Partnership Act 1932 Partnership is the relation between persons whohave agreed to share the profits of a business carried on by all or any one of them acting for all
ContentEssentials element of partnership.Kinds of partnersTypes of partnershipRights of partnerDuties of partnerDissolution of partnership and partnership firm.Winding up of partnership and partnership firm.Advantage of winding upReconstitution of a firm.
Partnership Deed :Partnership Deed is the document that defines therights and obligations of partners. Besides names,address and occupation of partners it lays down theduration of partnership, nature of business, profitsharing ratio, right to interest, salary, commissionetc.
Section 4 of the Indian Partnership Act, 1932 defines‘partnership’ as follows: “a business carried on by all or Essential elements ofany of them acting for all.” partnership:(1) Association of two or more persons;(2) Existence of a contract;(3) Carrying on a business;(4) Sharing of profits; and(5) Prevalence of mutual agency.
Kinds Of PartnersThere may be different kinds of partners in a partnership firm.The important classification of partners is given below:Actual or active partners,Dormant or sleeping partner,Nominal partner,Partner in profits only, Sub-partner,Partner by estoppel or by holding out.
Types Of PartnershipoPartnership at will- (Sec. 7)where time is not mentioned inagreementoParticular partnership - (Sec. 8)partner in a specific ventureonlyoPartnership for fixed term - (Sec. 7)
Rights Of Partners.section 12 & 13 of the partnership act Rights to take part in management Every partner has a right to take part in the conduct of the business. Rights to inspect books Every partner has a right to check the books of account of the firm and to get the copies. Rights to be consulted Every partner has a right to be consulted and heard before any matter is decided. Rights to share profit Every partner has a right to share equally in the profits earned by the firm, irrespective of his amount of capital contribution.
Rights to interest on capital A partner is not entitled to receive interest on capital contributed by him.. Right to use property Every partner of the firm is co-owner in the property of firm and he has a right to use it for the best benefit of the business of the allowed. Rights to admit and expel partner A new partner cannot be admitted in the firm and an old partner cannot be expelled from the firm without the prior consent of all the partners. Right to give opinion Nature of the partnership business cannot be altered without the prior approval of all the partners.
Right to collect debts A partner has an implied right to collect partnership debts and to give receipts for payments. Right to act as agent Every partner can act as an agent on behalf of the remaining partners and bind the other partners to his act. Rights of retirement Every partner has a right of retirement from the firm with the mutual consent of all other partners. But when the partnership is at will, he can leave the firm at any time while giving a due notice of his retirement from the firm. Right of competing business Any outgoing partner has a right to start a business competing with that of the firm but he cannot use the name of the firm.
Duties Of Partners:To work for common advantageTo be faithfulRender true accountTo indemnify for fraudNot to claim remunerationTo share profits and lossesTo act within authorities given
Dissolution Of A FirmDissolution of a firm means an end of the firm. TheIndian Partnership Act distinguishes between:(a) Dissolution of firm, and(b) Dissolution of partnership.Section 39 provides that the dissolution ofpartnership between all the partners of a firm iscalled the “dissolution of the firm”.
Compulsory dissolution :1. When all the partners or all except one partner becomes insolvent or of unsound mind.2. When the business becomes unlawful.3. When all the partners or all except one decide to retire from the firm.4. When all the partners or all except one partner die.5. A firm is also dissolved compulsorily if the partnership deed includes any provision regarding the happening of the following events (a) expiry of the period for which the firm was formed, (b) completion of the specific venture or project for which the firm was formed.
Dissolution by Agreement :1. All the partners give consent or2. as per the terms partnership agreement . Dissolution by notice : In case of a partnership at will, the firm may be dissolved if any one of the partner gives a notice in writing to the other partners. Dissolution by Court :1. When a partner becomes of unsound mind.2. When a partner becomes permanently incapable of performing his/her duties as a partner,
Partnership Is Dissolved In TheFollowing Circumstances:Partnership is dissolved in the following circumstances: 1) At the time of admission of a new partner; 2) On the retirement/death of an old partner; 3) At the time of change in profit sharing ratio among existing partners; 4) If any partner is declared insolvent; 5) On the expulsion of any partner; 6) On the expiry of the period of partnership. Thus this is clear from the above discussion that in the case of dissolution of the partnership the firm may continue under a new agreement whereas in the case of dissolution of partnership firm the business of the firm comes to an end.
There are two basic ways that the partnership can be wound up:Creditor’s PetitionPartner’s Petition
Creditor’s Petition A creditor can petition to wind up the partnership but not issue bankruptcy petitions against the individual partners. Or the creditor can issue a petition to wind up the partnership concurrently with a bankruptcy petition against one or more of the individual partners.
Partner’s Petition The partners can petition to wind up the partnership but not issue bankruptcy petitions against the individual partners. Or the partners can issue a petition to wind up the partnership concurrently with a bankruptcy petition against the individual partners.
Partnership Winding Up Where the partners have decided that the partnership has no viable future or purpose then a decision may be made to cease trading and wind up the partnership. Clearly such a decision should not be taken lightly and is recommended that all other options are carefully considered and compared to the objectives of the partnership and the individual partners.
The Winding-Up Process The partnership is treated much like an unregistered company and is wound up in the same way as a company. The tasks of the liquidator are therefore to Realise the assets in the partnership including any deficiencies due on the partner’s individual capital accounts (the partners will have to pay such deficiencies if required). All debtors, property and other assets will be collected by the liquidator. Investigate the conduct of the "officers of the partnership" just as the liquidator in a company liquidation must do. Interestingly the liquidator can initiate actions against the partners to seek to disqualify them as partners in a partnership (Insolvent Partnerships Order 1994) 2.2. The liquidator must also ascertain whether any transactions have taken place that put the partners (individually or collectively) into a better position than they should be then such transactions (known as preferences or transactions at undervalue). If such transactions have been completed before the winding up, they can be un-done. The court can order that the partners reverse the transaction.
The Advantages of Winding up By initiating such action themselves the partners as individuals may avoid the disqualification of the partners and as company directors, however this will depend on their actions pre the failure and whether they had acted at all times correctly and in the creditor’s interests. The creditors will know that an insolvency practitioner must be appointed where the winding up process is used. This can ensure (sometimes) a better return, investigation into the officers conduct pre insolvency and the knowledge that the partnership will not increase debts.
Liabilities of a Partner to Third Parties:The following are the liabilities of a partner to third parties:Liability of a partner for acts of the firmLiability of the firm for wrongful act of a partnerLiability of the firm for misutilisation by partners
Liability of an incoming partner: An incoming partner is liable for the debts and acts of the firm from the date of his admission into the firm. However, the incoming partner may agree to be liable for debts prior to his admission. Such agreeing will not empower the prior creditor to sue the incoming partner. He will be liable only to the other co-partners. Liability of a retiring partner: A retiring partner is liable for the acts of the firm done before his retirement. But a retiring partner may not be liable for the debts incurred before his retirement if an agreement is reached between the third parties and the remaining partners of the firm discharging the retiring partner from all liabilities. After retirement the retiring partner shall be liable unless a public notice of his retirement is given. No such notice is required in case of retirement of a sleeping or dormant partner.
Reconstitution Of A FirmA change in the constitution of the firm occurs when a newpartner is admitted or an old partner retires or dies. Thepartnership is reconstituted on: AdmissionRetirementDeath of a partner.Amalgamation of two partnership firms.Change in the profit sharing ratio between the partners.