Partnership Firm Akhilesh Prakriti

PARTNERSHIP FIRM
Akhilesh datta - 15001515001

Prakriti sharma-15001515009
M.Tech 4th Sem
CONTENTS
What is partnership firm?
Definitions
Indian Partnership Act, 1932
Essentials of Partnership
Elements of Partnership
Types of Partnership Firm
Types of Partner
What is Partnership Deed?
Rights & Duties of Partners
Dissolution of the Firm
Advantages & Disadvantages
Examples
WHAT IS A PARTNERSHIP?
A partnership is commonly formed where two or more people wish to come to together to form a
business.
They have a common business idea that they wish to put to the test or have realised that their skills
and talents compliment each others in such a way that they might make a good business team.
It is the most appealing form of business.
The profits and losses are shared by the partners as per agreement.
The liabilities of partners is unlimited, joint and several.
DEFINITIONS:
Partnership Firm: The organization which is owned, managed, supervised and controlled by two or
more persons.
Firm: Each owner individually is known as partners and all the partners jointly are known as Firm.
Firm name: By which a Partnership is generally identified.
INDIAN PARTNERSHIP ACT, 1932
The Indian Partnership Act was enacted in 1932 and it came into force on 1st day of October, 1932.
The present Act superseded the earlier law relating to Partnership, which was contained in Chapter
XI of the Indian Contract Act, 1872.
Definition Of Partnership:
Section 4 of the act define partnership as a relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all.
Criteria Of Partnership: Max. limit of persons in a
partnership
Any two or more than two persons can join together
(sec 11 ,Indian contract act)
for creating Partnership.
(If the number of members exceeds the above stated limit ,

that must be registered as a company under Companies Banking Business Other purpose
(maximum of 10 (maximum of 20
Act ,1956 otherwise that will be considered to be an illegal persons) persons)
association.)
Essentials Of Partnership :
According to Section 4 of Indian partnership act 1932, the following essentials are necessary to
constitute a Partnership.
There should be an agreement between the persons who wants to be partners.
The purpose of creating partnership should be carrying on of business
The motive for the creation partnership should be earning and sharing profits.
The business of the firm should be carried on by all of them or any of them acting for all, i.e., in
mutual agency
Elements Of Partnership:
The definition of partnership contains three elements :
There must be an agreement entered into by all the persons concerned.
The agreement must be to share the profits of business ; and
The business must be carried on by all or any of the persons concerned , acting for all.
TYPES OF PARTNERSHIP:
1. General Partnership:
In this case, the liability of all the partners is Types of
partnership
unlimited.
Each individual partner has the right to take part in General Limited
the management of the business of the firm. Partnership partnership
Each individual partner assumes full responsibility for

Partnership at Particular
all of the business's debts and obligations.
Will partnership
2. Limited Partnership:
Under this type of partnership, some of the partners have unlimited liability while others have limited
liability(which is up to their individual share in the capital of the firm).
The partners having limited liability in the firm is known as limited partner and others having unlimited
liability is called general partner.
The general partner retains the right to control the business, while the limited partner do not participate
in management decisions. (Both benefit from business profits.)
TYPES OF PARTNERSHIP:
3. Partnership at Will:
When a partnership firm is constituted for unspecified Types of
partnership
period, it is known as Partnership at will.
The business of such a firm is transacted for any
General Limited
length of time depending upon the will of the partners. Partnership partnership
It can be dissolved by any partner by giving a notice

indicating that he wants to withdraw his interest from Partnership at Particular
Will partnership
the firm.
4. Particular Partnership:
This type of partnership is formed for conducting business of specific or temporary nature.
The partnership comes to an end either on the accomplishment of the task for which the partnership
was undertaken or on the expiry of the time period for which the firm was constituted.
TYPES OF PARTNERS
Types of
partners
Active or Sleeping or Nominal or Partner by

Partner in Minor as a
managing dormant ostensible estoppel or
profits only: partner:
partner: partner: partner: holding out:
Active or managing partner:

A person who takes active interest in the conduct and management of the business of the firm
is known as active or managing partner.
He carries on business on behalf of the other partners.
If he wants to retire, he has to give a public notice of his retirement; otherwise he will continue
to be liable for the acts of the firm.
TYPES OF PARTNERS
Types of
partners

Sleeping or dormant partner:

A sleeping partner is a partner who sleeps, that is, he does not take active part in the
management of the business.
Such a partner only contributes to the share capital of the firm; is bound by the activities of
other partners, and shares the profits and losses of the business.
A sleeping partner is not required to give a public notice of his retirement.
As such, he will not be liable to third parties for the acts done after his retirement.
TYPES OF PARTNERS
Types of
partners

Nominal or ostensible partner:

A nominal partner is one who does not have any real interest in the business but lends his
name to the firm, without any capital contributions.
He doesnt share the profits of the business.
He also does not usually have a voice in the management of the business of the firm.
He is liable to outsiders as an actual partner.
TYPES OF PARTNERS
Types of
partners

Partner by estoppel or holding out:

If a person, by his words or conduct, holds out to another that he is a partner, he will be not be
able to deny it later, and is known as a holding out partner.
There are two essential conditions for the principle of holding out :
the person to be held out must have made the representation, by words written or spoken or
by conduct, that he was a partner,
the other party must prove that he had knowledge of the representation and acted on it.
TYPES OF PARTNERS
Types of
partners

Partner in profits only:

When a partner agrees with the others that he would only share the profits of the firm and
would not be liable for its losses, he is in own as partner in profits only.
TYPES OF PARTNERS
Types of
partners

Minor as a partner:
Under section 30 of the Indian Partnership Act, 1932, a minor can be admitted to the benefits
of partnership, with the consent of all partners.
A minor partner is entitled to his share of profits and to have access to the accounts of the firm
for purposes of inspection and copy.
He, however, cannot file a suit against the partners of the firm for his share of profit and
property as long as he remains with the firm.
WHAT IS A PARTNERSHIP DEED?
A partnership deed, also known as a partnership agreement, is a document that outlines in detail the
rights and responsibilities of all parties to a business operation. It has the force of law and is designed
to guide the partners in the conduct of the business. It is helpful in preventing disputes and
disagreements over the role of each partner in the business and the benefits which are due to them.
Components of a partnership deed are:
Name of the firm
Names and addresses of partners
Nature and place of business
Commencement and duration of partnership.
Capital contribution of each partner.
Profit sharing ratio.
Interest on capital and drawings.
Rights, powers and duties of partners.
Method of valuation of goodwill and of assets on retirement or death of a partner.
RIGHTS & DUTIES OF PARTNERS
RIGHTS DUTIES
Right to take part in the conduct of the To carry on business to the greater advantage
business.
Right to be consulted. To be faithful
Right to access the books. To render true accounts
Right to share the profits. To give full information
Right to interest on capital Duty to share losses
Right to interest on advances To indemnify for fraud
Right to indemnity. To act within authority
To be liable for the act of the firm

DISSOLUTION OF THE FIRM
The dissolution of partnership among all the partners of a firm is called the Dissolution of the Firm (Sec. 39 of
the Partnership Act, 1932).
Dissolution of Partnership involves a change in the relation of partnership business, if the remaining partners
resolve to continue the concern.
In such cases there will be a new partnership but the firm will continue in a reconstituted form.
Modes of dissolution
A firm may be dissolved in any one of the following ways:
Dissolution on Dissolution by
Dissolution by Compulsory the Happening of Notice of Dissolution by the
Agreement Dissolution Certain Partnership at Court
(Sec. 40) (Sec. 41) Contingencies Will (Sec. 44)
(Sec. 42) (Sec. 43)
(Sec. 42) (Sec. 43)
1. Dissolution by Agreement (Sec. 40)

A firm may be dissolved with the consent of all the partners or in accordance with a contract between
the partners. Partnership is created by a contract, it can also be terminated by a contract.
For instance, when a firm does not expect good prospects in the future, a firm can be dissolved by
mutual consent of all partners.
(Sec. 42) (Sec. 43)
2. Compulsory Dissolution (Sec. 41)

A firm is compulsorily dissolved by operation of law
when all the partners except one become insolvent when all the partners become insolvent or
when business becomes illegal or
when the number of partners exceeds Maximum limit permitted
(Sec. 42) (Sec. 43)
3. Dissolution on the Happening of Certain Contingencies (Sec. 42)

A firm is dissolved in the event of any of the following circumstances:
The expiry of the term for which it was formed.
The completion of the venture for which the partnership was constituted.
The death of a partner.
(Sec. 42) (Sec. 43)
4. Dissolution by Notice of Partnership at Will (Sec. 43)

Where a partnership is at will, the firm may be dissolved by any partner giving notice in writing to all
the other partners of his intention to dissolve the firm.
A notice of dissolution once given cannot be withdrawn without the consent of all the other partners.
(Sec. 42) (Sec. 43)
5. Dissolution by the Court (Sec. 44)

The court is empowered to order the dissolution of a firm in the following cases:
When a partner becomes permanently incapable of performing his duties, be it mental or physical.
When a partner is proved guilty of misconduct which will affect adversely the business of the firm.
When a partner conduct himself in such a way that it is not possible for the other partners to carry on
partnership with him.
When a partner transfers his interest or share to third party.
When the business cannot be carried out except at a loss.
ADVANTAGES OF PARTNERSHIP FIRM
Easy to Establish: It can be established under the agreement between the partners and register in the
concern department of Government paying nominal amount.
Sufficient Resources: While starting the business all partners contribute the capital in the firm.
Combined abilities and skills: Partnership firms is the combination of abilities, skills, experiences and
judgement of different persons.
Prompt and balanced decisions: There is regular meetings and continuous consultation among the
partners.
Direct motivation: In partnership firm, all amount of profit is contributed among the partners.
Secrecy: Partnership firm does not have any right to publish any financial documents
Reduced Risk: The losses incurred by the firm will be shared by all partners in orders to their investing
ratios.
Flexibility: As a partnership is free from legal formalities and restrictions, partners can change capital,
profit sharing ratio, pricing policy, managerial duties and lines of business.
Easy to dissolve: The partners can dissolve the partnership firm on the basis of their mutual
understanding and agreement.
DISADVANTAGES OF PARTNERSHIP FIRM
Unlimited Liability: They are not only liable for their business investment but also they have to pay
the liabilities of the business by private properties too.
Uncertain existence: Partnership can be dissolved at the time of death or insolvency of a partner.
Danger of Disputes: The reason of disputes may be utilization of fund, major decisions of firm,
regular business dealing, profit sharing, delegation of authority and responsibility.
Difficulty on transfer of share: Any partners cannot transfer his share without consent of all other
partners. Consent of all partners is compulsory.
Lack of Public Faith: Partnership firm does not have to publish its profit and loss account and
balance sheet. So, public remains unknown regarding the position of business.
Leakage of Secrecy: there is most probability of leakage of secrecy in partnership firm, as all
partners may not have ability to keep their decision in secret.
Limited Capital: In partnership firm the resources or capitals are limited to the personal fund of the
partners as compared with public ltd. Company.
Delay Decision: decision making process may become time consuming for gathering the partners.
EXAMPLES
Following are the famous business partnerships that illustrate, making the decision to follow a big idea
really can be worthwhile.

Partnership Firm Akhilesh Prakriti

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PARTNERSHIP FIRM

Akhilesh datta - 15001515001

(If the number of members exceeds the above stated limit ,

Each individual partner assumes full responsibility for

It can be dissolved by any partner by giving a notice

Active or Sleeping or Nominal or Partner by

Active or managing partner:

Active or Sleeping or Nominal or Partner by

Sleeping or dormant partner:

Active or Sleeping or Nominal or Partner by

Nominal or ostensible partner:

Active or Sleeping or Nominal or Partner by

Partner by estoppel or holding out:

Active or Sleeping or Nominal or Partner by

Partner in profits only:

Active or Sleeping or Nominal or Partner by

Right to be consulted. To be faithful

Right to access the books. To render true accounts

Right to share the profits. To give full information

Right to interest on capital Duty to share losses

Right to interest on advances To indemnify for fraud

Right to indemnity. To act within authority

To be liable for the act of the firm

1. Dissolution by Agreement (Sec. 40)

2. Compulsory Dissolution (Sec. 41)

3. Dissolution on the Happening of Certain Contingencies (Sec. 42)

4. Dissolution by Notice of Partnership at Will (Sec. 43)

5. Dissolution by the Court (Sec. 44)

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