The Indian

Partnership Act

Apartnershipistherelationship
betweenpersonswhohaveagreedto
sharetheprofitsofabusiness
carriedonbyalloranyofthem
actingorall.

ELIGIBILITY
Apartnershipagreementcanbe
enteredintobetweenpersonswhoare
competenttocontract.Everyperson
whoisoftheageofmajorityaccording
tothelawtowhichheissubjectand
whoisofsoundmindandisnot
disqualifiedfromcontractingbyanylaw
towhichheissubjectcanenterintoa
partnership.

Thefollowingcanenterintoa
partnership
INDIVIDUAL
FIRM
HINDU UNDIVIDED FAMILY
COMPANY
TRUSTEES

INDIVIDUAL: Anindividual,whois
competenttocontract,canbecomea
partnerinthepartnershipfirm.If
therearemorethantwopartnersin
afirm,anindividualcanbeapartner
inhisindividualcapacityaswellasin
arepresentativecapacityasKartaof
theHinduundividedfamily.

FIRM:Apartnershipfirmisnota
personandthereforeafirmcannot
enterintopartnershipwithanyfirm
orindividual.Butapartnerofthe
partnershipfirmcanenterinto
partnershipwithotherpersonsand
hecansharetheprofitsofthesaid
firmwithhisotherco-partnersofthe
parentfirm.

HINDU UNDIVIDED FAMILY:A

KartaoftheHinduundividedfamily
canbecomeapartnerina
partnershipinhisindividualcapacity,
providedthememberhas
contributedhisselfacquiredor
personalskillandlabour

COMPANY:Acompanyisajuristic
personandthereforecanbecomea
partnerinapartnershipfirm,ifitis
authorisedtodosobyitsobjects.

TRUSTEES:Trusteesofprivate
religioustrust,familytrustandtrustees
ofHindumuttsorotherreligious
endowmentsarejuristicpersonsand
canthereforeenterintopartnership,
unlesstheirconstitutionorobjects
forbid

NUMBER OF PARTNERS
Thenumberofpartnersinafirm
shallnotexceed20anda
partnershiphavingmorethan20
personsisillegal.
Ifthepartnershipisbetweenthe
kartaormemberofHinduundivided
familythemembersofthejoint
Hindufamilywillnotbetakeninto
account.

ESSENTIALS OF A
PARTNERSHIP

AGREEMENT-Therelationship
betweenpartnersarisesfrom
contractandnotstatus.Ifafterthe
deathofsoleproprietorofafirm,his
heirsinheritfirmtheydonotbecome
partners,asthereisnoagreement
betweenthem

SHARING OF PROFITSThe
partnersmayagreetoshareprofits
outofpartnershipbusiness,butnot
sharethelosses.Sharingoflossesis
notnecessarytoconstitutethe
partnership.Thepartnersmayagree
tosharetheprofitsofthebusinessin
anywaytheylike.

BUSINESSBusinessincludes
everytrade,occupation,or
profession.Theremustbecourseof
dealingseitheractuallycontinuedor
contemplatedtobecontinuedwitha
profitmotiveandnotforsportor
pleasure.

RELATION BETWEEN PARTNERS

Thepartnerwhilecarryingonthe
businessofthepartnershipactsa
principleandanagent.Heisa
principalbecauseheactsforhimself,
andheisanagentashe
simultaneouslyactsfortherestof
thepartners.

GENERAL DUTIES OF A
PARTNER

Subjecttoacontracttothecontrary
betweenthepartnersthefollowingarethe
dutiesofapartner.
Tocarryonthebusinessofthefirmtothe
greatestcommon advantage.Goodfaith
requiresthatapartnershallnotobtaina
privateadvantageattheexpenseofthe
firm.

Whereapartnercarriesonarival
businessincompetitionwiththe
partnership,theotherpartnersare
entitledtorestrainhim.

Tobejust and faithful.Partnership

asaruleispresumedtobebasedon
mutualtrustandconfidenceofeach
partner,notonlyintheskilland
knowledge,butalsointheintegrity,
ofeachotherpartner

Torendertrue accounts and full

informationofallthingsdoneby
themtotheirco-partners.
Toindemnify for loss caused by
fraud.Everypartnershallindemnify
thefirmforlosscausedtoitbyhis
fraudintheconductofthebusiness
ofthefirm.

Not to carry on business

competing with the firm.Ifa
partnercarriesonanybusinessof
thesamenatureasandcompeting
withthatofthefirm,heshall
accountforandpaytothefirmall
profitsmadebyhiminthatbusiness.

Toindemnify the firm for willful

neglectofapartner.Apartnershall
indemnifythefirmforanyloss
causedtoitbyhiswillfulneglectin
theconductofthebusinessofthe
firm.

Tocarry out the dutiescreatedby

thecontract.Thepartnersarebound
toperformallthedutiescreatedby
theagreementbetweenthepartners.

RIGHTS OF THE PARTNERS

Subject to a contract to the

contrary a partner has the following
rights.
Totakepartintheconductand
managementofthebusiness
Toexpressopinioninmattersconnected
withthebusiness.Hehasarighttobe
consultedandheardinallmatters
affectingthebusinessofthefirm

Tohavefreeaccesstoallthe
records,booksofaccountofthefirm
andtakecopyfromthem.
Toshareintheprofitsofthe
business.Everypartnerisentitledto
shareintheprofitsinproportion
agreedtobetweentheparties.

Togetinterestonthepaymentof
advance.Whereapartnermakesforthe
purposeofthebusiness,anypaymentor
advancebeyondtheamountofcapitalhe
hasagreedtosubscribe,heisentitledto
interestthereonattherateof6%per
annum.
Tobeindemnifiedbythefirmagainst
lossesorexpensesincurredbyhimforthe
benefitofthefirm.

RESTRICTIONS ON AUTHORITY OF
A PARTNER -Restrictionsaregoverned
byContractandbythePartnership
Act .
Thepartnersmaybycontractextendor
restricttheimpliedauthorityofany
partner.

UnderthePartnershipActinthe
absenceofanyusageoftradetothe
contrary,theimpliedauthorityofa
partnerdoesnotempowerhimtodo
thefollowingacts:
Submitadisputerelatingtothe
businessofafirmtoarbitration
Openabankaccountinhisownname

Compromiseorrelinquishanyclaim
ofthefirm
Withdrawasuitorproceedingon
behalfofthefirm
Admitanyliabilityinasuitor
proceedingagainstthefirm

Acquireimmovablepropertyon
behalfofthefirm
Transferimmovableproperty
belongingtothefirm,or
Enterintopartnershiponbehalfof
thefirm.

RIGHTS OF A MINOR

Apersonwhoisaminoraccording
tothelawtowhichheissubject
maynotbeapartnerinafirm,but,
withtheconsentofallthepartners
forthetimebeing,hemaybe
admittedtothebenefitsof
partnership.

Suchminorhasarighttosuchshare
ofthepropertyandoftheprofitsof
thefirmasmaybeagreedupon,and
hemayhaveaccesstoandinspect
andoftheaccountsofthefirm

Suchminorsshareisliableforthe
actsofthefirm,buttheminorisnot
personallyliableforanysuchact.
Suchminormaynotsuethepartners
foranaccountorpaymentofhis
shareofthepropertyorprofitsofthe
firm

Atanytimewithinsixmonthsofhis
attainingmajority,orofhisobtaining
knowledgethathehadbeenadmittedto
thebenefitsofpartnership,whicheverdate
islater,suchpersonmaygivepublicnotice
thathehaselectedtobecomeornotto
becomeapartnerinthefirm,andsuch
noticeshalldeterminehispositionas
regardsthefirm,providedthat,ifhefails
togivesuchnotice,heshallbecomea
partnerinthefirmontheexpiryofthe
saidsixmonths.

Whereanypersonhasbeenadmitted
asaminortothebenefitsof
partnershipinafirm,theburdenof
provingthefactthatsuchperson
hadnoknowledgeofsuchadmission
untilaparticulardateafterthe
expiryofsixmonthsofhisattaining
majorityshalllieontheperson
assertingthatfact

Wheresuchpersonbecomesa
partnerhisrightsandliabilitiesasaminor
continueuptothedateonwhichhe
becomesapartner,buthealso
becomespersonallyliabletothird
partiesforallactsofthefirmdone
sincehewasadmittedtothebenefits
ofthepartnership,and

hisshareinthepropertyandprofits
ofthefirmshallbetheshareto
whichhewasentitledasaminor

Wheresuchpersonelectsnotto
becomeapartnerhisrightsandliabilitiesshallcontinue
tobethoseofaminoruptothedate
onwhichhegivespublicnotice,
hisshareshallnotbeliableforany
actsofthefirmdoneafterthedate
ofthenotice,and
heshallbeentitledtosuethe
partnersforhisshareoftheproperty
andprofits.

DISSOLUTION OF A FIRM

Afirmmaybedissolvedinthe
followingmanner
DissolutionbyCourt
Dissolutionbyagreement
Dissolutionbyoperationoflaw
Dissolutiononthehappeningof
certaincontingencies
Dissolutionbynotice

DISSOLUTION BY COURT
Thecourtmaydissolveafirmatthesuit
ofanypartnersonanyofthefollowing
groundsnamely:
INSANITYOFAPARTNER:thatapartner
hasbecomeofunsoundmind.Theinsanity
ofapartnerdoesnotipsofactodissolve
thefirmandthenextfriendorcontinuing
partnershastofilesuitfoedissolution.

PERMANENTINCAPACITYOFAPARTNER:
thatapartnerhasbecomepermanently
incapableofperforminghisdutiesas
partner.
CONDUCTAFFECTINGPREJUDICIALLYTHE
BUSINESS:thatapartnerisguiltyof
conduct,whichislikelytoaffect
prejudiciallythecarryingonthebusiness
ofthefirm.

BREACHOFPARTNERSHIPAGREEMENT
thatapartnerwillfullyorpersistently
commitsbreachofagreementsrelatingto
themanagementoftheaffairsofthefirm
ortheconductofitsbusinessorotherwise
conductshimselfinmattersrelatingtothe
business,thatitisnotreasonablypractical
fortheotherpartnerstocarryonthe
businesswithhim.

TRANSFEROFINTERESTOFAPARTNER:
thatapartnerhasinanywaytransferred
thewholeofhisinterestinthefirmtoa
thirdparty.
LOSS:thatthebusinessofthefirmcannot
becarriedonsaveataloss
JUSTANDEQUITABLE:onanyother
groundthatrendersitjustanequitable
thatthefirmshouldbedissolved

DISSOLUTION BY AGREEMENT
Afirmmaybedissolvedwiththe
consentofallthepartnersorin
accordancewiththecontractbetween
thepartners.Thepartnership
agreementmaycontainaproviso
thatthefirmwillbedissolvedonthe
happeningofcertaincontingency

DISSOLUTION BY OPERATION OF
LAW
Afirmiscompulsorilydissolvedon
thefollowinggrounds
Insolvencyofpartners
Bythehappeningofanyeventwhich
makesitunlawfulforthebusinessof
thefirmtoecarriedon.

DISSOLUTION ON THE
HAPPENING OF CERTAIN
CONTINGENCIES
Subjecttocontractbetweenthe
partnersafirmisdissolvedonthe
happeningofthefollowing
contingencies.
Ifconstitutedforafixedterm,bythe
expiryofthatterm

Ifconstitutedtocarryoutoneor
moreadventuresorundertakings,by
itscompletion.
Bythedeathofapartner
Oninsolvencyofapartner

DISSOLUTION BY NOTICE
Ifthepartnershipisatwill,thesame
maybedissolvedbyserviceofa
noticebyonepartnertodissolvethe
firm.

REGISTRATION

Itisnotcompulsorytoregisterthe
firm.Howeverthereareserious
effectsofnon-registration.

Nosuittoenforcearightarising
fromacontractorconferredbythe
IndianPartnershipActshallbe
institutedinanycourtbyoron
behalfofanypersonsuingaspartner
inafirmagainstthefirmorany
personallegedtobeortohavebeen
apartnerinthefirm,unlessthefirm
isregisteredandthepersonsuingis
orhasbeenshownontheRegisterof
firmsasapartnerinthefirm

Similarly,nosuittoenforcearight
risingfromacontractshallbe
institutedinanycourtbyoron
behalfofafirmagainstanythird
partyunlessthefirmisregistered.

PROCEDURE FOR REGISTRATIONThe

registrationofafirmmaybeeffectedat
anytimebysendingbypostordelivering
totheRegistrarofFirmsoftheareain
whichanyplaceofbusinessofthefirmis
situatedorproposedtobesituated,a
statementintheprescribedformand
accompaniedbytheprescribedfee,
stating:
thefirmname

theplaceorprincipalplaceof
businessofthefirm;
thenamesofanyotherplaceswhere
thefirmcarriesonbusiness;
thedatewheneachpartnerjoined
thefirm;

thenamesinfullandpermanent
addressesofthepartners;and
thedurationofthefirm.

Thestatementshallbesignedbyall
thepartnersorbytheiragents
speciallyauthorisedinthisbehalf.
Eachpersonsigningthestatement
shallalsoverifyinthemanner
prescribed.

Afirmnameshallnotcontainanyofthe
followingwordsviz."Crown",Emperor",
"Empress","Empire","Imperial","King",
"Queen","Royal",orwordsexpressing
orimplyingthesanction,approvalor
patronageofGovernment,exceptwhen
theStateGovernmentsignifiesits
consenttotheuseofsuchwordsaspart
ofthefirmnamebyorderinwriting.

AlltheStateshaveframedrules
prescribingtheforms,feefor
registrationandverificationofthe
statement.Theapplicationfor
registrationhastobemadetothe
RegistrarofFirmsintheprescribed
form

WhentheRegistrarissatisfiedthat
theprovisionshavebeencomplied
with,heshallrecordandentryofthe
statementinaregistercalledthe
RegisterofFirmsandshallfilethe
statement.TheRegistraristhe
competentauthorityandifheacts
bonafideandfollowstheprocedure,
hissatisfactioncannotbechallenged.

CHECKLIST FOR DRAFTING A

PARTNERSHIP DEED
Apartnershipdeedshouldcontain
thefollowingclauses
Nameoftheparties
Natureofbusiness

Durationofpartnership
Nameofthefirm
Capital
Shareofpartnersinprofitsand
losses
Banking,Accountfirm
Booksofaccount

Powersofpartners
Retirementandexpulsionofpartners
Deathofpartner
Dissolutionoffirm
Settlementofdisputes