UNIT - 2 INDIAN PARTNERSHIP ACT 1932
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UNIT - 2INDIAN PARTNERSHIP ACT 1932
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.
CharactersticsAssociation with 2 or more persons
Agreement
Business
Sharing of Profits
Mutual Agency
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.
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.
Formation of PartnershipPartnership based on agreementPartnership agreement can be made
orally or in writtenEssential elements of valid contract has
to be presentObject of the partnership should be legalMinor 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
Partnership deed The document containing the agreement
between the partners are called Partnership Deed.
Contents of Partnership Deed:
1. Nature of the business2. Place of the business3. Name and address of the partners4. Profit sharing ratio5. Interest on capital etc….
Who may not be partners
Only competent persons can enter into partnership agreement
1. Alien enemy2. Minor3. Person of Unsound Mind4. Corporation
Test for partnershipAgreement between the parties
Real relationship between the parties
Sharing of profits
Mutual agency
Cases where no partnership relation existsJoint Owners
Sharing of Profits
Membes of Joint Hindu Family
Partnership and other associationsPartnership 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
Partnership and co-ownership
Mode of CreationBusinessNature of InterestTransfer of InterestNumber of MembersAuthority of MembersPartition of PropertyLien for Expenses
Duration for partnershipPartnership for a fixed term
Partnership at will
Particular Partnership
Registration of FirmProcedure for registration:To be registered with Registrar of
FirmsContents for application of
registration
Time of Registration
EFFECTS OF NON REGISTRATIONSuits between partner and firmSuits between firm and third
partiesClaim of set offAlterationsPenalty for false particularsInspection for Registrar of Firms
and documents and grant of copies
Rules of Evidence
Relation of partners to one anotherRights of a partnerRight to take part in businessRight to be consultedRight to access accountsRight to Share ProfitsRight to interest on capitalRight to interest on advancesRight to prevent entry of new partnerNo liability before joiningRight to be as agentRight to retireRight to outgoing partner to share in the
subsequent profits if his share is not settled by other partners.
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
Property of the firmAll property originally brought
into the common stockInterest received out of the
investmentsAll properties acquired during the
course of the businessGoodwill(reputation, industrial
contacts, brand image etc… which the firm has developed over the years)
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
Relation of partners to third partiesImplied authority of a partners:Purchasing goods on behalf of the firmSelling the goods for the firmReceiving paymentsSettling accountsBorrowing money/ credit facilities on
behalf of the firmPledging on behalf of the firmEngaging servants/employees for
carrying the activities of the firm
Partners authority incase of emergencyPartner 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
Reconstitution of firmIntroduction of a partnerRetirement of a partnerExpulsion of a partnerInsolvency of a partnerTransfer of a partner’s shareDeath of a partner
Types of partnersActual/ ostensible PartnerSleeping/dormant partnerNominal PartnerPartner in profits onlySub-PartnerPartner by Estoppel/ Holding outMinor as a Partner
Dissolution of a firm
It means complete break down or
extinction of the relationship between all the partners of a firm
Dissolution of the firm
Without the order of the court
1. By Agreement2. By Compulsory
Dissolution3. On the happening
of certain contingencies
4. By Notice
With the order of the court
By AgreementWith the consent of all the partiesIn 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 to continue
Dissolution on the happening of certain contingenciesExpiry of the term
Completion of a particular adventure
Death of a partner
Insolvency of partner/partners
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
Dissolution by courtInsolventIncapacityMisconductPersistent BreachBusiness working at lossGambling of a partner in stock
exchangeFraudulent BreachPersistent refusal or neglect by a
partner to attend the business
Rights of partners on dissolutionHave the right to wound upRight to have the debts of the firm
settled out of the property of the firmShare the profits of the firm earned
after dissolutionHave the premium returned or
premature dissolutionRestrain the use of firm name or
property by any partner for his own benefit
Liabilities of a partner on dissolutionIf 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
Settlement of accountsSale of GoodwillSharing 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
Public Notice
To be given when RetirementDissolution of a registered firmAddition of new partnerBy how:1. By notice to the Registrar of Firms2. By publications in the Official
Gazette3. By publication in Newspapers
Consequences if public notice not givenOn retirementOn dissolutionOn expulsion
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