2. PARTNERSHIP
Meaning & Definition
Definition
According to The Indian
PartnershipAct 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”.
Meaning
Simply speaking, a
1 2
partnership is an
association of persons who
conduct some business
activity and agree to share
profits earned out of it.
3. ‘Partner’ ‘Firm’ and ‘Firm Name
Section 4 of Indian Partnership Act, 1932 provides that
Firm
PARTNERS’ are
collectively
‘FIRM
Partner
1
Firm Name
The name under
which their
business is carried
on is called the
‘FIRM NAME’
Persons who
have agreed into
partnership with
one another are
called individually
PARTNER
2 3
4. Characteristics of a Partnership firm
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.
Agreement
Nature of
agreement
Competence to
enter into
contract
5. Characteristics of a Partnership firm
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.
Number of
partners
Presence of
business
Sharing of
profits
6. Characteristics of a Partnership firm
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.
Principal-Agent
relationship
Management
Unlimited liability
7. Characteristics of a Partnership firm
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.
Non-transfer ability
of interest
Joint ownership
Team spirit
8. Kinds of Partners
Active 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
Sleeping partner
Nominal Partner
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.
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
2
Partner by estoppel or holding out
4
If 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.
9. Cont….
Other Partners
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
Partner in profits only
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.
1
Minor as a Partner
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.
3
11. Partnership at Will
[Sec.7 read with Sec.43)]
When there is no provision in partnership agreement (known as
partnership 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 be
dissolved by any partner by giving a notice in writing to all other
partners of his intention to dissolve the partnership.
The partnership will be dissolved from that date which is mentioned in
the notice as the date of dissolution and if no date is mentioned then
from the date of communication of notice.
12. Particular Partnership
[sec. 8]
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.
13. 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.
14. Contents of Partnership Deed
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.
Nature of business
Duration of partnership
Name of the firm
Capital
Share of partners in profits and losses
Bank Account firm
Books of account
1
2
3
4
5
6
7
15. 1
2
3
4
5
6
7
Powers of partners
Retirement and expulsion of partners
Death of partner
Dissolution of firm
Settlement of disputes
17. 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
Registration of Partnership
19. Rights…..
Right to take part in business
Right to be consulted
Right to access to books
Right to share the profits
Right in emergency
Right as an agent of the firm
Right to prevent admission of a new partner
1
2
3
4
5
6
7
8
Right not to be expelled
20. To be faithful
To render true accounts
To give full information
To indemnify for fraud
Duty to share losses
To act within authority
To be liable for the act of the firm
9
10
11
12
13
14
16
To carry on business to the greater advantage
15
21. Liabilities…..
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;
22. Cont…
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
23. 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.
26. Cont…
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.
27. 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.
28. 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.
31. By the Order of the Court
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
32. Without the Intervention 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.
