Presented By… Kumar Shekhar Azad Abhishek Verma Ankur Jaiswal Shailesh Kumar Yadav Vishal Prakash

(MBA 4th Sem 2008-10)

Section 4 of the Indian Partnership Act, 1932 defines Partnership as the relation between persons who have agreed to share the profits of a business carried on by all or anyone of them acting for all.”

The persons who enter into such relationship are called ‘PARTNERS’

Association of two or more persons Max. limit : 10 for banking; 20 for other business

Result of an agreement Partnership relation based on Contract. Implied or Express (Oral or Written)

Must carry on some business Trade, Occupation or Profession

Share profits of the business Business is carried on by all or any one of them

acting for all (mutual agency)

SSec 6 of the Act provides that “in determining whether a group of persons is or is not a firm or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together.” Thus all incidents of relations of the partnership are to be examined as shown in written agreement, verbal agreement or conduct.

 EExampleAA & B jointly buy a mine and lease it out. They make a

partnership agreement that they will divide the lease rent in a ratio of 50:50 between themselves. In this case A&B are having understanding that they are partners but in the eyes of law it is not partnership.

The persons who enter into such relationship are called ‘PARTNERS’

Name under which the business is carried on Any name Should not be a name already adopted by a reputed

firm, to mislead public Should not contain words : Crown, Emperor, King,

Queen, Royal, Empire, Imperial or words expressing or implying the sanction, approval or patronage of Government

Based on agreement Agreement may be express or implied

In Writing : helpful in times of adversity Written agreement : “Partnership Deed”

Essence of Partnership : Trust & Confidence

Drafted with care and signed by all partners Stamped in accordance with Indian Stamp

Act Firm should be registered and copy of the

Deed to be filed with the Registrar

A partnership agreement put to writing is termed as the ‘Partnership deed’.

The partnership deed must contain the following clauses:-

1. Name and address of the firm and nature of business to be carried on.

2. Name and address of the partners

3. Date of commencement and duration of partnership

4. The capital and any other contribution made by partners.

5. The ratio to share profit and losses amongst the partners.

6. Rules as to interest on loans and capital, their salary, commission, etc.

7. Method and arrangement of keeping accounts

8. Division of task and obligation of partners

9. Rules to be followed in case of admission, retirement or death of a partner.

10. Whether a partner is allowed to carry competing business.

11. The circumstances under which the partnership will stand dissolved.

12. In case of dispute which course of action shall be followed e.g. Court,

arbitrations etc.

Partnership at Will No provision in contract between the partners for

Duration of Partnership Determination of Partnership

If any partner gives notice of dissolution in writing, the partnership is dissolved

Particular Partnership A person may become a partner with another

person in particular adventures or undertakings. On completion of such a venture, the partnership

comes to an end. Partnership for a Fixed Term

Duration is fixed Partnership comes to an end when the term

expires. If Partners continue the business after the fixed

period, it becomes partnership at will.

Actual or Active Partner Engaged in actual conduct of the business His acts binds the firm and other partners Notice to be given in case of retirement

Sleeping or Dormant Partner Does not take part in the conduct of business Contributes his share of capital and enjoys profits and

losses Not known to outside world Not liable to third parties for the acts of the firm. Not required to give notice in case of retirement

Nominal Partners No real interest in business, Does not contribute

any capital, Lends his name only No share in profits but liable to third parties for

all acts of the firm Partner in Profits only

Shares the profits but not losses No interest in the management of the firm Liability for the acts of the firm is unlimited

Sub -Partner Partner by Estoppel or Holding Out

Represents himself as a Partner, by words spoken or written or by conduct

Liable as a partner if credit is given to the firm based on his representation. He cannot deny.

If a partner does not give public notice and his name is still used in the business, he is also liable to third parties

Deceased partner is an exception to this rule.

Lunatic : cannot become a partner Alien Enemy : cannot become a partner Alien Friend : can enter into contract Woman : Married or Unmarried can be a partner Insolvent : Cannot become a partner; ceases to be

a partner from date on which order was passed by court

It is said that minor is not capable of entering into a contract so an agreement by or with a minor is said to be void. Since partnership is formed by an agreement ,a minor cannot enter into a partnership agreement.

On the basis of general rule that minor cannot be a promisor but can be a promisee or a beneficiary.

As per section30 of the Indian partnership act 1932,“with the consent of all the partners for the time being ,a minor may be admitted to the benefits of partnership.”

1. To Share Profit- a minor has a right to share of the property and of the profits of the firm.

2. To Have Access To Accounts - a minor partner may have access to and inspect and copy any of the accounts of the firm.

3. To Sue - minor has a right to sue the partners of the firm for payment of his share of the property or profit of the firms.

4. To Elect To Become A Partner - a minor has a right to elect to become a partner on attaining majority.

An agreement with a minor is void. It does not create any legal rights and obligation . It is well explained by the following case :

A minor mortgaged his house in favor of a moneylender. To secure a loan of Rs. 20000, the moneylender advanced a part of the amount Rs.8000 to the minor. Subsequently, the minor sued for cancellation of the mortgage on the plea that he was a minor when he executed the contract.

Where else the moneylender pleaded for refund of the sum of Rs.8000 paid by him. The privy council held that a minor’s agreement was void hence the question of refunding money wont arise.

REGISTRATION REGISTRATION OF OF

FIRMSFIRMS

Time of registration Procedure of registration

When the Registrar is satisfied that the provisions of section 58 have been duly complied with, he shall record an entry of the statement in a register called the Register of Firms, and shall file the statement.

1. Obtain a statement in the prescribed form

2. Fill in the form with requested details

3. Verification and signed by partners

4. File the statement with prescribed fees with registrar of firms

5. Obtain certificate from registrar

No suit in civil court by a partner against the firm or other copartner.

No suit in a civil court by firm against third parties.

The firm or its partners can not make a claim of set-off or other proceeding based upon a contract.

Joint property of all the partners as opposed to their personal property

Property includes Originally brought into firm by partners Acquired by the firm Acquired by one or more partners for the purpose of

business Goodwill of the firm

To be held and used by all partners for the purpose of business (not for private use)

Limited Liability Partnership Act, 2008 came into effect from 31st March 2009.

LLP: A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.

LLP has separate Legal Entity Liability of the partners limited to their agreed

contribution Not liable for the independent or un-authorized actions

of other partners Perpetual succession Indian Partnership Act, 1932 not applicable No maximum limit of members; one partner should be

Indian Registrar of Companies - register and control LLPs.

1.General duties of Partners(section 9)Partners are bound-a) To carry on the business of the firm to the greatest common advantage.

b) To be just and faithful to each other.

c) And to render true accounts and full information of all things affecting the firm to

any partner or his legal representative.

2.Duty to indemnity for loss caused by fraud(section 10) Every partner shall indemnify the firm for any loss caused to it by his fraud in the

conduct of the business of the firm.

3.Agreement to restraint of trade(section 11(2))If restrained by an agreement with other partners ,a partner has a duty not to carry

on any business other than that of the firm while he is a partner.

4.To indemnify the firm for his willful neglect(section(13f))It is the duty of partner of firm that he shall indemnify the firm for any loss caused to it

by his willfull neglect in the conduct of the business of the firm.

5.Attend diligently to his duty (section 12b)Every partner is bound to attend diligently to his duties in the conduct of the business.6.Duties without any remuneration(sec.13a)It is the duty of partners to attend diligently to his duties in the conduct of the firm’s business without any remuneration.7.Firm’s property proper use(sec.16a)Every partner of the firm is under a duty to use the property of the firm only for the purpose of business of the firm.8.Duty not to compete(sec.16b)It is the duty of the partners not to carry on business similar to or in competition with the business of the firm and if any partner does any such business , he shall account for any pay to firmall profits made by him in that business.

1.Right to take in business(sec12a)Every partner has a right to take part in the conduct of the business.2.Majority Rights(sec.12c)Every partner has a right to express his opinion on any matter but in case of any difference arising as to ordinary matters related to the business he is bound by majority decision.3.Access to Books(sec.12b)Every partner has a right to have access to and to inspact and copy any of the books of the firm.4.Right to indemnify(sec13e)The firm shall indemnify a partner in respect of payment made and liabilities incurred by him---a) In the ordinary and proper conduct of the business andb) In doing such act in an emergency for the purpose of protecting the firm loss as would be done by a person of ordinary prudence,in his own case,under similar circumstances.

5.Right to profits(sec.13b &c)

If there is no otherwise agreement every partners is entitled to share

equally in the profit earned by the firm.

6.Right to interest (sec.13a)

When a partner has advanced some money beyond the amount of

capital that he agreed to subscribe for promoting the business of firm ,

he is entitled to claim intrestat the rate of 6%per annum.

7.Right to remuneration(sec.13a)

Agreement of partnershipmay provide remuneration to working partner.

1.Change in the constitution of the firm.Where a change occur in the constitution of the firm,rights and duties of the partner remains the same.2.After expiry of term.Where a firm constituted for a fixed term but continues to carryon business after the expiry of the term , the mutual rights and duties will remain the same , but only in so far as they are consistent with a partnership at will.3.Where additional undertakings are carried out.the mutual rights and duties will remain the same where a firm carried out other adventures or undertaking which was previously constituted for one or more adventures.

a)The minor has the right to receive his agreed share of the property

and of the profits of the firm.

b)He may have access to and inspect and copy any of the account of

the firm.

c)He is not personally liable for any act of the firm during his minority.

d)On attaining majority it is depend upon him to decide that he shall

remain in the firm or leave it within the period of six months.

• (1) Subject to contract between the partners and to the provisions of section 30, no person shall be introduced as a partner into a firm without the consent of all the existing partners.

• (2) Subject to the provisions of section 80, a person who is introduced as a partner into a firm does not thereby become liable for any act of the firm done before he became a partner.

(1) A partner may retire – (a) with the consent of all the otter

partners, (b) in accordance with an express

agreement by the partners, or (c) where the partnership is at will,

by giving notice in writing to all the other partners of his intention to retire.

SECTION32 RETIREMENT OF A PARTNER SECTION32 RETIREMENT OF A PARTNER (CONT…)(CONT…)

(2) A retiring partner may be discharged from any liability to any third party for acts of the firm done before his retirement by an agreement made by him with such third party and the partners of the reconstituted firm, and such agreement may be implied by a course of dealing between such third party and the reconstituted firm after he had knowledge of the retirement.

SECTION32 RETIREMENT OF A SECTION32 RETIREMENT OF A PARTNER (CONT…)PARTNER (CONT…)• (3) Notwithstanding the retirement of a partner

from a firm, he and the partners continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a party.

• (4) Notices under sub-section (3) may be given by the retired partner or by any partner of the reconstituted firm.

SECTION33 EXPULSION OF A SECTION33 EXPULSION OF A PARTNER.PARTNER. (1) A partner may not be expelled

from a firm by any majority of the partners, save in the exercise in good faith or powers conferred by contract between the partners.

(2) The provisions of sub-sections (2), (3) and (4) of section 32 shall apply to an expelled partner as if he were a retired partner.

SECTION34 INSOLVENCY OF A SECTION34 INSOLVENCY OF A PARTNER.PARTNER.• (1) Where a partner in a firm is

adjudicated an insolvent, he ceases to be a partner on the date on which the order of adjudication is made, whether or not the firm is thereby dissolved.

• (2) Where under a contract between the partners the firm is not dissolved by the adjudication of a partner as an insolvent, the estate of a partner so adjudicated is not liable for any act of the firm and the firm is not liable for any act of the insolvent, done after the date on which the order of adjudication is made.

SECTION35 LIABILITY OF ESTATE OF SECTION35 LIABILITY OF ESTATE OF DECEASED PARTNER.DECEASED PARTNER.

Where under a contract between the partners the firm is not dissolved by the death of a partner, the estate of a deceased partner is not liable for any act of the firm done after his death.

SECTION36 RIGHTS OF OUTGOING SECTION36 RIGHTS OF OUTGOING PARTNER TO CARRY ON COMPETING PARTNER TO CARRY ON COMPETING BUSINESS.BUSINESS.

(1) An outgoing partner may carry on a business competing with that of the firm and he may advertise such business, but subject, to contract to the contrary, he may not – (a) use the firm-name, – (b) represent himself as carrying on the

business of the firm, or – (c) solicit the custom of persons who were

dealing with the firm before he ceased to be a partner.

SECTION36 (CONT…)SECTION36 (CONT…)

(2) AGREEMENT IN RESTRAINT OF TRADE. A partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar to that of the firm within a specified period or within specified local limits; and, notwithstanding anything contained in section 27 of the Indian Contract Act, 1872, such agreement shall be valid if the restrictions imposed are reasonable.

Where any member of a firm has died or otherwise ceased to be a partner, and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate, then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent. per annum on the amount of his share in the property of the firm :

…….Provided that where by contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner, and that option is duly exercised, the estate of the deceased partner, or the outgoing partner of his estate, as the case may be, is not entitled to any further or other share of profits, but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof, he is liable to account under the foregoing provisions of this section.

SECTION38 REVOCATION OF SECTION38 REVOCATION OF CONTINUING GUARANTEE BY CONTINUING GUARANTEE BY CHANGE IN FIRM.CHANGE IN FIRM.

A continuing guarantee given to a firm, or to a third party in respect of the transactions of a firm, is in the absence of agreement to the contrary, revoked as to future transactions from the date of any change in the constitution of the firm.

The term ‘dissolution’ stands for discontinuation. Under the Indian Partnership Act, 1932, the dissolution may be either of Partnership or of a Firm.

Dissolution of a Partnership: Dissolution of partnership refers to the change in

the existing relations of the partners. The firm continues its business after being reconstituted.

Example: X,Y & Z are partners in a firm. X retires. The partnership between X,Y & Z comes to an end and new partnership between Y & Z comes into existence. Thus this new partnership is called ‘reconstituted firm.’

This means the dissolution of partnership between all the partners of a firm. In such a condition the business of a firm is discontinued.

Basis of Distinction

Dissolution of Partnership

Dissolution of firm

Termination of old Partnership

Old Partnership ends & new Partnership starts.

Old partnership ends but no new partnership starts.

Name of the firm The business continues under the firm’s name.

Does not continues under the firm’s name.

Revaluation Vs Realization

Revaluation a/c is prepared.

Realization a/c is prepared.

1. By Agreement (Sec 40)- A firm may be dissolved in accordance with a contract between the partners. The contract providing for dissolution may be contained in the partnership deed itself or in a separate agreement. Thus if the agreement provides the right then a partner or partners can dissolve the firm in certain events.

2. By Consent (Sec 40)- A firm may at any time be dissolve with the consent of all the partners. The consent of all the partners may be expressed or it may be inferred from the conduct of other circumstances. Dissolution by consent applies to all cases whether the firm is for a fix period or at will.

3. Compulsory Dissolution(Sec 41)- a) Insolvency of partners- If all or all but one of the

partners are adjudicated as insolvent. Because there must be at least two partners competent to carry on the business.

b) Business becomes unlawful- When some event has happened which makes it unlawful for the business to be carried on in partnership.

4. Contingent Dissolution(Sec 42)- When there is no contract to the country, then a firm may be dissolved on the happening of any of following contingencies—

a) If the firm is constituted for a fixed term, on the expiry of that term.

b) If the firm is constituted to carry out one or more adventures or undertakings, when they are complete.

c) By the death of a partner.d) By the adjudication of a partner as an insolvent.

5) By Notice(Sec 43)6) Dissolution By Court(Sec 44)a. Partner unsound mindb. Permanent Incapabilityc. Misconduct affecting the Businessd. Wilful & Persistent breach of agreemente. Transfer of Interestf. When business cannot be carried on save at a lossg. Just and Equitable

Public Notice and Liability for acts done after Dissolution (Sec45)

Despite the dissolution of the form, the partners will continue to

be liable to third party for their acts, if done before its dissolution

until public notice is given that the firm is dissolved. Right of Partners to have business wind up after

Dissolution (Sec 46)Sec 46 says that every partner or his representative has

a right against the other partneri. To have the property of firm applied in payments of

the debts and liabilities, andii. To have the surplus distributed amongst the partners.

Sec 48 lays down two fundamental principles relating to the mode of settlement of a/c, First, as to payments losses, and Second, as to application of assets.

Losses, including deficiencies of capital, shall be paid first out of profits, next out of capital, and lastly, if necessary, by the partners individually in the proportion in which they were entitled to share profit.

Where there are joint debts due from, the firm and also separate debts due from any partner, the property of the firm shall be applied in the first instance in payment of the debts of the firm, and if there is any surplus, then the share of each partner shall be applied in payments of his separate debts or paid to him. The separate property of any partner shall be applied first in the payment of his separate debts, and the surplus (if any) in the payments of the debts, of the firm.

Liability to share personal profits(Sec 50)- If a partner, after dissolution and before the

affairs of the partnership are wound up, earns any profit from any transaction connected with the firm or from any use by him of the firm's property, name or business connections, he must share it with the other partners and the legal representative of the deceased partners under the principal of sec 16(a).

But where a partner or his representative has bought the goodwill of the, he will not be bound to share profits earned by use of the firm’s name.

Where some one is admitted in to an established firm for a fixed term as a partner and paid a some of money to the old as a premium for admission. It is a kind of compensation to the old partners for the goodwill they have created and of which the new partner will enjoy the benefit. If after the premium is paid the firm is dissolved before the expiration of that term, new partner shall be entitled to repayment of the premium or of such part there of as may be reasonable unless,

The dissolution is due to death of partner, or To his own misconduct, or The dissolution is in pursuance of an agreement

containing no provision for the return of the premium or any part of it.

After a firm is dissolved, every partner or his representative may in the absence of a contract between the partners to the contrary restrain any other partner or his representative from carrying on a similar business in the firm name or from using any of the property of the firm for his own benefit, until the affairs of the firm have been wound up.

Provided that where any partner or his representative has brought the goodwill of the firm, nothing in this section shall affect his right to use the firm name.

Partner may, upon or in anticipation of the dissolution of the firm, make an agreement that some or all of them will not carry on a business similar to that of the firm. The agreement shall be valid-

i. If it specifies the period or local limits of restraint, andii. The restriction imposed is reasonable

This constitutes an necessary exception to the general rule contained in sec 27 of the contract Act which renders agreements in restraint of trade void.

Thank you……….