Partnership act 1932

Aji R Lal

Chindu Raj

Rahul R G

Indian Partnership Act,1932

Indian Partnership Act,1932

Meaning & Definition

PARTNERSHIP

According to The Indian

Partnership Act 1932

“Partnership

is the relation between

two or more persons who

have agreed to share the

profits of a business

carried on by all of them

or any of them acting for

all”.

Definition

Simply speaking, a

partnership is an

association of persons who

conduct some business

activity and agree to share

profits earned out of it.

Meaning

21

‘Partner’ ‘Firm’ and ‘Firm Name

PARTNERS’ are

collectively

‘FIRM

Firm

1

Partner

The name under

which their

business is carried

on is called the

‘FIRM NAME’

Firm Name

Persons who

have agreed into

partnership with

one another are

called individually

PARTNER

32

Section 4 of Indian Partnership Act, 1932 provides that

The partnership is a result of a contract or an

agreement that is entered into between the partners. It

does not arise from birth, status or inheritance or

succession. The agreement between the partners is maybe

in oral or written , the ore; agreement is known as

Partnership Deed

The contract or agreement between the persons may be

oral or written. But usually, the contract is in writing.

The persons who form a partnership must be

competent or must have the capacity to enter into contract.

Persons who do not have the capacity to enter into contract

such as minors, insolvents, lunatics (persons with unsound

mind) cannot become partners.

Characteristics of a Partnership firm

Competence to

enter into

contract

Nature of

agreement

Agreement

To form a partnership at least two persons are required. The

maximum number of partners is limited to 20, in case of general

type of business and 10, in case of banking business.

The agreement between partners must be to carry on some

business which includes all lawful trade, occupation or

profession. Hence, the presence of a business is a must and it

does not cover any club or charitable association

The agreement between the partners must be for making

profits and sharing the profits among themselves.

The partners share the profits in the agreed proportions.


Sharing of

profits

Presence of

business

Number of

partners

Each partner acts in two capacities, i.e. he is both a principal

and agent. As an agent, he can bind the other partners by his

acts and as a principal; he is bound by the acts of other

partners.

The partnership business can be carried on by all the

partners or by any one or more acting for all.

The liability of partners is unlimited. If the firm fails to

satisfy its debt, each partner is liable to repay out of his

personal assets.


Unlimited liability

Management

Principal-Agent

relationship

A partner cannot, without the consent of other

partners, transfer his interest in the firm to an

outsider.

Each partner is a joint owner of the property of the firm and hence,

in the eyes of law the firm and the partners are considered to be one

and the same. Partnership has no separate existence apart from the

partners composing it.

The essence of partnership is based on the spirit of co-

operation. Hence there should be mutual trust and mutual co-

operation among partners.


Team spirit

Joint ownership

Non-transfer ability

of interest

Kinds of Partners

3

A nominal partner is one who does not have any real interest in the business but lends his name

to the firm, without any capital contributions, and doesn’t share the profits of the business. He

also does not usually have a voice in the management of the business of the firm, but he is liable

to outsiders as an actual partner.

Nominal Partner

A person who takes active interest in the conduct and management of the business of the firm is

known as active or managing partner

Active partner

1

A sleeping partner is a partner who ‘sleeps’, that is, he does not take active part in the

management of the business. Such a partner only contributes to the share capital of the firm

Sleeping partner

2

4If a person, by his words or conduct, holds out to another that he is a partner, he will be

stopped from denying that he is not a partner. The person who thus becomes liable to third

parties to pay the debts of the firm is known as a holding out partner.

Partner by estoppel or holding out

Cont….

2

In partnership firms, several other types of

partners are also found, namely, secret partner who

does not want to disclose his relationship with the

firm to the general public. Outgoing partner, who

retires voluntarily without causing dissolution of

the firm, limited partner who is liable only up to

the value of his capital contributions in the firm

Other Partners

When a partner agrees with the others that

he would only share the profits of the firm

and would not be liable for its losses, he is in

own as partner in profits only.

Partner in profits only

1

A partnership is created by an agreement. And if a partner is incapable of entering into a

contract, he cannot become a partner. Thus, at the time of creation of a firm a minor (i.e., a

person who has not attained the age of 18 years) cannot be one of the parties to the

contract. But under section 30 of the Indian Partnership Act, 1932, a minor ‘can be

admitted to the benefits of partnership’, with the consent of all partners. A minor partner is

entitled to his share of profits and to have access to the accounts of the firm for purposes of

inspection and copy.

Minor as a Partner

3

Kinds of Partnership

When there is no provision in partnership agreement (known aspartnership Deed, if in writing) for:

– The duration of their partnership, or

– The determination of their partnership,

then the partnership is called ‘Partnership at Will’.

Special feature of ‘Partnership at will’ is that such partnership may bedissolved by any partner by giving a notice in writing to all otherpartners of his intention to dissolve the partnership.

The partnership will be dissolved from that date which is mentioned inthe notice as the date of dissolution and if no date is mentioned thenfrom the date of communication of notice.

Partnership at Will[Sec.7 read with Sec.43)]

When a partnership is formed for a

• Specific venture or undertaking, or

• Particular period (fixed term)

then such partnership is called a ‘particular partnership’.

Such partnership comes to an end on the completion of the venture or

the expiry of time period.

If such partnership is continued after the expiry of term or completion

of venture, it is deemed to be a partnership at will.

A particular partnership may be dissolved before the expiry of the term

or completion of the venture only by the mutual consent of all the

partners.

Particular Partnership[sec. 8]

Partnership deed

A partnership is formed by an agreement. This agreement

may be in writing or oral. though the law does not expressly

require that the partnership agreement should be in writing, it

is desirable to have it in writing in order to avoid any dispute

with regard to the terms of the partnership. The document

which contains the term of a partnership as agreed among the

partners is called “Partnership deed”.

The Partnership Deed is to be duly stamped as per the

Indian Stamp Act, and duly signed by all the partners.

Books of account

Nature of business

Name of the firm

Share of partners in profits and losses

Duration of partnership

Capital

Bank Account firm

A partnership deed may contain any matter relating to the

regulation of partnership but all provisions in the deed should be within

the limits of Indian Partnership Act, 1932.

Contents of Partnership Deed

1

2

3

4

5

6

7

1

2

3

4

5

6

7

Settlement of disputes

Dissolution of firm

Death of partner

Retirement and expulsion of partners

Powers of partners

Registration of

Partnership

Registration of Partnership

Obtaining prescribed form

Preparing statement in the prescribed form

Signing the statement

Verifying the statement

Submitting the statement with fee

Registration

Issue of certificate of registration

Right And Liabilities of Partners Subject

to Contract

(Between the Partners)

Right to prevent admission of a new partner

Right to take part in business

Right to access to books

Right in emergency

Right to be consulted

Right to share the profits

Right as an agent of the firm

Rights…..

1

2

3

4

5

6

7

8

Right not to be expelled

To be liable for the act of the firm

To be faithful

To give full information

Duty to share losses

To render true accounts

To indemnify for fraud

To act within authority

16

To carry on business to the greater advantage

15

14

13

12

11

10

9

1. Partners are bound to carry on the business of the firm:

a. To greatest common advantage,

b. Be just and faithful to each other,

c. To render true accounts and full information of all

things affecting the firm to any partner, his heir or legal

representative.

2. If he derives any profits for himself from any transaction

of the firm, or from the use of the property or business

connection of the firm or the firm-name, he shall account

for that profit and pay it to the firm;

Liabilities…..

3. If he carries on any business of the same nature as and

competing with that of the firm, he shall account for and

pay to the firm all profits made by him in that business.

4. Indemnify the firm for any loss caused to it by his willful

neglect in the conduct of the business of the firm.

5. Even upon 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

Cont…

6. In unlimited partnership, every partner is liable, jointly

with all the other partners and also severally, for all acts of

the firm done while he is a partner. You can be held

personally responsible for another partner’s negligence or

carelessness. This means that if your partnership firm is

insufficient to meet its financial obligations, you may have

to use your personal assets to pay off debtors, even though

you personally may not be at fault.

Cont…

DISSOLUTION OF A FIRM

Dissolution of Partnership

and Dissolution of Firm

The dissolution of partnership between all the

partners of a firm is called the dissolution of the

firm. [section 39]. Thus, if some partner is

changed/added/ goes out, the ‘relation’ between them

changes and hence ‘partnership’ is dissolved, but the

‘firm’ continues. However, complete breakage

between relations of all partners is termed as

‘dissolution of firm’. After such dissolution, the firm

no more exists.

Cont…

Thus, ‘Dissolution of partnership’ is

different from ‘dissolution of firm’.

‘Dissolution of partnership’ is only

reconstruction of firm, while ‘dissolution of

firm’ means the firm no more exists after

dissolution.

Cont…

Dissolution of a Firm - A partnership firm is an ‘organization’

and like every ‘organ’ it has to either grow or perish. Thus,

dissolution of a firm is inevitable part in the life of partnership firm

some time or the other.

Cont…

Mode of Dissolution of Firm

A partner may apply to the court for getting the firm dissolved. On getting such

application by any of the partner the court may proceed to order the dissolution of the firm

in the following circumstances:

1) If any of the partner becomes of unsound mind

2) If a partner, other than the partner filing the suit is guilty of intentionally and

persistently committing a breach of the partnership agreement.

3) If a partner, other than the partner filing the suit has transferred whole of his interest in

the firm to a third party without the consent of the other partners.

4) If a partner, other than the partner filing the suit is guilty of misconduct.

5) If a partner, other than the partner filing the suit has become disabled to perform his

duties as a partner.

6) If the court is satisfied that the business of the firm cannot be carried on except a loss.

7) If the court considers it just and equitable to dissolve the firm due to some other reasons

By the Order of the Court

If all the partners are willing and hereby agree to dissolve the firm.

In the following circumstances:

a) On the death of any partner.

b) If any partner becomes insolvent.

c) On the expiry of the duration of the firm.

d) On the completion of the venture.

Without the Intervention of the Court.

Law

Partnership act 1932