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