Procedure of Partnership in Pakistan

8/11/2019 Procedure of Partnership in Pakistan

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Law Assignment # 3

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Osama Iftikhar L1F13MBAM21!

"sman Ashraf L1F13MBAM223

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'(hee)*h)am Mhamma$ L1F13MBAM2212

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Intr($,ti(n (f .artnershi+

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. The term is defined as a voluntary contract

between two or more competent person to place their money, effects, labor 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. Halsbury defines a partnership as "the relation

which subsists between persons carrying on a business in common with a view of profit".

Im+(rtant e)ements ne,essar t( ,(nstitte +artnershi+

There are four important elements necessary to constitute partnership.

There must be an association of two or more persons to carry on a business.

There must be an agreement entered into by all the persons concerned.

The agreement must be to share the profits of a business.

The business must be carried on by all or any of the persons concerned acting for all.

T+es (f .artnershi+

Now there are various types of partnerships.

rdinary Partnerships

!imited Partnerships

Partnership atwill

Or$inar .artnershi+

#ll of the partners share e$ual rights and responsibilities in the management of the business.

!ikewise, each partner in an ordinary partnership assumes full personal liability for the debts and

obligations of the business. #nd one partner can enter into a contract on behalf of the partnership,

making the other partner%s& legally bound to the terms of the contract. The profit of a general

partnership passes through to its owners, making it ta'able at each partner(s individual income

ta' rate. %Partnership losses are also "passthrough", giving each partner the ability to offset

ta'able income from other sources.&


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Limite$ .artnershi+

)n this kind of partnership one or more partners have limited liability and at least one of the

partners has unlimited liability. The liability of the limited partner is limited to the e'tent of his

investment in the business.

). )t is formed under !imited Partnership #ct *+- %of ngland&)). ne or more partners have limited liability

))). There is at least one partner with unlimited liability

)/. The firm must be registered. nce this is done the rights and duties of the partners are

also recogni0ed.

/. # limited partner has no right to take an active role in the management of partnership./). The capital invested by the limited partner will not be returned to him as long as he

remains a limited partner on the firm./)). The limited partner can inspect the accounts of the firm at any time.

/))). # new partner can be introduced into the firm at any time without the consent of the

limited partners.

)1. The partnership should not consist of more than 2 partners %whether limited or not&e'cept in the case of banking where they should not e'ceed*.

1. The registrar of 3oint 4tock 5ompanies shall be the registrar of !imited Partnerships.

.artnershi+ at6wi))

The essence of a partnership atwill6 is that the partners do not limit theduration of their

partnership, and are free to break their relationship at any time they see fit. )t is a partnership for

indefinite period. The partnership maybe dissolved at any point as long as the partner gives

notice to all the otherpartners. #n ordinary partnership becomes a partnership atwill under the

following circumstances7

). )f the partnership is of an indefinite period

)). )f a partnership is formed for a limited period of time, and the firm continues to function

after the e'piry of this period.

))). )f a partnership is formed to conduct a particular venture, and then continues to function

after the venture is complete.


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'ights ties an$ Lia0i)ities (f .artners

'ights (f .artners

The different rights of the partners are as follows.

8ight to take part in business.

8ight to e'press opinion.

8ight to inspect books.

8ight to share the profits.

8ight to interest on capital.

8ight to interest on advances.

8ight to be indemnified.

8ight to act in emergency.

8ight to give 5onsent.

8ight to retire.

8ight not to be e'pelled.

8ight to carry on competing business.

8ight to enforce.

8ight to share in profits or interest.

8ight to bind other partners.

ties (f .artners

The following are the duties of the partners.

9uty of good faith.

9uty to carry on business.

9uty to share losses.

9uty to use firm:s property for the firm.

9uty to account for personal profits.

9uty to be liable individually and ;ointly.

9uty to work for the greatest common advantage.

9uty to render accounts.

9uty of disclosure.

9uty to indemnify for frauds.

9uty to act within authority.

9uty in emergency. 9uty not to transfer interest


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Lia0i)ities (f .artners

The liabilities of the partners are given below.

!iability of partner for acts of the firms.

!iability of the firm for the wrongful acts.

!iability of firm for misapplication. !iability of retiring partner for all the liabilities of the firm prior to his retirement.

'egistrati(n (f .artnershi+

.r(,e$re an$ 'eirements

The registration of Partnership firm is not re$uired by law and there is no penalty for non

registration. Nevertheless registration can give many advantages to the firm.


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-. The ratio of sharing profits and losses

C. The amount or percentage of interest, if any, which is to be allowed on capital

+. The amount of salary each partner is to receive*. The manner in which a partnership is to be dissolved and the subse$uent distribution of

property among the partners.

**. )n the case of insolvency the valuation and treatment of goodwill*2. Provisions regarding the accounting system and the fiscal year to be used*?. 8ules to be followed in the case of retirement, death and admission of a partner

*@. The method of settling disputes if any among partners. ).e. whether or not an arbitrator is

to be appointed

*A. Dethod of calculating amount issued to a deceased partner, and whether this is to be paid

in full or in installments to his legal representative.

*B. )n the case of breach of duty by one partner, powers of other partners to e'pel him from

the firm

*-. The keeping of proper books of accounts and periodical preparation of accounts.

*C. #ny provisions to prevent any future misunderstanding and ill will.

A++)i,ati(n

The procedure of registration is comparatively simple. #n application in the


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admission. The partner gets retirement by the consent of all partners and in accordance with the

agreement with other partners. # written notice is given to all partners as well, showing the

intention to retire of the leaving partner and he is liable for all the acts of the firm before the date

of his retirement unless he is discharged from liability. )n case of e'pulsion of a partner, the

partners e'pel by e'ercising their right given by the contract and for the benefit of the firm. The

e'pelled partner %outgoing partner& must be provided with opportunity to e'plain his position andto eradicate the source of his e'pulsion. >hen the partner is ad;udicated as an insolvent he ceases

to be partner from the date of the notice. #fter that date the partner is not liable for any act of the

firm as e'plained by section ?@. )n case the partner dies, the firm may be dissolved but if other

partners agree the continuity it is not dissolved. The estate of the deceased partner is not liable

for any act of the firm after his death nor is any public notice of death re$uired to alleviate the

deceased partner:s estate from future liabilities. %4ection ?A&.

iss()ti(n (f Firm9 .artnershi+

>hen an environment is created where a partnership is no longer possible,there are two main

steps involved7

9rafting of deed for dissolution of partnership

8egistration of deed for dissolution of partnership

There are various methods which can be adopted for this purpose. The firstinvolves dissolution

by agreement. This occurs when there is mutualagreement between the partners to terminate the

firm and hence the firm isdissolved. The second is the case of compulsory dissolution. )n such a

case the followingcircumstances need to prevail7

#ll the partners are declared insolvent or bankrupt.

#ll of the partners e'cept one is declared are declared as insolvent orbankrupt.

The business being practiced by the firm is declared unlawful.Fnder contingent dissolution, any

of the following circumstances need toe'ist to give rise to the closing of a firmG

)f the firm is constituted for a fi'ed term, on the e'piry of that term.

)f the firm is constituted to carry out one or more pro;ects, on the completion thereof

a& # death of one of the partners in the firmb& )f a partner of the firm is declared as insolvent or bankrupt

)n the case of dissolution by notice, the partnership is atwill, if any of thepartners submits a

written notice of his intention to dissolve the firm, thenthe firm may be dissolved. The firm is

dissolved from the date mentioned inthe notice as the date for dissolution. However, if no date is

mentioned, thenthe date for the communication of the notice is treated as such.

Partnership may also be dissolved through dissolution by 5ourt. )n this case,the court may

dissolve the firm if a partner files a suit for dissolution of thefirm on any of the following basis7

)nsanity. The partner has become of unsound mind

Permanent )ncapacity7 a partner, other than the partner suing, hasbecome permanently

incapable of performing his duties as partner


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Disconduct7 a partner, other than partner suing, is guilty of conductwhich is likely to

affect pre;udicially the carrying on of the business,regard being had to the nature of the

business.

=reach of #greement7 a partner, other than partner suing, willfully orpersistently commits

breach of agreement relating to the management of the affairs of the firm.

Transfer of )nterest. That a partner, other than partner suing, hastransferred whole of hisinterest in the firm to a third party or hasallowed his share to be sold in e'ecution of a

decree.

!osses. The business of the firm cannot be continued further on e'cept at a loss.

3ust and $uitable 5ause. n any other ground which renders it ;ustand e$uitable that the

firm should be dissolved.

.r(,ess f(r the $iss()ti(n (f a .artnershi+ firm

The process re$uires a 's 28&stamp paper called the dissolution deed which is submitted in

National bank through a challan form. #fter this, the partnership is re$uired to inform the general

public through best possible means so an ad is placed in a newspaper. The copies of N.).5. of all

partners are attached to all the attested documents. !ater, when all the documents are submitted,

the partners are re$uired to report to the office with their original N.).5. from am t( 11 am


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.artnershi+ ee$

This 9eed of Partnership is e'ecuted on this ?rdday of 3une 2*@ at !ahore.

Am(ng

*. sama )ftikhar son of )ftikhar8afi$ having residence at House No. @+, 4treet No. =,

>#P9# fficers 5olony Fpper Dall !ahore, %hereinafter referred to as the


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monitoring and maintenance of the interior designing and services and en;oys a good market

reputation in this regardG and

The Parties hereto shall e'ecute the said business under the name and style of 4tar nterprises6

on mutually agreed terms and conditions.

Agreement-

N>, TH8


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-. The


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*, or institute suits or proceedings or make himself liable as surety for any

person, or sell, transfer or assign or otherwise deal with either absolutely or by way of

mortgage or declaration of trust, his share or interest in the firm, or the profits andLor

benefits thereof e'cept in favour of another partner or do, e'ecute or perform or suffer

to the contrary and act, deed or thing whereby the property of the


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business of the firm, within a radius of *A Jilometers of, etc, during the remainder of

the term of the said partnership term.

*C. #ll notices re$uired to be given to either Party hereunder shall be deemed to be duly

served if addressed to such Party at the office of the firm and sent by registered post.

*+. #ny dispute or difference which may arise between the Parties or theirrepresentatives, with regard to the construction, meaning and effect of this deed or

any part thereof, or respecting the accounts, profits or losses of the business, or the

rights and liabilities of the Parties under this deed, or the dissolution or winding up of

the business, or any other matter relating to the firm, shall be referred to arbitration

and the decision of a sole arbitrator, if the Parties in dispute so agree, otherwise to

two or more arbitrators, according to the number of the Parties of the firm one to be

nominated by each Party or his representative and in case of difference of opinion

between them, by the umpire selected by them at the commencement of the reference

and this clause shall be deemed to be a submission within the meaning of the

#rbitration #ct *+@. The arbitration shall be in accordance with Pakistani laws andplace of arbitration shall be !ahore Pakistan and the language of the proceeding

shall be nglish. The cost of arbitration will be shared by the Parties.

2. Notwithstanding anything herein contained, the Parties shall have the right to

terminate this #greement7

i. )n case of material breach by the other Party or Parties of this #greement,

after giving a reasonable opportunity Mnot e'ceeding fifteen %*A& days to

rectify the breachG

ii. >ithout cause, by giving thirty %?& days advance written notice to the other

Party or Parties.

)n such event the other party shall be entitled for damages of amount 8s. A,L %)TN44 >H8< the Parties hereto have e'ecuted these presents on the day, month and

year first abovewritten.

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itnesses7

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Documents

Procedure of Partnership in Pakistan