'"Partnership" is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

Persons who have entered into partnership with one another are called individually "partners" and collectively "a firm", and the name under which their business is carried on is called the "firm name". (S.4 of the Act)

A voluntary contract between two or more competent person to place their money, effects, labour and skill, or some or all of them, in lawful commerce or business, with the understanding that there shall be a communion of the profits thereof between them. (story on Partnership)

Partnership is "the relation which subsists between persons carrying on a business in common with a view of profit". (Halsbury)

Partnership is a relation between individuals who have entered into agreement for the purpose of sharing profits of a business. (PLD-1985 Karachi-85 (90)).

Where appellant claimed to be a partner of a partnership firm and one of the alleged partners denied any such partnership, it was incumbent upon the appellant to have proved on record that there was an agreement between the alleged partners for carrying on business in partnership. Registration of firm disclosing that certain persons were its partners was not by itself the proof of execution of any such agreement between the said alleged partners to do business in partnership.

(Muhammad Sharif Uppal V Akbar Hussain-PLD 1990 Lah 229).

There are four important elements necessary to constitute partnership:

(i) There must be an association of two or more persons to carry on a business.(ii) There must be an agreement entered into by all the persons concerned.(iii) The agreement must be to share the profits

of a business.(iv) The business must be carried on by all or any

of the persons concerned acting for all.

(1) A and B buy 100 bales of cotton, which they agree to sell on their joint account. A and B are partners in respect of such cotton.

(2) A and B buy 100 bales of cotton, agreeing to share the cotton between them. A and B are not partners.

(3) A and B agree to work together as carpenters. A is to receive all the profits and pay a salary to B,-A & B are not partners.

(4) A and B enter into a "partnership agreement whereby A is to have no share in either the profits or the loss of the business - A and B are not partners.(5) A and B are joint owners of a ship. This, by itself does not make them partners.

Working Partner.- A ‘working partner’ is not necessarily a partner in the business. He may be merely an employee under the capitalist partner although working partner gets a share in the net profits as remuneration for the service rendered by him.

Minor partner.- A person having capacity to contract can be a partner. Therefore, minor can not be full fledged partner in a partnership, though the may be admitted to the benefits of partnership.

General Partner: Partner who ordinarily take parts in daily operation of the business, shares in profit and loss of the business and is personally responsible for the partnership’s debts and liabilities. Its also called Full Partner.

Liquidating Partner: Partner appointed to settle the accounts, collect the assets, adjust the claims and pay the debts of the dissolving or insolvent firm.

Name Partner: A partner whose name appears in the name of the partnership e.g. Abdulah & Co.

Junior Partner: A partner whose participation is limited both in respect of profit and management.

Limited Partner: Partner who receives profit of the business but does not take part in the management of the business and is liable to the extent of his original investment. Also called special Partner.

Nominal Partner: A person who is held out as a partner in a firm but who has no actual interest in the firm also called as ostensible partner or partner by estoppel.

Quasi Partner: A person who joins others in an enterprise that appears to be but is a

Secret Partner: A person whose connection with the firm is kept secret from the public. Also called a sleeping partner.

Senior Partner: A high ranking partner e.g. in a law firm

Silent Partner: A Partner who shares in the profits but who has no active voice in the management of the firm and often whose association is not publicly disclosed.

Surviving Partner: A partner who upon dissolution of firm due to death of the other partner serves as a trustee to administer the firms remaining affairs.

Collapsible Partnership: A partnership formed by the partners to dissolve before they realize any profits/income. So gain arising from the sale of inventory or the receivables will be considered as the capital gain but IRS taxes it as ordinary income

(Section 751 of the IRC [IRC 26 USCA]

LLP Limited Liability Partnership: Partnership in which a partner is not liable to the negligent act of the other partner or the employee not under the partner’s supervision. In USA these partnerships are registered and usually law and accounting firms are LLPs.

Limited Partnership: A partnership comprising of one or more such partners who control the business and are personally liable for the debts of the firm and one or more partner who contribute capital and share profits of the business but who can not manage the business and are liable only to the amount of their contribution

Publicly Traded Partnership or Master Limited Partnership: A partnership whose interests are publicly traded. These are treated as Companies for tax purposes in USA.

Umbrella Limited Partnership: A limited Partnership used by a Real Estate Investment Trust(REIT) to acquire investment properties in exchange of shares in the partnership.

Partners enjoy common rights over and interest in, in firm's property; all co-owners of property are, however, not partners, co-ownership, therefore though an incident of partnership must be distinguished from it. Co-ownership of a property does not, in itself, constitute a partnership between the co-owners, whether they share any profits arising from it or not.

A and B are co- owners of a house let to a tenant A and B divide the rents between themselves. B contends that A is his partner. Will he succeed? The answer is no. B will not succeed. A and B are not partners but co-owners. But if A and B use that house as a hotel, they would become partners in the business of hotel - keeping

CO-OWNERSHIPCO-OWNERSHIP PARTNERSHIPPARTNERSHIP

1. Not always a result of 1. Not always a result of agreement.agreement.

1. Always a result of agreement.1. Always a result of agreement.

2. Does not always involve 2. Does not always involve Community of profits or losses.Community of profits or losses.

2. Involves Community of profits 2. Involves Community of profits and losses.and losses.

3. Co--owner can transfer his 3. Co--owner can transfer his interest without consent of other interest without consent of other co-owners.co-owners.

3. A partner can not do so.3. A partner can not do so.

4. Co-owner is not agent of other 4. Co-owner is not agent of other co-owners.co-owners.

4. Partners are agents of one 4. Partners are agents of one another.another.

5. Co-owner has no lien on thing 5. Co-owner has no lien on thing owned by all co-owners.owned by all co-owners.

5. A partner has such lien.5. A partner has such lien.

6. Co-owner is entitled to partition.6. Co-owner is entitled to partition. 6. Partner is entitled to have 6. Partner is entitled to have partnership dissolved and take partnership dissolved and take share of the proceeds.share of the proceeds.

PARTNERSHIPPARTNERSHIP COMPANYCOMPANY

1. A partnership is not a distinct legal 1. A partnership is not a distinct legal person, but is made of the person, but is made of the persons composing it.persons composing it.

1. A company is a distinct legal person.1. A company is a distinct legal person.

2. Creation of Partnership is purely a 2. Creation of Partnership is purely a matter of agreement between the matter of agreement between the parties such an agreement need parties such an agreement need not even be in writing.not even be in writing.

2. Creation of Company involves 2. Creation of Company involves elaborate legal formalities.elaborate legal formalities.

3. In a firm partner can not transfer 3. In a firm partner can not transfer his interest without the consent of his interest without the consent of the other partners.the other partners.

3. Shares in a Company (especially, in 3. Shares in a Company (especially, in a public Company) are generally a public Company) are generally freely transferable.freely transferable.

4. Each partner is prima facie the 4. Each partner is prima facie the agent of others, and can bind agent of others, and can bind them by his contract made in the them by his contract made in the course of business of the course of business of the partnership.partnership.

4. Shareholders in a Company are not 4. Shareholders in a Company are not the agents of one another.the agents of one another.

5. Each partner is liable in full for the 5. Each partner is liable in full for the debts of the firm.debts of the firm.

5. The liability of Company’s 5. The liability of Company’s shareholders is limited by shares or shareholders is limited by shares or by guarantee.by guarantee.

6. A partner can not contract with his 6. A partner can not contract with his firm.firm.

6. A share holder in a company can 6. A share holder in a company can contract with the company.contract with the company.

7. Partners may make any private 7. Partners may make any private arrangements among themselves. arrangements among themselves. For instance a partner may buy For instance a partner may buy his partners share.his partners share.

7. Arrangements in regard to 7. Arrangements in regard to Companies are regulated by law Companies are regulated by law and statute for instance a company and statute for instance a company cannot buy its member's shares, but cannot buy its member's shares, but a partner can.a partner can.

8. The Maximum number of partners 8. The Maximum number of partners can be twenty. But in banking can be twenty. But in banking business it is ten.business it is ten.

8. There is no maximum number of 8. There is no maximum number of share holders laid down by the law share holders laid down by the law in a public company though the in a public company though the minimum is seven. In a private minimum is seven. In a private Company, the minimum is two, and Company, the minimum is two, and the maximum is fifty. Now a single the maximum is fifty. Now a single member company is permissible.member company is permissible.

9. The death or retirement of a 9. The death or retirement of a partner dissolves a firm.partner dissolves a firm.

9. Death or retirement of a share holder 9. Death or retirement of a share holder does not dissolve the company.does not dissolve the company.

10. Property may be the common 10. Property may be the common property of partners.property of partners.

10. Property belongs to the company 10. Property belongs to the company and not to its members.and not to its members.

11. Restrictions contained in a 11. Restrictions contained in a partnership deed will not affect third partnership deed will not affect third parties, who are not aware of such parties, who are not aware of such restrictions.restrictions.

11. On the other hand restrictions in the 11. On the other hand restrictions in the Articles of a Company affect third Articles of a Company affect third parties also.parties also.

12. A firm cannot sue and be sued in 12. A firm cannot sue and be sued in its own name.its own name.

12. A company can sue and be sued in 12. A company can sue and be sued in its own name.its own name.

13. Decree against a firm can be 13. Decree against a firm can be executed against the partners.executed against the partners.

13. A Decree against a company 13. A Decree against a company cannot be executed against its cannot be executed against its shareholders.shareholders.

14. Registration is optional.14. Registration is optional. 14. Registration is compulsory.14. Registration is compulsory.

15. A firm having no separate legal 15. A firm having no separate legal existence, cannot be shareholder of existence, cannot be shareholder of company.company.

15. A company on the other hand can 15. A company on the other hand can be a shareholder of another company.be a shareholder of another company.

Working Partner.- A ‘working partner’ is not necessarily a partner in the business. He may be merely an employee under the capitalist partner although working partner gets a share in the net profits as remuneration for the service rendered by him.

Minor partner.- A person having capacity to contract can be a partner. Therefore, minor can not be full fledged partner in a partnership, though the may be admitted to the benefits of partnership.

Although the right to participate in the profits of a business is a strong test of partnership, yet whether the relationship does or does not exist must depend on the real intention and contract of the parties, the real test as whether such participation in profits constitutes the relationship of principal and agent between the persons taking the profits and those actually carrying on the business.

(AIR 1946 Bom. 174 (DB) + AIR 1957 Mad 8 (DB) + AIR 1956 All. 136).

In determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together.

Explanation 1: The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners.

Explanation 2: The receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of profits or varying with the profits earned by business, does not of itself make him a partner with the persons carrying on the business;

A, B and Co., carried on a business and incurred debts. E, a creditor of A, B and Co., sued A,B, and two other persons C and D as being members of the partnership C contributed labour only and used to receive one-third share in net profits. D. had deposited a certain amount and he also got one-third share in the profits. The remaining one third was taken by both A, and B, Discuss the respective liabilities of C and D to E?

The Answer to above problem is that from the facts given it is obvious that C is a servant and D is lender of money. The receipt by them of a share in the profits does not of itself make either of them a partner in the A, B and Co., Hence, C and D are not liable to E.

It is established law that for entering into a partnership agreement there is no necessity of consideration in cash, or advance of any amount, and that the reciprocal promises of the parties form the consideration for an agreement of partnership Held - Courts below fell in error of law in determining the controversy between the parties on the basis that since no payment has been proved to have been made by the appellants, consequently, the deed of partnership between them was invalid or ineffective (Noor Muhammad V Sabz Ali- PLD 1976 B.J. 22).

Explanation 1&2 to Sec. 6 of the Act lay down that the participation by a person in the profits of a business either by receiving a share therein or a payment dependent upon, or varying with the profits is not enough of itself, to warrant the inference that such a person is a partner with those who are engaged in carrying on the business. The receipt by a person of a share of the profits of a business is a prima facie evidence that he is a partner but this is not a conclusive test. Clauses (a) to (d) of explanation-2 of (seen above) state the particular cases of persons who share in profits of a business without being liable as partners.

General duties of partners:Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representative.

- Sec. 9 imposes the following two paramount duties on a partner:

1. Duty of good faith and common advantage.2. Duty to render true accounts and full information.

(a) to carry on the business of the firm to the greatest common advantage, and

(b) to be just and faithful to each other.

Fiduciary obligation. This duty also introduces the element of a fiduciary obligation on a partner.

- This duty of a partner is based on the principle of Uberriance fidei (utmost good faith), and calls upon partners to make full and frank disclosures of all facts affecting the affairs of the firm.

- Thus, when a partner is in possession of vital information about the affairs or assets of the firm, and concealing such information, if he makes a contract with his Co-partners, the contract can be avoided by the co-partners

10. Duty to indemnify for loss caused by fraud:Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.

(1) Subject to the provisions of this Act, the mutual rights and duties of the partners of a firm may be determined by contract between the partners, and such contract may be express or may be implied by a course of dealing.

Such contract may be varied by consent of all the partners, and such consent may be express or may be implied by a course of dealing.

(2) Agreements in restraint of trade: Notwithstanding anything contained in section 27 of the Contract Act, 1872, IX of 1872 such contracts may provide that a partner shall not carry on any business other than that of the firm while he is a partner.

Under sub-clause (a) of this Section every partner has the right to take part in the conduct of the business of the firm. If, therefore a partner is wrongly prevented from taking part in the firm's business he can obtain an injunction from the Court against the erring partner.

However, it is not un-usual to provide in the partnership deed, for an exclusion of this right as regards some of the partners.

Under sub-clause (d) of the Section every partner has a right to have a access to, and inspect and copy, any of the books of the firm. A partner need not exercise this right personally, but may have the accounts inspected by his agent, as for instance, by his accountant.

Subject to contract between the partners -

(a) a partner is not entitled to receive remuneration for taking part in the conduct of the business;(b) the partners are entitled to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm;(c) where a partner is entitled to interest on the capital subscribed by him such interest shall be payable only out of profits;(d) a partner making, for the purposes of the business, any payment or advance beyond the amount of capital he has agreed to subscribe, is entitled to interest thereon at the rate of six per cent per annum;

(e) the firm shall indemnify a partner in respect of payments made and liabilities incurred by him-

(i) in the ordinary and proper conduct of the business, and(ii) in doing such act, in an emergency, for the purpose of protecting the firm from loss, as would be done by a person of ordinary prudence, in his own case, under similar circumstances; and(f) a partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm.

Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representative ◦ Fiduciary obligation ◦ Duty to indemnify for loss caused by fraud

The Defendant Establishment is a partnership Firm and other Defendants being Partners of that firm were, therefore, jointly and severally liable for the amount claimed in suit - (National Bank of Pakistan V M/s M.M. Agencies and 5 others-1991 CLC 1763)

The registration of a firm may be effected at any time by sending by post or delivering to the Registrar of the area in which any place of business of the firm is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed fee, stating:

(a) the firm name,(b) the place or principal place of business of the firm.(c) the names of any other places where the firm carries on business,(d) the date when each partner joined the firm,(e) the names in full and permanent addresses of the partners, and )(f) the duration of the firm.

The statement shall be signed by all the partners, or by their agents specially authorised in this behalf.

A firm name shall not contain any of the following words, namely:

"Government", "United Nations“ "World Health Organisation" "Jinnah", "Quaid-i-Azam" or words expressing or implying the sanction, approval or patronage

of the Federal Government or any Provincial Government or the Quaid-i-Azam, except when the Provincial Government signifies its consent to these of such words as part of the firm name by order in writing.

A firm name shall not contain any word which may be declared by the Provincial Government, by notification in the official Gazette, to be undesirable.

When the Registrar is satisfied that the aforesaid conditions have been duly complied with, he shall record an entry of the statement in a register called the Register of Firms, and shall file the statement.

(1) When an alteration is made in the firm name or in the location of the principal place of business of a registered firm, a statement may be sent to the Registrar accompanied by the prescribed fee, specifying the alteration, and signed and verified in the manner required under section 58.(2) When the Registrar is satisfied that the provisions of sub-section (1) have been duly complied with, he shall amend the entry relating to the firm in the Register of Firms in accordance with the statement, and shall file it along with the statement relating to the firm filed under section 59.

When a registered firm discontinues business at any place or begins to carry on business at any place, such place not being its principal place of business, any partner or agent of the firm may send intimation thereof to the Registrar, who shall make a note of such intimation in the entry relating to the firm in the Register of Firms, and shall file the intimation along with the statement relating to the firm filed under section 59.

When any partner in a registered firm alters his name or permanent address, an intimation of the alteration may be sent by any partner or agent of the firm to the Registrar, who shall deal with it in the manner provided in section 61.

(1) When a change occurs in the constitution of a registered firm any incoming, continuing or outgoing partner, and when a registered firm is dissolved any person who was a partner immediately before the dissolution, or the agent of any such partner or person specially authorised in this behalf, may give notice to the Registrar of such change or dissolution, specifying the date thereof; and the Registrar shall make a record of the notice in the entry relating to the firm in the Register of Firms, and shall file the notice along with the statement relating to the firm filed under section 59.

When a minor who has been admitted to the benefits of partnership in a firm attains majority and elects to become or not to become a partner, and the firm is then a registered firm, he, or his agent specially authorised in this behalf, may give notice to the Registrar that he has or has not become a partner, and the Registrar shall deal with the notice in the manner provided in sub-section (1).

(1) No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any Court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the Register of Firms as a partner in the firm.

(2) No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the Register of Firms as partners in the firm.

(3) The provisions of sub-sections (1) and (2) shall apply also to a claim of set-off or other proceeding to enforce a right arising from a contract, but shall not affect-

(a) the enforcement of any right to sue for the dissolution of a firm or for accounts of a dissolved firm, or any right or power to release the property of a dissolved firm, or

(b) the powers of an official assignee, receiver or Court under the insolvency    Federal Territory of Karachi Act, 1909], or the Provincial Insolvency Act, 1920, to realise the property of an insolvent partner.

(4) This section shall not apply -(a) to firms or to partners in firms which have no place of business in Pakistan, or whose places of business in Pakistan are situated in areas to which, by notification under section 56, this Chapter does not apply, or

(b) IX of 1887: to any suit or claim of set-off not exceeding one hundred rupees in value which, is not of a kind specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887, or to any proceeding in execution or other proceeding incidental to or arising from any such suit or claim.

The various way of dissolution of FirmThe dissolution of a firm may take place in one of the following five ways.1. As a result of an agreement between all the partners: S.40.

2. Compulsory dissolution, i.e.,(a) By the adjudication of all the partners, or of all the partners but one, as insolvent: S.41 (a). (b) By the business of the firm becoming unlawful: S.41(b).

3. Subject to agreement between the partners, on the happening of certain contingencies, such as:

(i) efflux of time;(ii) completion of the adventure for which it was entered into;(iii) death of a partner; and(iv) insolvency of a partner: S.42.

4. By a partner giving notice of his intention to dissolve the firm, in case of a partnership at will: S.43.

5. By intervention of the Court in case of (i) a partner becoming of unsound mind;(ii) permanent incapacity of a partner;(iii) misconduct of a partner affecting the business of the firm;(iv) willful or persistent breaches of agreement by a partner;

(v) transfer or sale of the whole interest of a partner;(vi) improbability of the business being carded on save at a loss;(vii) the Court being satisfied on any other equitable ground that the firm should be dissolved: S.44.

A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.

A firm may be dissolved.(a) with the consent of all the partners or(b) in accordance with a contract between the parties.

A firm is dissolved -(a) by the adjudication of all the partners or of all the partners but one as insolvent, or(b) by the happening of any event which makes it unlawful for the business of the firm to be carded on or for the partners to carry it on in partnership:Provided that, where more than one separate adventure or undertaking is carried on by the firm, the illegality of one or more shall not of itself cause the dissolution of the firm in respect of its lawful adventures and undertakings.

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.

(1) Where the 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.(2) The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice.

At the suit of a partner, the Court may dissolve afirm on any of the following grounds, namely:(a) that a partner has become of unsound mind,

in which case the suit may be brought as well by the next friend of the partner who has become of unsound mind as by an other partner;

(b) (b) that a partner, other than the partner suing, has become in any way permanently incapable of performing his duties as partner.

(c) that a partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially the carrying on of the business, regard being had to the nature of the business;

(d) that a partner, other than the partner suing, willfully or persistently commits breach of agreements relating to the management of the affairs of the firm or the conduct of its business, or otherwise so conducts himself in matters relating to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him;

(e) that a partner, other than the partner suing, has in any way transferred the whole of his interest in the firm to a third party, or has allowed his share to be charged under the provision of rule 49 of Order XXI of the First Schedule to the Code of Civil Procedure, 1908, V of 1908 or has allowed it to be sold in the recovery of arrears of land-revenue or of any dues recoverable as arrears of land-revenue due by the partner,

(f) that the business of the firm cannot be carried on save at a loss; or

(g) on any other ground which renders it just and equitable that the firm should be dissolved.

A. Without interference of Court. B. By order of Court. (S. 44)

(1) By agreement

(S. 40)

(2) Compulsory dissolution

(S. 41)

(3) On the happening of

certain contingencie

s. (S. 42)

(4) By Notice (S. 43)

(a) By the insolvency all or all but one, partners. (S. 41(a)]

(b) By the business becoming unlawful (S. 41(b)]

(1) Notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of the firm if done before the dissolution, until public notice is given of the dissolution:Provided that the estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who, not having been known to the person dealing with the firm to be a partner, retires from the firm, is not liable under this section for acts done alter the date on which he ceases to be a partner.

(2) Notices under sub-section (1) may be given by any partner.

On the dissolution of a firm every partner or his representative is entitled, as against all the other partners or their representatives, to have the property of the firm applied in payment of the debts and liabilities of the firm, and to have the surplus distributed among the partners or their representatives according to their rights.

After the dissolution of a firm the authority of each partner to bind the firm, and the other mutual rights and obligations of the partners, continue notwithstanding the dissolution, so far as may be necessary to wind up the affairs of the firm and to complete transactions begun but unfinished at the time of the dissolution, but not otherwise:Provided that the firm is in no case bound by the acts of a partner who has been adjudicated insolvent; but this proviso does not affect the liability of any person who has after the adjudication represented himself or knowingly permitted himself to be represented as a partner of the insolvent.