Definition

Section 4 of the Indian Partnership Act, 1932defines Partnership as the relation between persons who have agreed to share the profits of a business carried on by all or anyone of them acting for all.”

The persons who enter into such relationship are called ‘PARTNERS’

Essential Elements of Partnership

• Association of two or more persons

• Max. limit : 10 for banking; 20 for other business

• Result of an agreement

• Partnership relation based on Contract.

• Implied or Express (Oral or Written)

• Must carry on some business

• Trade, Occupation or Profession

• Share profits of the business

• Business is carried on by all or any one of them acting for all (mutual agency)

Mode of Creating Partnership• Based on agreement

• Agreement may be express or implied

• In Writing : helpful in times of adversity

• Written agreement : “Partnership Deed”

• Essence of Partnership : Trust & Confidence

• Drafted with care and signed by all partners• Stamped in accordance with Indian Stamp Act

• Firm should be registered and copy of the Deed to be filed with the Registrar

Partnership Deed

• Prepared for resolving mutual differences

• Usual Contents :

• Date of Agreement• Name and Address of the Firm

• Name and Address of the Partners

Partnership Deed

• Nature of Business

• Duration of Partnership

• Capital invested by each partner

• Ratio to divide profits and loss

• Usual Contents Contd. :

• Appointment of Auditor and remuneration• Drawing by partners and interest

• Interest on Capital and Advances

• Salary and Commission payable to partners

• Duties, Functions and Powers of Partners

• Rules regarding admission, retirement and dea

Partnership Deed

• Dissolution

• Arbitration

• Method of valuation of Goodwill

Firm Name

• Name under which the business is carried on• Any name• Should not be a name already adopted by a

reputed firm, to mislead public• Should not contain words : Crown, Emperor,

King, Queen, Royal, Empire, Imperial or words expressing or implying the sanction, approval or patronage of Government

Property of the Firm

• Joint property of all the partners as opposed to their personal property

• Property includes

• Originally brought into firm by partners

• Acquired by the firm

• Acquired by one or more partners for the purpose of business

• Goodwill of the firm

• To be held and used by all partners for the purpose of business (not for private use)

Positions• Lunatic : cannot become a partner

• Alien Enemy : cannot become a partner

• Alien Friend : can enter into contract

• Woman : Married or Unmarried can be a partner

• Insolvent : Cannot become a partner; ceases to be a partner from date on which order was passed by court

Position of 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.

• A minor can only be admitted to the benefits of an already existing partnership

Position of Minor

• 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 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

• When a Minor elects to become a partner

• Rights

• Share remains the same

• Rights and Liabilities as that of a full fledged partner

• Rights will be the same till the date on which he becomes a partner

• Liabilities

• Liabilities will be the same till the date on which he becomes a partner

• Personally liable to third parties for all acts of the firm from the date of becoming a partner

• When a Minor elects not to become a partner

• Rights

• Rights will be the same till the date of notice

• Entitled to sue for his share of property and profits

• Liabilities

• Liabilities will be the same till the date of notice

• His share of property and profits will not be liable for any acts of the firm after the date of notice

Types of Partnerships

• Partnership at Will

• No provision in contract between the partners for

• Duration of Partnership

• Determination of Partnership

• If any partner gives notice of dissolution in writing, the partnership is dissolved.

• Particular Partnership• A person may become a partner with another person

in particular adventures or undertakings.• On completion of such a venture, the partnership

comes to an end.• Partnership for a Fixed Term• Duration is fixed• Partnership comes to an end when the term expires.• If Partners continue the business after the fixed

period, it becomes partnership at will.

Classes of Partners

• Actual or Active Partner • Engaged in actual conduct of the business• His acts binds the firm and other partners• Notice to be given in case of retirement• Sleeping or Dormant Partner • Does not take part in the conduct of business• Contributes his share of capital and enjoys profits and

losses• Not known to outside world• Not liable to third parties for the acts of the firm.• Not required to give notice in case of retirement

• Nominal Partners• No real interest in business, Does not

contribute any capital, Lends his name only• No share in profits but liable to third parties

for all acts of the firm• Partner in Profits only• Shares the profits but not losses• No interest in the management of the firm• Liability for the acts of the firm is unlimited

• Partner by Estoppels or Holding Out

• Represents himself as a Partner, by words spoken or written or by conduct

• Liable as a partner if credit is given to the firm based on his representation. He cannot deny.

• If a partner does not give public notice and his name is still used in the business, he is also liable to third parties

• Deceased partner is an exception to this rule.

Limited Liability Partnership

• Limited Liability Partnership Act, 2008 came into effect from 31st March 2009.

• LLP: A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.

• LLP has separate Legal Entity• Liability of the partners limited to their agreed

contribution• Not liable for the independent or un-

authorized actions of other partners• Perpetual succession• Indian Partnership Act, 1932 not applicable• No maximum limit of members; one partner

should be Indian• Registrar of Companies - register and control

LLPs

Partnership Vs Company• Regulating act• No of members• Entity• Liability• Authority of members• Management• Transfer of interest• Audit• Registration• Winding up

Partnership Vs Joint Hindu Family• Regulating law• Mode of creation• Admission of new member• The position of females• Number of members• Authority of members• Liability of members• Right of members to share in profits• Effect of death of a member

Test of partnership

• Agreement

• Sharing of profit of a business

• Mutual agency

Effects of non registration

• A partner can not sue for a right arising out of contract against the firm.

• Can not sue against a present or past partner.• As a firm can not sue against a third part in a

court of law.• The firm can not set off claim to enforce a

right arising out of a contract.

Rights of partner• Right to take part in management• Right to be consulted • Right to have access to books• Right to share profits • Interest on capital• Interest on advance• Right to be indemnified• Right to use the partnership property• Powers in an emergency, • No new partner to be introduced • No liability before joining , carry on competing business • Right to retire, not to be expelled,

Duties of partners

• Absolute duties: To carry on business to greatest common advantage

• To be just and fair and faithful inter se• To render true account• To provide full information• To indemnify for loss caused by fraud • To be liable jointly and severally• Duty not to transfer his interest

Duties of partners

• Qualified duties: To perform his duty diligently• To work without remuneration• To contribute to losses• To indemnify for willful neglect• To use firm’s property for exclusively for firm• To account for personal profits derived• Duty not to compete with the business of firm

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