A Power point presentation on Indian Partnership Act 1932, MBA 3rd Semester, Legal Aspects of Business

1. Indian Partnership Act 1932
Presented by:
Vijaya Kasireddy,
18K61E0081,
Sasi Institute of Technology
and Engineering,
Tadepalligudem

2. Indian Partnership Act:
The law of partnership is contained in the Indian Partnership Act,
1932, which came into force on 1st Oct., 1932.
The present Act superseded the earlier law relating to Partnership,
which was contained in Chapter XI (sec 239 to sec 266) of the Indian
Contract Act,1872.
2

3. Meaning of Partnership:
The INDIAN PARTNERSHIP ACT’ 1932 Section.4 of the Indian
Partnership Act, 1932 defines Partnership in the following terms:
“Partnership is the relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all.”
3

4. Meaning of Partner, Firm and Firm Name:
-Persons who have entered into partnership with one another are
called individually, “Partners“.
-Collectively formed entity is known as ‘Firm’.
-The name under which their business is carried on is called the
“Firm-name".
4

5. Elements of Partnership:
1.Partnership is an association of two or more than two persons.
2.Partnership must be the result of an agreement between two or
more persons.
3.The agreement must be to carry on some business.
4.The agreement must be share profits of the business.
5.Business must be carried on by all or any of them acting for all.
5

6. Who can become a partner?
Any person who is competent to contract can enter into partnership
agreement.
The position of following persons need special
consideration:
Minor, Alien, Person of unsound mind ,
Company, Firm
6

7. Minor: A minor is not competent to contact, hence he cannot enter into
partnership contact. However he may be admitted to the benefits of
partnership, if all the partners agree to do so.
Alien: An alien enemy cannot be partner in an Indian firm.
Person of unsound mind: A person of unsound mind, not being
competent to contract cannot enter into a partnership contract.
7

8. Company: A company, if authorised by its articles of
association can enter into partnership because it is a person
competent to contract in the eyes of law.
Firm: A firm cannot enter into partnership contract. If a
firm, at all enters into partnership in that case, the members
become partners in the other firm in their individual capacity.
8

9. Criteria Of Partnership :
Any two or more than two persons can join together for creating
Partnership. Section 11 of the Companies Act , 1956 imposes limit
as to maximum number of persons in a partnership for the purpose
of carrying :
· Banking Business – There can be maximum of 10 persons
· Any other purpose – There can be maximum of 20 persons.
9

10. Procedure of Registration
According to the India Partnership Act 1932, there is no time limit as
such for the registration of a firm. The firm can be registered on the
date when it is incorporated or any such date after so. The requisite
fees and fines must be paid. The procedure for such a registration is as
follows,
10

11. Contd.,
1] Application to the Registrar of Firms in the prescribed form
(Form A). Nowadays this facility is even available online. Such an
application must contain certain basic details about the firm such as,
--Name of the Partnership Firm
--Name and address of all partners
--Place of business (address of main and branch offices)
--Duration of the partnership
--Date of joining of partners
--Date of commencement of business
11

12. Contd.,
2] The duly signed copy of the Partnership Deed (which contains
all the terms and conditions) must be filled with the registrar
3] Deposit/pay the necessary fees and stamp duties
4] Once the registrar approves the application, the firm will be
entered into the records. And the registrar will also issue a
certificate of incorporation.
12

13. Real test of partnership
The true test of partnership is the existence of a 'Mutual Agency'
relationship, i.e. the capacity of a partner to bind other partners by his
act done in the firm's name and be bound by the acts of other partners.
Sharing of profits is an essential elements of partnership but it is not a
conclusive proof of partnership. Sharing of profits is Prima Facie evidence.
Thus partnership can be presumed when
a. There is an agreement to share the profits of business and
b. The business is carried on by all or by any of them acting for all.
13

14. The relation among partners cab be ascertained as under:
a. If there is an express contact
The real relation is ascertained from the partnership contract.
b. If there is no express contract
The real relation is ascertained from all the relevant factors such as
contract of parties, books of account, statement of employees etc.
14

15. 1.General duties of a partner
2.To indemnify for fraud
3.To indemnify for willful neglect
4.To attend duties diligently without remuneration
5.To share losses
6.To account for any profit
7.To account and pay for profits of competing for business
15
Duties of a Partner:

16. 1.Right to take part in the
Conduct of the Business
2.Right to be consulted
3.Right of access to books
4.Right to remuneration
5.Right to share profits
6.Interest on capital
7.Interest on advances
8.Right to be indemnified
9.Right to stop the admission of a
new partner
10.Right to retire
11.Right not to be expelled
12.Right of outgoing partner to
carry on a competing business
13.Right of outgoing partner to
share subsequent profits
14.Right to dissolve the firm
16
Rights of a Partner:

17. 1.Active Partner
2.Sleepng Partner
3.Nominal Partners
4.Partner in Profit only
5.Sub Partners
6.Incoming Partners
7.Outgoing Partners
8.Partner by Estopple or holding out
17
Types of Partners:

18. 1. Active or managing 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.
He carries on business on behalf of the other partners.
2. Sleeping or dormant partner:
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, is bound by the activities
of other partners, and shares the profits and losses of the business.
18

19. 3. Nominal or ostensible partner:
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.
4. 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.
19

20. 5. Sub Partner
one of the existing partner of firm A is having partnership with other
firm B.
6. Incoming Partner
The new partner who will be joining the partnership firm. It is also
known as a Admission of a partner.
Incoming partner will be introduced into an existing partnership only
with the consent of all partners and he is only liable for the
transactions which were made after he has joined in the firm.
20

21. 7. Outgoing Partner
A partner who is going to leave a particular firm with
purposely or to he/she might be died or expelled by a
firm.
It can be in a from of;
--Retirement of a partner
--Expulsion of a partner
--Insolvency of a partner
--Death of a partner
21

22. 8.Partner by Estoppel or holding out
A partner by estoppel is someone who is not a partner of a firm,
but allows others to think that he is a partner, through his
behaviour or conduct.
A partner by holding out is someone who is not a partner of a
firm, but knowingly allows the firm to project to others that he
is a partner of the firm.
22

23. Dissolution of Partnership
Section 39 of the Indian Partnership Act, provides that “the
dissolution of the partnership between all the partners of a firm is
called the dissolution of a firm.” It implies the complete break down
of the relation of partnership between all the partners.
23

24. 24

25. 25
(a) Dissolution by Agreement (Section 40):
A partnership firm can be dissolved by an agreement among all the
partners. Section 40 of Indian Partnership Act, 1932 allows the
dissolution of a partnership firm if all the partners agree to dissolve it.
This type of dissolution is known as voluntary dissolution.
(b) Dissolution by Notice (Section 43):
If a partnership is at will, it can be dissolved by any partner giving a
notice to other partners. The notice for dissolution must be in writing.
The dissolution will be effective from the date of the notice, in case no
date is mentioned in the notice, and then it will be dissolved from the
date of receipt of notice.

26. (c) Compulsory Dissolution (Section 41):
A firm may be compulsorily dissolved under the following situations:
(i) Insolvency of Partners:
When all the partners of a firm are declared insolvent or all but one
partner is insolvent, then the firm is compulsorily dissolved.
(ii) Illegal Business:
The activities of the firm may become illegal under the changed
circumstances, then the firm is compulsorily dissolved.
26

27. (d) Contingent Dissolution (Section 42):
In case there is no agreement among partners regarding certain
contingencies, partnership firm will be dissolved on the happening of any
of the situations:
(i) Death of a Partner:
A partnership firm is dissolved on the death of any of the partner.
(ii) Expiry of the Term:
A partnership firm may be for a fixed period. On the expiry of that
period, the firm will be dissolved.
27

28. (iii) Completion of Work:
A partnership concern may be formed to carry out a specified
work. On the completion of that work the firm will be
automatically dissolved.
(iv) Resignation by a Partner:
If a partner does not want to continue in the firm, his
resignation from the concern will dissolve the partnership.
28

29. (e) Dissolution through Court (Section 44):
A partner can apply to the court for dissolution of the firm on
any of these grounds:
(i) Insanity of a Partner:
If a partner goes insane, the partnership firm can be dissolved
on the petition of other partners. The firm is not automatically
dissolved on the insanity of a partner. The court will act only on
the petition of a partner who himself is not insane.
29

30. (ii) Misconduct by the Partner:
When a partner is guilty of misconduct, the other partners can
move the court for dissolution of the firm. The misconduct of a
partner brings bad name to the firm and it adversely affects the
reputation of the concern.
(iii) Incapacity of a Partner:
If a partner other than the suing partner becomes incapable of
performing his duties, then partnership can be dissolved.
30

31. (iv) Breach of Agreement:
When a partner wilfully commits breach of agreement relating to
business, it becomes a ground for getting the firm dissolved.
Under such a situation it becomes difficult to carry on the
business smoothly.
(v) Transfer of Share:
If a partner sells his share to a third party or transfers his share
to another person permanently, other partners can move the
court for dissolving the firm.
31

32. (vi) Regular Losses:
When the firm cannot be carried on profitably, then the firm can be
dissolved. Though there may be losses in every type of business but
if the firm is incurring losses continuously and it is not possible to
run it profitably, then the court can order the dissolution of the
firm.
(vii) Disputes among Partners:
Partnership firm is based on mutual faith. If partners do not trust
each other, then it will not be possible to run the business. When
the partners quarrel with each other, then the very basis of
partnership is lost and it will be better to dissolve it.
32

33. 33