Indian Partnership Act For Entrepreneurs

INDIAN PARTNERSHIP ACT FOR
ENTREPRENEURS
by :
DR. T.K. JAIN
AFTERSCHO☺OL
centre for social entrepreneurship
sivakamu veterinary hospital road
bikaner 334001 rajasthan, india
FOR – PGPSE / CSE PARTICIPANTS
afterschool@in.com
mobile : 91+9414430763
5 DECEMBER 09 www.afterschool.tk 1
My words....
Ours is a great country with immense entrepreneurial potential.
However, our legal system and taxation system is so cumbersome
that our creativity and talent is wasted / unnecessarily diverted in
these sectors. I wish that these are simplified so that an ordinary
entrepreneur can understand these without help from any expert. I
wish that more people should become entrepreneurs, rather than
becoming an expert in avoiding taxation. Let us wish that some
likeminded person is able to reach policy making level and is able to
change these. I have tried to simplify Indian partnership act for
Indian entrepreneurs – but it is so complicated that even if you
simplify it, it will remain complicated. An ordinary Indian
entrepreneur wishes to remain an honest entrepreneur and contribute
to the development of nation, but our systems and processes force
him to adopt unfair means ...
What is the true test of partnership
?
Mutual agency
Is agreement necessary for
partnership ?
Yes
there must be an agreement between
the partners of a partnership firm.
Is registration necessary for
partnership ?
No
but registered firms enjoy better legal
position in comparison to unregistered
firm
Can minor become partner
without the concent of all the
partners ?
No
A minor may be admitted to the benefits of
a partnership only with the consent of all
other partners.
Agreement requires consideration.
Can partnership agreement be
made without consideration ?
Yes
As relations of partners inter se are that of
agency, no consideration is required to
create the partnership.
What are the contents of a
partnership deed ?
(i) The firm name and business to be carried on under that

name. (ii) Names and addresses of partners. (ii) Nature and
scope of business and address(s) of business place(s). (iv)
Commencement and duration of partnership. (v) The capital
and the contribution made by each partner. (vi) Provision for
further capital and loans by partners to the firm. (vii) Partner’s
drawings. Etc
read sec 11 (1) for details
What is 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 called
Partnership at Will (sec. 7)
When will the constitution of a
partnership firm necessarily
change ?
a new partner is introduced as a partner in a
firm; (Section 31)
a partner retires from a firm; (Section 32),
a partner is expelled from a firm; (Section 33),
a partner is adjudicated as an insolvent;
(Section 34) and
a partner dies. (Section 35)
Can a minor become a partner ?
A minor cannot be a partner, although he

may be admitted to the benefits of
partnership.
Can a co-parcener demand
accounts ?
A partner can demand the accounts of

the firm, but a co-parcener cannot ask for
accounts
Is co-parcener liable for the
liability of the HUF firm ?
No
Every partner is personally liable for the
debts of the firm; in a joint family
business only the Karta is personally
liable
Is the share of a co-parcener fixed
like the share of a partner ?
No
a partner has a definite share in the
business and this can be changed only
by agreement, but the share of a co-
parcener is not fixed; it may be enlarged
by death or reduced by a birth in the
family
Wil a firm dissolve on death of a
co-parcener – like in the case of
death of a partner ?
No
The death of a partner dissolves the
partnership, but the death of a co-
parcener does not dissolve the family firm
Can any co-parcener borrow
money for firm and bind the firm
by his decisions ?
No
Only Karta or manager (who is the head
of the family) has implied authority to
borrow and bind other members; but in a
partnership each partner is entitled to do
so
Can a creditor ask for payment from a
member of a company like from a member of
a partnership firm?
No
The creditors of the partnership can call
upon individual partners to pay the firm’s
debt, but the members of a company are
not personally liable for the company’s
debts
Can a partner retire without giving
public notice ?
Only a sleeping partner can retire from the

firm without giving any public notice to this
effect.
What is difference between
nominal partners and sleeping
partners ?
Nominal partners (who give their name

only) are liable to third parties for all the
acts of the firm. Unlike a sleeping partner,
they are known to the outsiders as
partners in the firm, whereas actually they
are not.
What are the rights of a sub-
partner ?
A sub partner has no rights or duties

towards the firm and does not carry any
liability for the debts of the firm. He
cannot bind the firm or other partners by
his acts.
What is partnership by estoppel?
if a person who is declared to be a

partner (when actually he is not) does not
deny the fact that he is a partner, he
being held out as a partner is responsible
for all liability of the business.(read sec
28 of partnership act and 115 of Indian
evidence act)
Can we have a partnership firm of
all minors ?
No
A partnership firm cannot be formed with
only minors as partners. There must be
atleast two major partners before a minor
is admitted into the benefits of partnership.
Can a minor partner see the
accounts of a firm and sue his
firm ?
Yes
He is entitled to his agreed share and can
inspect books of account of the firm
[Section 30(2)]. He can bring a suit for
account and his share when he intends to
sever his connections with the firm, but not
otherwise. [Section 30(4)]
Can a sleeping partner see the
accounts of the firm ?
Yes
Every partner whether active or dormant,
has a right of free access to all records,
books and accounts of the business and
also to examine and copy them. [Section
12(d)]
How should partners share profit
in the absence of agreement ?
Every partner is entitled to share in the

profits equally, unless different
proportions are stipulated. [Section 13(b)]
Can a partner demand interest on
his capital over and above the
prescribed share ?
Yes
A partner who has contributed more than
the share of the capital for the purpose of
the business is entitled to an interest at a
rate agreed upon, and where no rate is
stipulated for, at six per cent per annum.
But a partner cannot claim interest on
capital, unless there is an agreement to
pay it. [Section 13(d)]
Can a partner stop entry of a new
partner ?
Yes
Every partner is entitled to prevent the
introduction of a new partner into the firm
without his consent. (Section 31)
If a partner spends some money
for the firm, can he force the firm
to indemnify him ?
Yes
A partner is entitled to be indemnified by the firm for all
expenses incurred by him in the course of the business, for
all payments made by him in respect of partnership debts or
liabilities and disbursements made in an emergency for
protecting the firm from loss. [Section 13(e)]
Is a partner an agent of his firm ?
Yes
Every partner is an agent of the firm and
of other partners for the purpose of the
business of the firm (Section 18).
Can a partner on his own submit a
dispute relating to the business of the firm
to arbitration
No
not without others permission
Can a partner on his own open a banking
account on behalf of the firm in his own
name
No
Can a partner on his own compromise or
relinquish any claim or portion of a claim
by the firm
No
Can a partner on his own withdraw a suit
or proceeding filed on behalf of the firm
No
Can a partner on his own admit any
liability in a suit or proceedings against
the firm
No
Can a partner on his own acquire
immovable property on behalf of the firm
No
Can a partner on his own transfer
immovable property belonging to the firm
No
Can a partner on his own enter into a
partnership on behalf of the firm
No
What is the difference between
dissolution of partnership and
dissolution of firm ?
A firm may continue on dissolution of

partnership, but on dissolution of firm,
partnership will automatically end
What are rights of partners ?
See the accounts

take ordinary business decisions
participate in regular business
to know about businesss
to stop other partner from making secret
profit / illegal work / doing similar personal
business
What are duties of partners ?
To disclose correct information / profit /

accounts
to not to do any competitive business
to work with trust, honesty, integrity and
collaboration
Is a firm liable or the tort carried
out by a partner ?
Yes
firm is liable where a partner commits a
tort with the authority of his co-partners.
(Section 26)
When will a partnership dissolve
by operation of law ?
If the business of the firm becomes illegal

because of some subsequent events,
such as change of law, it is automatically
or compulsorily dissolved by the
operation of law. [Section 41(b)]
Partners sell the goodwill of the
firm. How should they share the
proceeds ?
Where goodwill is sold, either to a partner

or to an outsider, the value is divisible
among the partners in the same manner
as they share profits and losses, unless
otherwise agreed.
Is an unregistered firm an illegal
association ?
No
An unregistered firm is not an illegal
association.
Can a partner go to court for
specific performance of
partnership agreement ?
No
there can be no specific performance of a
partnership agreement (Scott v. Raymont,
1868, 7 Fq. 112).
Can a partner sue and unregistered
firm for its dissolution ?
Yes
a partner of an unregistered firm cannot
institute a suit to compel the other partner
or partners to join in the registration of
firm.But such a partner can institute a suit
for its dissolution (Keshav Lal v. Chuni Lal,
AIR 1941 Rangoon 196)
What types of suits can a partner
of unregistered firm bring ?
A suit for rendering of accounts of a dissolved firm.
A suit for realisation of the property of a dissolved firm.
A suit or claim of set-off, the value of which does not exceed
one hundred rupees,
A proceeding in execution or other proceeding incidental to or
arising from a suit or claim for not exceeding one hundred
rupees in value.
A suit by a firm which has no place of business in the
territories to which the Indian Partnership Act extends.
A suit for the realisation of the property of an insolvent partner.
What do you understand from
dissolution by contract ?
A partnership may end on any of the following occasions :
1. when partnership is at will - it may come to an end on the
desire of the partners
2 when partnership is for a specific time – it will come to an
end on completion of that time
3. when partnership is for specific purpose – it will come to an
end on completion of purpose
partnership is a contract and all the parties can close this
contract by mutual consent.
THANKS....
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Indian Partnership Act For Entrepreneurs

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INDIAN PARTNERSHIP ACT FOR

(i) The firm name and business to be carried on under that

Where no provision is made by contract

A minor cannot be a partner, although he

A partner can demand the accounts of

Only a sleeping partner can retire from the

Nominal partners (who give their name

A sub partner has no rights or duties

if a person who is declared to be a

Every partner is entitled to share in the

A firm may continue on dissolution of

See the accounts

To disclose correct information / profit /

If the business of the firm becomes illegal

Where goodwill is sold, either to a partner

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