SALIENT features of Indian partnership act

1932
Definition of partnership:
The Indian Partnership Act 1932 defines a partnership as a relation between two or
more persons who agree to share the profits of a business run by them all or by one
or more persons acting for them all.

Salient features of Indian partnership act 1932

1. Two or More Persons:

Minimum two persons are required to start a partnership form of

organization. Although the maximum number of partners are not stated by the
Partnership Act of 1932, but the Companies Act specifies that in banking business the
maximum number of partners can be 10 (ten) and in the non-banking business the
limit is 20 partners.

2. Contract or Agreement:

A partnership firm is an agreement between two or more persons for

running a business and for earning profits. This agreement can be oral, written,
expressed or implied.

3. Lawful Business:

The purpose of the partnership agreement is to run a business, which is

legally allowed by the government and to earn profits. A partnership to carry on
some charitable or social work or some unlawful activity, e.g., black-marketing or
smuggling, is not included in it.

4. Sharing of Profits and Losses:

In the partnership organization, the partners share the profits according to

the proportions written in the partnership agreement. In case the business faces a
loss, it will be shared proportionately.

5. Liability:

The liability of partners is unlimited as in the case of sole proprietorship.

Partners are individually and collectively liable to creditors of the firm. Hence, the
creditors have a right to recover their dues from the private property of one or all
partners, when the assets of the firm are insufficient.

6. Ownership and Control:

 Every partner has a right to take part in the management of the business.
Hence, the rights of ownership and control are jointly held by the partners. The
unanimous consent of all the partners is required to take any major decision.

7. Mutual Trust and Confidence:

Mutual trust and confidence provides the necessary basis for the
partnership agreement. Every partner is expected to act in the best interest of other
partners and also the firm. He must observe the utmost good faith in all his dealings
with his co-partners. He must render true accounts and make no secret profit from
the business of the firm or set up a competitive business.

8. Restriction on Transfer of Interest:

In case a partner wants to transfer his share in the agreement or if a

partner wants to withdraw from it, he can do so only with the approval of all the
other partners. Thus, a partner cannot transfer his interest at his own will.

9. Registration:

To form a partnership firm, it is not compulsory to register it. However, if

the partners so decide, it may be registered with the Registrar of Firms.

10. Duration:

The partnership firm continues as to the pleasure of the partners. Legally, a

partnership comes to an end if any partner dies, retires or becomes insolvent.
However, if the remaining partners agree to work together under the original firm’s
name, the firm will not be dissolved and will continue its business after settling the
claims of the outgoing partner.

11. Capital:

Finances or the capital of the firm is contributed by the partners in the

agreed proportions. Skillful persons may be taken into partnership without any
contribution of capital.

12. No Separate Individuality:

A partnership form of organization does not have separate entity from its
partners. All the contracts and agreements are applicable to both i.e., partners as well
as the firm.

13. Mutual Agency:

The partnership business can be carried on by all or any one of the

partners acting for all. In other words, every partner is both an agent and a principal.
He is an agent of other partners as he represents them and thereby binds them
through his acts. He is a principal as he too can be bound by others.
14. Formation:

Partnership is governed by the Indian Partnership Act, 1932. It comes

into existence through a legal agreement wherein the terms and conditions governing
the relationship among the partners, sharing of profits and losses and the manner of
conducting the business are specified. It must be noted that the business must be
lawful and run with the motive of profit. Thus, two people coming together for
charitable purposes will not constitute a partnership.

Types of partnerships:
The Indian Partnership Act, 1932 gives two specific types of partnerships on the basis
of duration:

1) Partnership at will
2) Partnership particular

1) Partnership at will: Section 7, where no provision is made by contract between the

partners for the duration of their partnership or for the determination of their
partnership, the partnership is Partnership at Will.

The survival of such partnership depends on the willingness of the partners. It can be
dissolved at any time by any of the partners by giving a notice to the other partners.
The partnership at will dissolves from the date of notice of termination. If a
partnership constituted for a particular time period is still carried on after the expiry
of the time, it will be presumed that the limitation is no longer applicable.

For example, if two people decide to sell coconut water at two ends on a
particular street without having any contract or without specifying when will the
partnership come to an end, it is a partnership at will. It will exist only as long as
both the parties want the partnership to last.

2) Particular Partnership: Section 8 states that a person may become a partner with
another person in particular adventures or undertakings. Such a partnership ends on
the completion of the task. A partner cannot retire from such a partnership half way
through the project for which partnership was entered into without the other
partners.

For example, partnership between two advocates or doctors for a particular

case does not take away their freedom to attend to their other cases. Two auditors
engaged in a particular audit might be regarded as partners in that audit.

CASE:
Uttamchand vs. Mohandas
KEY WORDS: subsequent discovery of illegality, partnership, minor
FACTS:
Plaintiff, a minor, claimed recovery of the vacant possession of the shop
which he had given for carrying out the business in which he was made a partner (his
guardian signed on behalf of him). In the initial proceedings, plaintiff came to know
of the illegality.
ISSUE:
Whether the contract was void ab- initio (to be treated as invalid) or
discovered to be void?
HELD:
Although the parties to the contract are presumed to know the law, yet
the presumption is rebutted if it is proven that the parties are in misapprehension,
lack of knowledge or apprehension as to their rights. In the present case, firstly, a
guardian can though validly enter into a partnership agreement on behalf of a minor
for admitting latter to the benefits of the partnership where partnership already
exists, yet a minor can never be made a partner in a firm, in the instant case from the
terms of the agreement the intention of the parties to make plaintiff only beneficiary
and not be liable for losses of partnership could be implicit; Secondly, plaintiff
though came to the Court seeking to enforce the contract, but with further
proceedings, case to know of the illegality of the contract. Therefore, on account of
conduct of the parties, facts and circumstances of the case, the contract was
discovered to be void and plaintiff was entitled to recovery of the possession of the
property.