1. Business law and legal issues in Tourism
Chapter 3
Prepared By
Md.Iqbal Hossain
Lecturer
Department of Tourism and Hospitality Management
Mirpur University College
2. Define Partnership
Partnership is a type of business relationship in which two or
more individuals or entities come together to jointly own and
operate a business.
They share the profits and losses of the business, as well as the
responsibility for decision-making and management.
Partnerships can be formed for a specific project or for a long-
term business venture.
3. What are the essential elements of a partnership ?
Explain the rights, duties and liabilities of partners.
The essential elements of a partnership are as follows:
1. Agreement: There must be an agreement between the partners to form a
partnership. This agreement may be written or oral.
2. Partners: There must be two or more partners who agree to carry on a business
together.
3. Profit Sharing: The partners must agree to share the profits of the business.
4. Loss Sharing: The partners must agree to share the losses of the business.
5. Joint Ownership: The partners must jointly own the business.
4. Rights of partners:
Partners have the right to participate in the management of the partnership, share in the
profits and losses of the business, and have access to the partnership's books and records.
Duties of partners:
Partners owe a fiduciary duty to each other and to the partnership. This means that they
must act in good faith and in the best interests of the partnership. They are also obligated
to contribute their agreed-upon capital, share in the losses of the business, and refrain from
competing with the partnership.
Liabilities of partners:
Partners are jointly and severally liable for the debts and obligations of the partnership.
This means that each partner is individually responsible for the full amount of the
partnership's debts. Additionally, partners can be held liable for the actions of other
partners if those actions were taken in the course of the partnership's business.
5. Describe the forms of Partnership
There are three main forms of partnership:
1. General Partnership:
In a general partnership, all partners have equal rights in the management of the business and share
in the profits and losses. Each partner is also personally liable for the debts and obligations of the
partnership.
2. Limited Partnership:
A limited partnership has both general partners and limited partners. General partners have the same
rights and liabilities as in a general partnership, while limited partners have limited liability and do
not participate in the management of the business.
3. Limited Liability Partnership (LLP):
In an LLP, all partners have limited liability, meaning they are not personally responsible for the
debts and obligations of the partnership. However, each partner is still responsible for their own
actions and the actions of those they supervise.
6. The main difference between LPs and LLPs is the level of liability
protection offered to the partners. In an LP, only the limited partners
have limited liability, while the general partner(s) have unlimited
liability.
In an LLP, all partners have limited liability, regardless of their role in
the business. Additionally, in an LP, the limited partners cannot
participate in management without losing their limited liability
protection, while in an LLP, all partners have equal management
rights.
7. Distinguish between Partnership and Co - ownership
Features Partnership Co - Ownership
Definition`
A business relationship between
two or more individuals who
agree to share profits and losses
Ownership of property by two
or more individuals who share
equal rights and responsibilities
Formation
Formal agreement between
partners
Agreement can be formal or
informal
Liability
Partners are jointly and
severally liable for debts and
obligations of the partnership
Co-owners are only liable for
their own share of debts and
obligations
Management
Partners have equal say in
management decisions
Co-owners may have different
levels of control depending on
their ownership percentage
8. Profit and loss Sharing
Profits and losses are
shared based on the
partnership agreement
Profits and losses are
shared equally among co-
owners
Termination
Partnership can be
terminated by agreement
of all partners or by
operation of law
Co-ownership can be
terminated by agreement
of all co-owners or by
court order
Taxation
Partners are taxed
individually on their share
of partnership income
Co-owners are taxed
individually on their share
of property income
9. Sleeping Partner
A sleeping partner, in business terms, is a person who invests money in a
business but takes no active part in its management. This means that they are
not involved in the day-to-day operations of the business, but they still have a
financial stake in it.
Sleeping partners are also known as silent partners or dormant partners. They
are typically responsible for providing capital to the business and share in the
profits or losses of the business. However, they do not have any say in the
decision-making process of the business
10. Partnership Deed
A partnership deed is a legal document that outlines the terms and conditions of a
partnership agreement between two or more individuals who want to start a business
together.
It includes details such as the name of the partnership, the nature of the business, the
contributions of each partner, the profit-sharing ratio, the roles and responsibilities of
each partner, the decision-making process, the duration of the partnership, and the
procedures for resolving disputes and dissolving the partnership.
The partnership deed is a crucial document that helps to establish a clear
understanding between partners and avoid misunderstandings and conflicts in the
future.
11. Types of Partners
There are several types of partners in a partnership business. The most common
types are:
1. Active partners: Active partners are involved in the day-to-day operations
of the business. They are responsible for making decisions, managing the
business, and working with employees.
2. Sleeping partners: Sleeping partners are not involved in the day-to-day
operations of the business. They typically invest money in the business but
do not have any say in how it is run.
3. Silent partners: Silent partners are similar to sleeping partners, but they do
not have any liability for the business's debts.
12. 4. Nominal partners: Nominal partners are partners in name only. They do
not contribute any capital to the business and do not have any liability for its
debts.
5. Limited partners: Limited partners are partners who have limited liability
for the business's debts. They can only lose the amount of money they have
invested in the business.
6. Sub-partners: Sub-partners are partners who are appointed by another
partner to manage the business on their behalf.
13. Registration Procedure of a Partnership Firm
To register a partnership firm in Bangladesh, you will need to follow these steps:
1. Choose a unique name for your partnership firm and check its availability with the Registrar of
Joint Stock Companies and Firms (RJSC).
2. Prepare a partnership deed, which is a legal document that outlines the terms and conditions of
the partnership.
3. Submit the partnership deed along with the necessary documents, such as national ID cards of
all partners and a copy of the trade license, to the RJSC office.
4. Pay the registration fee and stamp duty as per the partnership deed.
5. The RJSC will review the application and issue a certificate of registration upon approval.
Finally, you will need to obtain a tax identification number (TIN) from the National Board of
Revenue (NBR).
14. What are the effects of non - registration of a partnership firm ?
Non-registration of a partnership firm in Bangladesh can have several
consequences.
Firstly, it is illegal to operate an unregistered partnership firm in Bangladesh.
Therefore, if you do not register your partnership firm, you may face legal
penalties and fines.
Secondly, an unregistered partnership firm does not have a legal entity status, and
therefore, the partners will not be able to file a lawsuit or take legal action in the
name of the partnership firm. This can result in complications in case of any legal
disputes or liabilities.
15. Thirdly, an unregistered partnership firm cannot avail various benefits
provided by the government to registered firms, such as tax
exemptions, subsidies, and access to government tenders.
Lastly, non-registration of a partnership firm can also harm the
reputation of the firm and its partners, as it may be perceived as an
attempt to evade taxes or bypass legal requirements.
Therefore, it is important to register your partnership firm in
Bangladesh to avoid any legal or reputational risks.
16. Dissolution of Partnership
Dissolution of a partnership business is the termination of the partnership
between two or more people. This can happen for a variety of reasons,
such as the death of a partner, the bankruptcy of a partner, or the mutual
agreement of the partners to dissolve the partnership.
When a partnership is dissolved, the assets of the business must be
liquidated and the liabilities must be paid. The remaining assets are then
distributed to the partners according to their respective interests in the
partnership.
17. Here are some of the things to consider when dissolving a partnership business:
1. The type of partnership: There are different types of partnerships, each with its own set of
rules and regulations. It is important to understand the type of partnership you have before
you dissolve it.
2. The partnership agreement: If you have a partnership agreement, it will outline the terms
of the partnership, including how it can be dissolved. If you do not have a partnership
agreement, the laws of the state in which the partnership is located will govern how the
partnership can be dissolved.
3. The assets and liabilities of the partnership: The assets and liabilities of the partnership
must be accounted for and distributed to the partners in accordance with the partnership
agreement or the laws of the state.
4. Taxes: The dissolution of a partnership may have tax implications for the partners. It is
important to consult with a tax advisor to understand the tax consequences of dissolving the
partnership.
18. Here are some of the steps involved in dissolving a partnership business:
1. Notify the partners: The first step is to notify the other partners of your intention to
dissolve the partnership. This can be done in writing or verbally.
2. Value the assets and liabilities: The next step is to value the assets and liabilities of
the partnership. This will help to determine how the assets will be distributed to the
partners.
3. Pay the liabilities: Once the assets have been valued, the liabilities of the
partnership must be paid. This includes any debts that the partnership owes to
creditors.
4. Distribute the assets: Once the liabilities have been paid, the remaining assets are
distributed to the partners according to their respective interests in the partnership.
5. File the necessary paperwork: In some cases, it may be necessary to file
paperwork with the state to dissolve the partnership. This will vary depending on the
laws of the state in which the partnership is located.
19. Who can not be a partner?
In a partnership business, individuals or entities that cannot be partners include:
● Minors (individuals under the age of 18)
● Individuals who lack legal capacity due to mental incapacity
● Corporations and other businesses that are not legally allowed to enter into a
partnership agreement
● Persons who have been disqualified from being directors or involved in
management of a company by law
It's important for potential partners to consult with legal counsel before entering into
any partnership agreement to ensure compliance with all relevant laws and
regulations.
20. "The Relation of partnership arises from contract and not from
status" - explain it with example
"The relation of partnership arises from contract and not from status" means that a
partnership is formed through a legal agreement or contract between the partners,
rather than by virtue of their personal relationship or status. This means that just
because two people are related or have some other type of connection, they are not
automatically considered partners in a business.
For example, let's say that two friends who met in college decide to start a software
development company together. They both bring different skills and experiences to
the table and believe that their combined efforts will lead to success. In order to
formalize their partnership and protect each partner's interests, they create a written
agreement outlining each person's role in the company, how profits will be shared,
decision-making processes within the business, and other important details.
21. This agreement serves as proof of their commitment to working together as equal
partners in this venture. It also provides clarity around key issues such as profit
sharing so there is no confusion about what each partner can expect financially
from the business.
In summary, forming a partnership requires more than just having a personal
relationship with someone - it involves creating a legally binding contract that
outlines expectations for all parties involved.
22. Examine the correctness of the statement “Registration of a
partnership firm is not compulsory is practically necessary. “
The statement "Registration of a partnership firm is not compulsory but practically
necessary" is correct and holds true in most cases.
Partnership firms are governed by the Indian Partnership Act, 1932, which does not
mandate registration of the partnership firm. However, it is highly recommended that
partnership firms get registered to avoid potential legal disputes and avail various
benefits.
Here are some reasons why registering a partnership firm can be considered
practically necessary:
23. ● Legal recognition: Registration provides legal recognition to the existence of the
partnership firm as an entity separate from its partners.
● Evidence in Court: A registered document serves as evidence in case of any dispute
between partners or with third parties under court jurisdiction.
● Access to Bank Accounts & Loans: Banks usually require proof of registration
before opening bank accounts or granting loans for business purposes.
● Tax Benefits: Registered partnerships enjoy tax benefits such as lower tax rates on
profits earned compared to unregistered ones.
● Brand Building & Credibility: Registered partnerships have more credibility among
clients and vendors while building brand value over time through proper
documentation practices like invoicing etc.,
24. Partnership at Will
Partnership at Will is an informal type of partnership where there is no fixed term
for the duration of the partnership. It can be dissolved by any partner at any time
without giving notice to others, and all profits and losses are shared equally
among partners unless otherwise specified in writing.
This type of partnership does not require legal formalities for formation such as
registration with Registrar Of Companies or filing Annual Returns/Formal
Compliance Requirements With Govt Authorities.