Module 5

Indian Partnership Act , 1932

 Definition of partnership:

Section 4 of Indian partnership act defines

partnership as, “The relation between the
persons who have agreed to share the profits
of business carried on by all or any of them
acting for all” .
 Essential elements of partnership:
• Partnership is an association of two or more persons.

• Partnership is the result of an agreement entered into by all the

persons concerned.

• Partnership is organized to carry on some business.

• The agreement must be to share the profit of the business.

• Such business must be carried on by all or any of the acting for

all.
 Formation of a Partnership
• Based on agreement

• Agreement may be express or

implied

 In Writing : helpful in times of adversity

 Written agreement : “Partnership Deed”

 Contd…
• Essence of Partnership : Trust &
Confidence

• Drafted with care and signed by all

partners

• Firm should be registered and copy

of the Deed to be filed with the
Partners, Firms and Firms Name

Persons who have entered into partnership

with one another are called individually
“Partners "and collectively “a firm”, and the
name under which their business carried on is
called the “firm-name”.
 Test of partnership
For determining the existence of partnership
this should be proved:
• There was an agreement between persons.
• Agreement was to share the profits.
• Business must be carried by all or any one
acting for all.
 Distinction between partnership and Hindu
undivided family
• Mode of creation: partnership is the result of an
agreement between the members constituting
the firm. No such agreement is necessary to
constitute a joint family firm.
• Acquisition of interest by male issue:
in partnership the male issue of a partner does
no acquire any interest in the partnership
property. While in case of joint Hindu family the
male issue acquires an interest there in by birth.
 Contd…
• Dissolution by death:
A partnership is in the absence of a contract to
the contrary , dissolved by the death of the
partner while a joint Hindu family is not
dissolved on the death of any member there of.
• Admission of new member: a new partner can
be admitted in the firm only with the consent of
other members in a joint family business a male
child becomes a member just by birth.
 Right to take part in management:
• Right to take part in management: Every partner can take
part in management of the partnership business but in case
of a joint family firm it is the manager alone who takes part.

• Implied authority: in the case of an ordinary partnership,

each partner is the agent of the firm for the purposes of the
business of the firm.
In joint family firm the manager and no other co-partner
has an implied authority to contract debts and pledge the
property.
 Contd….
• Minor members: a minor cannot become a
member in the partnership. In a joint family
minor male becomes its member merely by
birth.
• Number of members:
in the case of partnership the number of
partners should not exceed 10 while in hindu
joint family who carry on business the number
is unlimited.
 Contd..
• Effect of insolvency: on insolvency a partner
ceases to be a member of firm, but insolvency
of a member does not prevent him from
continuing to be a member of Hindu joint
family .
 Partnership and co-ownership
• The co-ownership or joint ownership is the
relation which exists between persons who own
a property jointly. It is not necessary an outcome
of an agreement.
• Partnership is an agreement between two or
more person to share profits of a business
carried on by all or one representing all.
 Cont…
• Partnership involves community of profit and
loss but co-ownership does not.
• In partnership each member acts as an agent
for the other while in co-ownership the co-
owners does not act as agents for each other.
• Every partner is liable to render true accounts
of the business to other partner while as the
obligation of the co-owner does not arise so
strictly.
 Partnership and company:

Applicable Law Partnership Act, 1932 Companies Act, 1956

Entity Not a separate legal Separate legal entity
entity
No .of Members Minimum – 2 & Public: Min–7 Max–No
Maximum -20, Bank - Limit
10 Private: Min-2 Max-50
Capital No Restrictions Cannot have more
than its authorized
capital
Liability Unlimited Limited to the amount
due on the shares held
by members
 Contd..

Remuneration No restrictions Restricted by

Companies Act
Management Vested with the Vested with the Board
partners of Directors
Property Joint estate of all the It is separate from its
partners members
 Kinds of partnership
• With regard to duration:
1. Partnership at will.
2. Partnership for a fixed period.

• With regard to the extend of the business:

1. Particular partnership
2. General partnership.
 Explanation:
• Partnership at will:
According to section 7 of the partnership act,
partnership at will is a partnership when:
1. When fixed period has been agreed upon for
the duration of partnership.
2. There is no provision made as to the
determination of partnership.
 Partnership for a fixed period:
• Where a provision is made by a contract for
the duration of the partnership, the
partnership is called partnership for a fixed
period.
 Contd…
• Particular partnership:
A partnership may be organized for the
prosecution of a single adventure as well as for
the conduct of a continuous business.
• General partnership:
Where the partnership is constituted with respect
to the business in general is called general
partnership. A general partnership is different
from particular partnership.
 Kinds of partners:
• Active partner – Actively participates in the conduct of the
business

• Sleeping Partner – Doesn’t take active part

• Nominal Partner – A partner who lends his name to the firm

without having any real interest in it.

• Sub – Partner – When a partner agrees to share his profits

derived from the firm with a third person, a sub – partnership may
arise. The third person is called as sub partner.
 Contd…
• Partner in profit only: the partner sharing
profit of the business without making himself
responsible for loses of the business.
• Incoming partner: a person who is admitted
as a partner in an existing firm is called
incoming partner.
• Out coming partner: the partner leaving the
existing firm due to retirement etc is called
out going partner.
 Rights of the partner:
• Right to take part in the conduct of the
business.

• Right to express his opinion

• Right to have access to and to inspect and

have copy of any of the books of the firm
 Contd..
• Right to share equally in the profits earned, and shall
contribute equally to the losses sustained by the firm

• Entitled to interest on the capital subscribed

• Right to be indemnified

• No partner is entitled to receive any remuneration in

addition to his share of profits of the firm for taking
part in the business of the firm unless otherwise an
express agreement is there.
 Duties of a partner:
 To carry on the business of the firm to the greatest
common benefit

 To be just and faithful to each other in their

mutual dealings

 To render true accounts and full information of all

things, affecting the firm, to any partner or to his
legal representative
 Contd…
• A Duty to indemnify the Firm for Any Loss, Caused by Fraud.

• A Duty of a Partner to attend Diligently to His Duties.

• A Duty of a Partner to indemnify the Firm for Any Loss, Caused by His
Willful Neglect.

• A Duty of a Partner to account for Private Profits

• A Duty of a Partner to account for Profit in Competing Business

• No Remuneration to Partners
 Contd..
• A Duty of a Partner to account for Private
Profits

• A Duty of a Partner to account for Profit in

Competing Business

• No Remuneration to Partners
 Authority of a partner:
• Express authority of a partner: when the partner is
expressly authorized by an agreement of all the partners to
do certain act on behalf of the firm, it is called authority of
a partner.

• Implied authority of a partner: a partnership firm is also

liable for the acts done by the partner within the scope of
his implied authority. Ordinarily the acts done by the
partner which are incidental to or usually done in the
course of the proper conduct of the business come within
the scope of his implied authority.
 A minor:
• Sec 30(1), A person who is a minor according
to law to which he is subject may not be a
partner in a firm, but with the consent of all
the partners for the time being, he may be
admitted to the benefits of partnership.
 Position of the minor:
• A minor can only be admitted to the benefits of an already existing
partnership

• During his Minority

• Rights
 Right to receive agreed share of profits and property
 Have access to and inspect and copy the accounts of the firm
 If share in profits is not given, can sue (can do if he wants to sever his
connection)

• Liabilities
 Only to the extent of share in profits and properties (not personally liable)
 Position of the minor:
• On Attaining Majority
Within six months should give notice whether he
is joining the partnership or not.

If notice not given he shall become a partner

 DISSOLUTION OF A FIRM

• Dissolution of a firm: The dissolution of

partnership between all the partners of a firm
is called the ‘dissolution of the firm’.
 Kinds of dissolution
• Dissolution by agreement:- A firm may be dissolved with the
consent of all the partners or in accordance with a contract
between the partners

• Dissolution on the happening of certain contingencies:-

Subject to contract between the partners a firm is dissolved –
a) if constituted for a fixed term, by the expiry of that term;
b) if constituted to carry out one or more adventures or
undertakings, by the completion thereof;
c) by the death of a partner; and
d) by the adjudication of a partner as an insolvent.
 Dissolution by operation of law:
• When all or all partners but one are adjudged
insolvent
• When the business of the firm becomes
unlawful.
 Dissolution by notice:
• Partnership at will may be dissolved by any
partner giving notice in writing to all other
partners of his intention to dissolve the firm.
 Dissolution by court:
• A partner becoming unsound mind.
• Permanent incapacity of the partner.
• Misconduct of the partner affecting business.
• A partner selling or transferring his interest.
• When a business cannot be carried on save at
a loss.
 Registration
• Section 58 lays down that the registration of a
firm may be effected at any time by sending
by post or delivering to the Registrar, a
statement in the prescribed form and
accompanied by the prescribed fee
Stating the following particulars:

 The name of the firm

 The place or principal place of business of the firm

 The name of any other places, where the firm carries on

business
 Contd..

 The date when each partner joined the firm

 The names in full and permanent addresses of the

partners

 The duration of the firm