DEFINITION OFPARTNERSHIP Partnership is the relation between persons who have agreed to share the profits of the business carried on by all or anyone of them acting for all. Persons who have entered into partnership with one another are individually called partnership and collectively are called firms The name under which the business is carried on is called the firm name.
Characterstics Association with 2 or more persons Agreement Business Sharing of Profits Mutual Agency
Law of partnership-extension oflaw of agencyThe partnership business may be carried on by all or anyone of them acting for all. Thus the relationship of principal and agent is established amongst partners and this relationship is governed by the law of agency.
A partner assumes 2 foldcharacter:1. He is an agent of the firm so far his dealings with the outside world for the purpose of the business of the firm are concerned.2. He acts as a principal amongst other partners.
Formation of Partnership Partnership based on agreement Partnership agreement can be made orally or in written Essential elements of valid contract has to be present Object of the partnership should be legal Minor may be admitted to the benefits of partnership with the consent of all the partners No consideration required for forming agency; likewise for partnership also
Partnership deed The document containing the agreement between the partners are called Partnership Deed.Contents of Partnership Deed:1. Nature of the business2. Place of the business3. Name and address of the partners4. Profit sharing ratio5. Interest on capital etc….
Who may not be partnersOnly competent persons can enter into partnership agreement1. Alien enemy2. Minor3. Person of Unsound Mind4. Corporation
Test for partnership Agreement between the parties Real relationship between the parties Sharing of profits Mutual agency
Cases where no partnershiprelation exists Joint Owners Sharing of Profits Membes of Joint Hindu Family
Partnership and otherassociationsPartnership and Joint Hindu Family 1. Mode of Creation 2. Interest in Business 3. Admission of New Members(female, Minor, Fluctuating) 4. Authority of Members 5. Liability of Members 6. Right of Members to demand accounts 7. Registration
Partnership and co-ownership Mode of Creation Business Nature of Interest Transfer of Interest Number of Members Authority of Members Partition of Property Lien for Expenses
Duration for partnership Partnership for a fixed term Partnership at will Particular Partnership
Registration of FirmProcedure for registration:To be registered with Registrar of FirmsContents for application of registration Time of Registration
EFFECTS OF NONREGISTRATION Suits between partner and firm Suits between firm and third parties Claim of set off Alterations Penalty for false particulars Inspection for Registrar of Firms and documents and grant of copies Rules of Evidence
Relation of partners to oneanotherRights of a partner Right to take part in business Right to be consulted Right to access accounts Right to Share Profits Right to interest on capital Right to interest on advances Right to prevent entry of new partner No liability before joining Right to be as agent Right to retire Right to outgoing partner to share in the subsequent profits if his share is not settled by other partners.
Duties of a partner To carry on business to the greatest common knowledge To observe faith To indemnify for fraud/ willful neglect To attend diligently Not to claim remuneration To share losses To hold and use the property of the firm exclusively for the firm To account for personal profits To account for profits in competing business To act within authority Not to assign his rights To be liable jointly and severally
Property of the firm All property originally brought into the common stock Interest received out of the investments All properties acquired during the course of the business Goodwill(reputation, industrial contacts, brand image etc… which the firm has developed over the years)
Agreements in restraint oftradeExceptions:1.A partner shall not carry on another business while he is a partner2.An outgoing partner may agree with his partners not to carry on a similar business within a specific period3.upon dissolution, some or all of them will not carry on similar business 4. after dissolution and sale of goodwill, partners not to trade with the same brand name
Relation of partners to thirdpartiesImplied authority of a partners: Purchasing goods on behalf of the firm Selling the goods for the firm Receiving payments Settling accounts Borrowing money/ credit facilities on behalf of the firm Pledging on behalf of the firm Engaging servants/employees for carrying the activities of the firm
Partners authority incase ofemergencyPartner has authority incase of emergency if They are done to protect the interest of the firm and to prevent loss Partner should act to situations assuming if it was for his own case
Reconstitution of firm Introduction of a partner Retirement of a partner Expulsion of a partner Insolvency of a partner Transfer of a partner’s share Death of a partner
Types of partners Actual/ ostensible Partner Sleeping/dormant partner Nominal Partner Partner in profits only Sub-Partner Partner by Estoppel/ Holding out Minor as a Partner
Dissolution of a firmIt means complete break down or extinction of the relationship between all the partners of a firm
Dissolution of the firmWithout the order of With the order of the the court court1. By Agreement2. By Compulsory Dissolution3. On the happening of certain contingencies4. By Notice
By Agreement With the consent of all the parties In accordance with the contact between themCompulsory dissolution1. When one or all partners become insolvent2. By the happening of any event which makes it unlawful for the business firm
Dissolution on the happening ofcertain contingencies Expiry of the term Completion of a particular adventure Death of a partner Insolvency of partner/partners
Dissolution by noticeFirm may be dissolved by any partner who gives notice that the partnership will no longer exists.In such case, dissolution is counted from the day when the notice is issued by the partners
Dissolution by court Insolvent Incapacity Misconduct Persistent Breach Business working at loss Gambling of a partner in stock exchange Fraudulent Breach Persistent refusal or neglect by a partner to attend the business
Rights of partners ondissolution Have the right to wound up Right to have the debts of the firm settled out of the property of the firm Share the profits of the firm earned after dissolution Have the premium returned or premature dissolution Restrain the use of firm name or property by any partner for his own benefit
Liabilities of a partner ondissolution If public notice is not given, partners continue to be liable for any act done by any partner after dissolution To wind up the affairs of the firm in smooth manner To complete the transactions begun but unfinished at the time of dissolution
Settlement of accounts Sale of Goodwill Sharing of deficiency( first out of profits, then out of capital and last out of partners individual proportions in which they are eligible to share profits) Application of assets- first to pay the debts outside and then to share amongst the partners in their profit sharing ratio
Public NoticeTo be given when Retirement Dissolution of a registered firm Addition of new partnerBy how:1. By notice to the Registrar of Firms2. By publications in the Official Gazette3. By publication in Newspapers
Consequences if public noticenot given On retirement On dissolution On expulsion