This document defines partnership and outlines key concepts in Indian partnership law. [1] A 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. The partners are individually called partners and collectively called a firm. [2] Some key characteristics of a partnership include an association of two or more persons, an agreement to carry on business together, sharing of profits, and mutual agency between the partners. [3] On dissolution, the partners have rights related to winding up the business and settling accounts, and liabilities regarding unfinished transactions and notice of dissolution.

1. UNIT - 2
INDIAN PARTNERSHIP ACT 1932

2. DEFINITION OF
PARTNERSHIP
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.

3. Characterstics
 Association with 2 or more persons
 Agreement
 Business
 Sharing of Profits
 Mutual Agency

4. Law of partnership-extension of
law of agency
The 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.

5. A partner assumes 2 fold
character:
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.

6. 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

7. Partnership deed
The document containing the agreement
between the partners are called
Partnership Deed.
Contents of Partnership Deed:
1. Nature of the business
2. Place of the business
3. Name and address of the partners
4. Profit sharing ratio
5. Interest on capital etc….

8. Who may not be partners
Only competent persons can enter into
partnership agreement
1. Alien enemy
2. Minor
3. Person of Unsound Mind
4. Corporation

9. Test for partnership
 Agreement between the parties
 Real relationship between the parties
 Sharing of profits
 Mutual agency

10. Cases where no partnership
relation exists
 Joint Owners
 Sharing of Profits
 Membes of Joint Hindu Family

11. Partnership and other
associations
Partnership 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

12. 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

13. Duration for partnership
 Partnership for a fixed term
 Partnership at will
 Particular Partnership

14. Registration of Firm
Procedure for registration:
To be registered with Registrar of Firms
Contents for application of registration
 Time of Registration

15. EFFECTS OF NON
REGISTRATION
 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

16. Relation of partners to one
another
Rights 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.

17. 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

18. 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)

19. Agreements in restraint of
trade
Exceptions:
1.A partner shall not carry on another business
while he is a partner
2.An outgoing partner may agree with his
partners not to carry on a similar business
within a specific period
3.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

20. Relation of partners to third
parties
Implied 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

21. Partners authority incase of
emergency
Partner 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

22. 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

23. 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

24. Dissolution of a firm
It means complete break down or
extinction of the relationship between
all the partners of a firm

25. Dissolution of the firm
Without the order of With the order of the
the court court
1. By Agreement
2. By Compulsory
Dissolution
3. On the happening
of certain
contingencies
4. By Notice

26. By Agreement
 With the consent of all the parties
 In accordance with the contact between
them
Compulsory dissolution
1. When one or all partners become
insolvent
2. By the happening of any event which
makes it unlawful for the business firm

27. Dissolution on the happening of
certain contingencies
 Expiry of the term
 Completion of a particular adventure
 Death of a partner
 Insolvency of partner/partners

28. Dissolution by notice
Firm 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

29. 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

30. Rights of partners on
dissolution
 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

31. Liabilities of a partner on
dissolution
 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

32. 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

33. Public Notice
To be given when
 Retirement
 Dissolution of a registered firm
 Addition of new partner
By how:
1. By notice to the Registrar of Firms
2. By publications in the Official Gazette
3. By publication in Newspapers

34. Consequences if public notice
not given
 On retirement
 On dissolution
 On expulsion