address, an
intimation of the alteration may be sent by any partner or agent of the firm to
the Registrar
o Change in the constitution of the firm and its dissolution [Section 63(1)]
o when change occurs in the constitution of the firm, any of the new, continuing
or the outgoing partner, while when a registered firm is dissolved , any person
who was a partner immediately before the dissolution or the agent of any such
partner or person specially authorized on his behalf, may give notice of such a
change to the Registrar, specifying the date thereof.
o Under Section 63(2), when a minor who has been admitted to the benefits of
partnership in a firm attains majority and elects to become or not to become a
partner, he or his agent specially authorized in this behalf, may give notice to
the Registrar that he has or has not become a partner.
o Accordingly, the various forms prescribed under the Indian Partnership Act,
1932, for the alterations in the registered partnership firm are:-
a. Form No. II :- For change of principle place of business & change in the name
of the firm.
b. Form No. III :- For change of the other then principle place of business.
c. Form No. IV :- For change of name of the partners & permanent address of the
partners.
d. Form No. V :- For change of constitution of forms & addition or retirement of
partner.
e. Form No.VI :- For dissolution of the firm
f. Form No. VII :- For minor partner attains the age of majority.
Partnership Act, 1932 does not provide for compulsory registration of firms. It is
optional for partners to set the firm registered and there are no penalties for non-
registration.
However, Section 69 of the Act which deals with the effects of non-registration denies
certain rights to an unregistered firm. Under the Act :-
o A partner of an unregistered firm 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 unless the firm is registered and the
BUSINESS LAW

5

person suing is or has been shown in the Register of Firms as a partner in the
firm.
o No suits to enforce a right arising from a contract shall be instituted in any
Court by or on behalf of a firm against any third party unless the firm is
registered and the persons suing are or have been shown in the Register of
Firms as partners in the firm.
o An unregistered 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.
Hence, every firm finds it advisable to get itself registered sooner or later.
However, non-registration of a Partnership firm shall not affect:-
o The rights of third parties to sue the firm and/or its partners.
o The firms or partners in the firms which have no place of business in the
territories to which this Act extends, or whose places of business in the said
territories are situated in areas to which the act does not apply.
o any suit or claim or set-off not exceeding one hundred rupees in value which,
in the Presidency-towns, is not of a kind specified in Section 19 of the
Presidency Small Cause Courts Act, 1882 (15 of 1882), or outside the
Presidency- towns, is not of a kind specified in the Second Schedule to the
Provincial small Cause Courts Act, 1887 (9 of 1887), to any proceeding in
execution or other proceeding incidental to or arising from any such suit or
claim.
o the enforcement of any right to sue for the dissolution of a firm or for accounts
of a dissolved firm, or any right or power to realise the property of a dissolved
firm.
o the powers of an official assignee, receiver or Court under the Presidency-
towns Insolvency Act, 1909 (3 of 1909), or the Provincial Insolvency Act,
1920 (5 of 1920), to realise the property of an insolvent partner.

Rectification of mistakes (Section 64 of the Act)
o The Registrar shall have power at all times to rectify any mistake in order to
bring the entry in the Register of Firms relating to any firm into conformity
with the documents relating to that firm filed under this Act.
BUSINESS LAW

6

o On application made by all the parties who have signed any document relating
to a firm filed under this Act, the Registrar may rectify any mistake in such
document or in the record or note thereof made in the Register of Firms.
Inspection of Register and filed documents (Section 66 of the Act:)
o The Register of Firms shall be open to inspection by any person on payment of
such fee as may be prescribed.
o All statements, notices and intimations filed under this Act shall be open to
inspection, subject to such conditions and on payment of such fee as may be
prescribed.
Grant of copies (Section 67 of the Act)
The Registrar shall on application furnish to any person, an payment of such fee as
may be prescribed, a copy, certified under his hand, of any entry or portion thereof in
the Register of Firms.

Minor Partner
As per Section 11 of the Indian Contract Act, 1872 a minor cannot enter into
an agreement. However Section 30 of the Partnership Act provides that with the consent of
all the partners for the time being a minor may be admitted to the benefits of Partnership.
This provision is based on the rule that a minor cannot be a promisor but he can be a
promisee or a beneficiary.

Rights of a Minor before attending the age of Majority.
i. He has a right to share the profits and the property of the firm as may be agreed. He
has a right to have access to and inspect the books of accounts of the firm.
ii. Right to sue for payments of his share of profit or property in case of his severance of
connection with the firm.
iii. He has a right to elect to become a partner on attaining the age of Majority.
iv. He has a right to elect not to become a partner on attaining the age of Majority.
Liabilities of a Minor before attending the age of Majority.
i. A minors share is liable for the acts of the firm.
ii. He is not personally liable for sharing any liabilities or losses of the firm in his
personal capacity nor is his personal property liable.

BUSINESS LAW

7

Position of the Minor on Attending the age of Majority
On attending Majority the minor partner has to decide within six month whether he want to
continue as partner in the firm or discontinue as a partner from the firm. The period of six
months start from the date of his majority or from the date when he first comes to know that
he has been admitted to the benefits of the partnership, whichever is later. Within the said
period of six months he should give a public notice of his choice whether to continue as a
partner or not to continue as a partner.
If he fails to give a public notice he is deemed to have become a partner in the firm on the
expiry of the said six month.
Position of a minor if he elects to become the Partner after attending the age of
Majority.
i. He becomes personally liable to third parties for all acts of the firm done since he was
admitted to the benefits of the partnership.
ii. His share to the profits of the firm is the same as he was entitled to as a minor partner.
Position of a minor if he elects not to become the Partner after attending the age of
Majority.
i. His rights and liabilities of the partner as a minor continue up to the date of the notice.
ii. His share is not liable for any acts of the firm done after the date of the public notice.
iii. He is entitled to sue the partners for his share of the profits and property of the firm.

Modes of Dissolution of the Partnership Firm
A partnership firm can be dissolved in any of the two ways:
A) By the order of the court
A partner may apply to the court for getting the firm dissolved. On getting such
application by any of the partner the court may proceed to order the dissolution of the firm in
the following circumstances:
1) If any of the partner becomes of unsound mind
2) If a partner, other than the partner filing the suit is guilty of intentionally and
persistently committing a breach of the partnership agreement.
3) If a partner, other than the partner filing the suit has transferred whole of his interest
in the firm to a third party without the consent of the other partners.
4) If a partner, other than the partner filing the suit is guilty of misconduct.
BUSINESS LAW

8

5) If a partner, other than the partner filing the suit has become disabled to perform his
duties as a partner.
6) If the court is satisfied that the business of the firm cannot be carried on except a loss.
7) If the court considers it just and equitable to dissolve the firm due to some other
reasons.

B) Without the intervention of the court.
1) If all the partners are willing and hereby agree to dissolve the firm.
2) In the following circumstances:
a. On the death of any partner.
b. If any partner becomes insolvent.
c. On the expiry of the duration of the firm.
d. On the completion of the venture.

Distinction between Dissolution of Partnership and Dissolution of Firm
Basis Dissolution of Partnership Dissolution of Firm
1. Termination of business

2. Settlement of assets and
liabilities

3. Courts intervention



4. Economic relationship


5. Closure of books

6. Other dissolution
The business is not
terminated.
Assets and liabilities are
revalued and new balance
sheet is drawn.
Court does not intervene
because partnership is
dissolved by mutual
agreement.
Economic relationship
between the partners
continues though in a
changed form.
Does not require because the
business is not terminated.
It may or may not involve
dissolution of the firm.
The business of the firm is
closed.
Assets are sold and liabilities
are paid-off.

A firm can be dissolved by
the courts order.


Economic relationship
between the partners comes
to an end.
The books of account are
closed.
It necessarily involves
dissolution of partnership.
BUSINESS LAW

9


Sale of Goods Act 1930
Definition
Section 4(1) of the Sale of Goods Act defines a contract of sale of goods as - "a
contract whereby the seller transfers or agrees to transfer the property in goods to the buyer
for a price."

Essential characteristics of contract of sale of goods :
1. Two parties:
The first essential is that there must be two different parties to a contract of sale, viz.., a buyer
and a seller, as a person cannot buy his own goods.
2. Transfer of property:
'Property' here means ownership. Transfer of property in the goods is another essential of a
contract of sale of goods. A mere transfer of possession(ownership) of the goods cannot be
termed as sale. To constitute a contract of sale the seller must either transfer or agree to
transfer the property in the goods to the buyer. Further, the term 'property', as used in the Sale
of Goods Act, means 'general property' in goods as distinguished from 'special property' [Sec.
2(11)].
3. Goods:
The subject-matter of the contract of sale must be 'goods', According to Section 2(7), "goods
means every kind of movable property other than actionable claim and money; and includes
stock and shares, growing crops, grass, and things attached to or forming part of the land
which are agreed to be severed before sale or under the contract of sale." Thus every kind of
movable property except actionable claim and money is regarded as 'goods'. Goodwill, trade
marks, copyrights, patents right, water, gas, electricity, decree of a court of law, are all
regarded as goods. Shares and stock are also included in goods.
4. Price:
The consideration for a contract of sale must be money consideration called the price. If
goods are sold or exchanged for other goods, the transaction is barter, governed by the
Transfer of Property Act and not a sale of goods under this Act. But if goods are sold partly
for goods and partly for money, the contract is one of sale (Aldridge vs Johnson).
5. Includes both a 'sale' and 'an agreement to sell:
BUSINESS LAW

10

'The term contract of sale is a generic term and includes both a sale and an agreement to sell
as is clear from the definition of the term as per Section 4(1) given earlier.
Sale :
Where under a contract of sale, the property in the goods is immediately transferred at the
time of making the contract from the seller to the buyer, the contract is called a 'sale' [Sec.
4(3)]. It is an executed contract.
An agreement to sell:
Where under a contract of sale, the transfer of property in the goods is to take place at a
future time or subject to some condition thereafter to be fulfilled, the contract is called 'an
agreement to sell' [Sec. 4(3)]. It is an executory contract and refers to a conditional sale. An
agreement to sell becomes a sale when the time elapses or the conditions are fulfilled, subject
to which the property in the goods is to be transferred [Sec. 4 (4)].
6. No formalities to be observed (Sec. 5):
The sale of Goods Act does not prescribe any particular form to constitute a valid contract of
sale. A contract of sale of goods can be made by mere offer and acceptance. The offer may be
made either by the seller or the buyer and the same must be accepted by the other. Neither
payment nor delivery is necessary at the time of making the contract of sale.

Goods :-
Section 2(7) defined in the following words, "Goods mean every kind of moveable
property other than actionable claims on money and includes stocks, shares, growing crops."

Kinds of Goods :-
Following are the important kinds of goods :
1. Existing Goods :-
The seller possessing the goods at the time of entering into contract are called existing
goods. The goods must be in actual existence. It has two kinds :
i. Specific Goods :- When goods are identified and agreed upon at the time of contract of sale
are called specific goods. In this case contract completes by delivering two goods agreed
upon.
Example :- "X" agrees to sell "Y" a Honda motor cycle which bears number, it is a contract
so specified goods.
BUSINESS LAW

11

ii. Unascertained Goods :- If the goods cannot be identified separately at the time of
contract, it is called unascertained good. Such type of gods are described by sample or
description. In this case seller is not bound to supply any particular good.
Example :- If "A" agrees to sell "B" one hen out of 100 living in shed. It is a contract of
unascertained goods.

2. Future Goods :-
Such type of goods are not in the possession of the seller and not available at the time of
contract. Future goods are produced or acquired by the seller after making the contract. So
there may be agreement to sell for future goods.
Example :- Mr. Zain agrees to sell Mr. Jack a computer which he will import after a month.
It is contract of sale.
3. Contingent Goods :-
Such goods are not available at the time of contract like future goods. The acquisition of the
such goods by the seller depends upon contingency which may happen or not.
Example :- Mr. Dane agrees to sell Mr. George the diamond provided he is able to import. It
is a contract for the sale of contingent goods.