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IS NECESSARY FOR
PARTNERSHIP
Table of Contents
PARTNERSHIP ACT 1932............................................................................................. 5
PRELIMINARY.............................................................................................................. 5
DEFINITIONS:.............................................................................................................. 5
Definition of "partnership", "partner", "firm" and "firm name"...................................5
ESSENTIAL ELEMENTS OF PARTNERSHIP.....................................................................6
FEATURES OF PARTNERSHIP FORM OF BUSINESS ORGANIZATION..............................7
A.
B.
Agreement:.......................................................................................................... 7
C. Lawful Business:................................................................................................... 7
D.
Competence of Partners:...................................................................................... 8
E.
Sharing of Profit................................................................................................... 8
F.
Unlimited Liability................................................................................................ 8
G. Voluntary Registration.......................................................................................... 8
H. No Separate Legal Existence................................................................................ 9
I.
J.
K.
Continuity of Business.......................................................................................... 9
Family Partnership:............................................................................................. 11
ii.
General Partnership:.......................................................................................... 11
Particular Partnership:........................................................................................ 11
Partnership in Commendams:.........................................................................12
viii.
Special Partnership:........................................................................................ 12
Statutory Partnership:........................................................................................ 12
Establishment:................................................................................................... 15
b) Term:.................................................................................................................. 15
c)
Name:................................................................................................................ 15
d) Place of Business:.............................................................................................. 15
e) New Partners:..................................................................................................... 15
DETERMINATION OF PARTNERSHIP...........................................................................16
General:...................................................................................................................... 16
Dissolution:.................................................................................................................. 16
Determination:.............................................................................................................. 16
RELATIONS OF PARTNERS TO ONE ANOTHER...........................................................17
General Duties of Partners........................................................................................ 17
Duty to Indemnify For Loss Caused By Fraud:..........................................................17
Determination of Rights and Duties of Partners By Contract Between The Partners:
................................................................................................................................. 17
Agreements in Restraint Of Trade:............................................................................17
The conduct of the business:............................................................................................. 17
MUTUAL RIGHTS AND LIABILITIES............................................................................. 18
RIGHTS AND DUTIES OF PARTNERS AFTER A CHANGE IN THE FIRM.........................19
RIGHTS OF PARTNER................................................................................................. 19
Right to Manage Business:............................................................................................... 19
Partners authority in emergency:....................................................................................... 20
DUTIES OF PARTNERS............................................................................................... 21
I.
II.
III.
IV.
V.
Duty to compensate:.......................................................................................... 21
VI.
VII.
VIII.
IX.
X.
XI.
XII.
XIII.
XIV.
Practice Development:....................................................................................... 25
B.
Management Contribution:................................................................................. 25
DEFINITIONS:
In this Act, unless there is anything repugnant in the subject or context
An "act of a firm" means any act or omission by all the partners or by any
partner or
Agent of the firm which gives rise to a right enforceable by or against the
firm,
"Business" includes every trade, occupation and profession;
"Prescribed" means prescribed by rules made under this Act;
"Third party" used in relation to a firm or to a partner therein means any
person who is not a partner in the firm; and
Expressions used but not defined in this Act and defined in the Contract
Act (IX of 1872) shall have the meanings assigned to them in that Act.
Two or more
Sharing of profit
Mutual agency
Persons
Business
An agreement
B. Agreement:
Whenever you think of joining hands with others to start a partnership business, first of all, there
must be an agreement between all of you. This agreement contains
C. Lawful Business:
The partners should always join hands to carry on any kind of lawful business. To indulge in
smuggling, black marketing, etc., cannot be called partnership business in the eye of the law.
Again, doing social or philanthropic work is not termed as partnership business.
D. Competence of Partners:
Since individuals join hands to become the partners, it is necessary that they must be competent
to enter into a partnership contract. Thus, minors, lunatics and insolvent persons are not eligible
to become the partners. However, a minor can be admitted to the benefits of partnership i.e., he
can have a share in the profits only.
E. Sharing of Profit
The main objective of every partnership firm is sharing of profits of the business amongst the
partners in the agreed proportion. In the absence of any agreement for the profit sharing, it
should be shared equally among the partners. Suppose, there are two partners in the business and
they earn a profit of Rs. 20,000.They may share the profits equally i.e., Rs. 10,000 each or in any
other agreed proportion, say one forth and three fourth i.e. Rs 5,000/- and Rs. 15000/F. Unlimited Liability
-Just like the sole proprietor the liability of partners is also unlimited. That means, if the assets of
the firm are insufficient to meet the liabilities, the personal properties of the partners, if any, can
also be utilized to meet the business liabilities. Suppose, the firm has to make payment of Rs.
25,000/- to the suppliers of goods. The partners are able to arrange only Rs. 19,000/- from the
business. The balance amount of Rs. 6,000/- will have to be arranged from the personal
properties of the partners.
G. Voluntary Registration
It is not compulsory that you register your partnership firm. However, if you dont get your firm
registered, you will be deprived of certain benefits, therefore it is desirable. The effects of nonregistration are:
Your firm cannot take any action in a court of law against any other parties for settlement
of claims.
In case there is any dispute among partners, it is not possible to settle the disputes
K. Continuity of Business
A partnership firm comes to an end in the event of death, lunacy or bankruptcy of any partner.
Even otherwise, it can discontinue its business at the will of the partners. At any time, they may
take a decision to end their relationship.
Explanation For the purpose of this section, Banking Company and finance
shall have the same meanings as in the Banking tribunals ordinance, 1981
Partnership at will:
Where no provision is made by contract between the partners for the
duration of their partnership, or for the determination of their partnership
the partnership is "partnership at will".
Particular Partnership:
A person may become a partner with another person in particular
adventures or undertakings.
CLASSIFICATION OF PARTNERSHIPS
i.
Family Partnership:
One which family members control by being partners.
ii.
General Partnership:
A partnership in which the parties carry on all their trade and business. It
may be for the joint benefit and profit of all the parties concerned.
iii.
Implied Partnership:
One which is not a real partnership but which is recognized by the court
as such because of the conduct of the parties; in effect, the parties are
estopped from denying the existence of a partnership.
iv.
Limited Partnership:
A partnership consisting of one or more general partners, jointly and
severally responsible and who are not liable for the debts of the
partnership beyond the fund so contributed.
v.
Particular Partnership:
One existing where the parties have united to share the benefits of a single
individual transaction or enterprise.
vi.
Partnership at will:
One designed to continue for no fixed period of time, but only during the
pleasure of the parties and which may be dissolved by any partner without
previous notice.
vii.
Partnership in Commendams:
A partnership formed by a contract by which one person or partnership
agrees to furnish the other a certain amount or property on condition of
receiving a share in the profits.
viii.
Special Partnership:
At common law, one formed for the prosecution of a special branch of
business, as distinguished from the general business of the parties.
ix.
Secret Partnership:
One where the existence of certain persons as partners is not avowed to
the public by any of the partners.
x.
Statutory Partnership:
A statutory creation in some states which resembles a corporation more
than a partnership, but which has many attributes of the limited
partnership.
xi.
Universal Partnership:
One in which the partners jointly agree to contribute to the common fund
of the partnership the whole of their property, of whatever character, and
future, as well as present
Easy to form:
Availability of large resources:
Better decisions:
Flexibility in operations:
Sharing risks:
Benefits of specialization:
Unlimited liability:
Uncertain.
No transferability of share:
Lack of harmony:
Limited capital:
PARTNERSHIP DEED
A partnership is formed by an agreement. This agreement may be in writing or oral.
Though the law does not expressly require that the partnership agreement should be in
writing, it is desirable to have it in writing in order to avo8id any dispute with regard to
the terms of the partnership. The document which contains the term of a partnership as
agreed among the partners is called partnership deed.
The partnership Deed is to be duly stamped as per the Stamp Act, and duly signed by all
the partners.
Settlement of disputes
FORMATION OF PARTNERSHIP
a) Establishment:
Subject to the terms and conditions hereof, the parties hereto agree to carry on the Business in
partnership.
b) Term:
Subject to the provisions of this Agreement, the Partnership shall commence as of the Effective
Date and shall continue for a term ending on the earlier of:
the Partners; or
The date on which the Partnership is dissolved by operation of law
c) Name:
The name of the Partnership shall be and/or such other name or names as the Partners may from
time to time agree upon in writing and no party shall carry on business under such name except
as a Partner of the Partnership.
d) Place of Business:
The place of business of the Partnership shall be at such place or places as the Partners shall from
time to time hereafter determine.
e) New Partners:
No person shall be admitted as a Partner except with the unanimous consent in writing of the
Partners.
DETERMINATION OF PARTNERSHIP
General:
Except as expressly permitted in this Article 5, or as otherwise unanimously agreed to in writing
by the Partners, no Partner may sell, assign, convey, transfer, mortgage, charge or otherwise encumber all
or any part of its share or interest in the Partnership.
Dissolution:
The Partnership shall be dissolved at any time by unanimous resolution of the Partners passed at
a meeting of the Partners called for that purpose. The Partnership may also be terminated by unanimous
agreement in writing signed by all of the Partners.
Determination:
In the event of the dissolution of the Partnership, the Partnership shall terminate and a proper
accounting shall be made of the capital and income accounts of each Partner and the profit or losses of the
Partnership to the date of dissolution by the Accountants. The assets of the Partnership shall be liquidated
and the proceeds of such liquidation shall then be distributed as follows, unless the Partners otherwise
unanimously agree:
firstly, to repay all costs, debts, expenses, liabilities and obligations of the Partnership;
secondly, to pay to each Partner its share of the capital; and
Thirdly, to divide the surplus, if any, between the Partners in the proportions in which
they are entitled to share in profits.
In the event that such liquidation proceeds shall not be sufficient to satisfy the liabilities of the
Partnership, each of the Partners shall contribute its pro rata share, as determined in accordance with their
individual Capital Accounts of the Partnership, of such further funds as shall be necessary to satisfy in
full, the liabilities of the Partnership.
RIGHTS OF PARTNER
Right to Manage Business:
Every partner has right to take part in the management of business.
Right to express opinions:
Every partner has right to express his opinions relation to business matters.
Right to access the accounts books.
Every partner has right to access the account books of firm.
Right to share the profit:
Every partner has right to share the profit of the business.
Right to interest on capital:
Every partner can charge interest on capital contributed by him.
Right to interest on advances:
Every partner has right to interest on advances at the of 6% per annum.
Right to be indemnified:
Every partner has right to be indemnified by the firm in respect of payment by him.
Case law
P. L. D 1958 Kar 251
any partner obtaining credit on his own behalf cannot bind other partners and they are not liable.
Partners authority in emergency:
Partner has right to act in emergency to protect the firm from loss.
Conditions
(i) there must be an emergency.
(ii) The act must be done for the purpose of protecting the firm from loss.
(iii) The act must be such as a person of ordinary prudence, would have done in his own case
acting under similar circumstances.
Right to give consent for new partner:
Every partner has right to prevent the introduction of a new partner unless he consents to that.
Right to retire:
Every partner has right to retire from the firm.
Right not to be expelled:
A partner cannot be expelled from firm by any majority of partners provided the decision is made
in good faith and there is a provision in contract.
Right to carry on competing business:
Every outgoing partner has a right to carry on a business similar to that of the firm subject to
certain restrictions.
Right of dissolution of firm:
Every partner has right to file suit for dissolution of firm.
Right to restrain from use of firm name or firm property:
Every partner has the right to see that the property of the firm is used only for the purpose of
partnership.
Right of the partner who leaves the firm due to any reason is entitled to claim any share
according to the agreement.
DUTIES OF PARTNERS
I.
II.
III.
IV.
V.
Duty to compensate:
It is duty of every partner to compensate any loss incurred by him.
VI.
VII.
VIII.
IX.
X.
XI.
XII.
XIII.
XIV.
Example in case of
When A acts
When B acts
When C acts
A- Agent
B- Agent
C- Agent
B and C-
A and C-
A and B-
arbitration.
Open a banking account on behalf of the firm in his own
name,
Compromise or relinquish any claim or portion of a claim
by the firm,
Withdraw a suit or proceeding filed on behalf of the firm,
Admit any liability in a suit or proceeding against the firm,
Acquire immovable property on behalf of the firm,
Transfer immovable property belonging to the firm, or
Enter into partnership on behalf of the firm
PARTNER OBLIGATIONS
Law firms continue to struggle in order to define the obligations of partners. A partner is not
fulfilling his or her obligations as an owner of the business if he or she does not meet all the
minimum requirements.
I hope that you will be able to use these suggestions in thinking about your partnerships, how
they operate and how individual partners contribute.
In my opinion, partners in law firms have to act like true owners in a business and should be
concerned with production, sales, management and profitability.
Client-Determined Service Quality: This means that clients, prospective clients and internal
clients (other partners) must receive the level of attention, treatment, timely service, etc., that
they expect from every partner.
A. Practice Development:
Every partner should energetically participate in practice development efforts for ones self and
for or with others.
There are things that any lawyer can do to help develop the firms practice. Not everyone should
aspire to becoming a traditional rainmaker. However, there must be ongoing efforts in practice
development by all owners in order to increase or maintain business.
Strategies such as writing to demonstrate competency, speaking and effective networking, crossselling and similar activities are still effective means of practice development.
B. Management Contribution:
Every partner has an obligation to participate in (some portion of) management to ensure the
effective, efficient running of the professional and business sides of the practice.
Law firms increasingly have management needs that did not exist ten years ago. Some of these
needs are ongoing, such as those of a practice leader, others are ad hoc, such as someone
assigned to evaluate the firms insurance plan
DISSOLUTION OF PARTNERSHIP
When the business of the firm is closed down and the relation of partners comes to an end, the
firm is said to have been dissolved. There is a distinction between the dissolution of partnership
and dissolution of firm.
When one or more partners sever their connections with the firm but the remaining partners
continue to carry on business, it is the dissolution of partnership. But when there is a complete
breakdown of relations among all the partners and the business is closed down, it is termed as
dissolution of the firm, in this chapter; we shall deal with accounts of the relationship when the
firm is dissolved
CIRCUMSTANCES OF DISSOLUTION:
Under the following circumstances, the court will order the dissolution of the firm.
When a partner becomes of unsound mind.
When a partner has become permanently incapable of performing duties
When a partner is guilty of misconduct which is likely to affect business.
When a partner persistently commits breach of partnership agreement
When a partner has transferred whole of his interest in the firm to a third party
When the business cannot be carried on except at a loss.
UNIVERSITY OF CENTRAL PUNJAB
On any other ground which appears to the court just and equitable
these loan are repaid next after repayment of third party liabilities.
Now, partners will be paid what is due to them on capital accounts. If the surplus is not
enough to return the full amount of capital, then the partner are paid ratably
Surplus, if any, left after returning capitals is paid to the partners in their profit sharing
ratio
BIBLOGRAPHY
http://biztaxlaw.about.com/od/startingapartnership/f/partneragree.htm
http://www.tahseenbutt.com/business_formation_pakistan.html
http://www.scribd.com/doc/31412139/Partnership-in-Pakistan
http://www.joelarose.com/articles/defining_partner_obligations.html