Overview:

CAF 04: Business Laws This chapter discusses:

Chapter 10: Partnership
Part 1: Essentials of Partnership and Basic Terms
Secret Sheet for Quick Revision Premium Content
Part 2: Mutual Rights and Duties of Partners
(For students of Muhammad Asif, FCA) (For Spring 2022)
Part 3: Authority and Liability of Partners + Other Concepts (Estoppel, Transferee, Minor)

Part 1: Nature of Partnership

LO 1: Essentials of Partnership LO 2: Difference between Partnership and LO 3: Types of Partnership LO 4: Types of Partners
Co-Ownership

1. There must be an agreement: (stating Capital, P&L Particular Partnership: Actual Partner:
ratio, Duration, Rights and Duties) 1. Formation For a particular project or period. who actively manages business and is
2. There must be association of two or more persons (2 2. Business Dissolved on expiry. known to others.
– 20, except in bank, professional firms) 3. Number of persons If continued after expiry, it becomes ‘partnership at will’. Public notice is required if he retires.
3. Parties must agree to carry on business: (charity, or 4. Sharing of profit
rental income is not business) 5. Agency Partnership at Will: Silent Partner:
4. There must be sharing of profits among partners 6. Transfer of interest Duration not specified. Does not manage business.
5. There must be mutual agency among partners Dissolved when a partner gives notice (wef specified date).
6. No separate legal status: If dissolution with consent of all, it will not be ‘partnership Sleeping or dormant partner:
7. Unlimited Liability at will’. Not known to others.
Public notice is NOT required if he retires .

Partners in Profit only:

Exceptions: Parties who share profit, but are not Does not share losses.
partner: Liability is still unlimited.
1. Lender.
2. Employee/Agent. Nominal Partner:
3. Retired/Deceased Partner. lends his name.
4. Previous owner of business.
Liability is still unlimited.
5. Minor admitted into benefits.
6. Transferee of interest.
Sub-Partner/Transferee of Interest:
Not a partner.
Case Study Tips: Not liable for debts of firm.
1. If any essentials not present, no partnership.
2. A partner may NOT share losses, participate in Partners by estoppels or by holding out:
management or bring capital. A person represented as partner.
3. A partner may also get salary or interest, if agreed.

Part 2: Mutual Rights and Duties of Partners

LO 5:Mutual Rights and Duties of Partners LO 6: Property of the Partnership/Firm

Rights of Partners:
1. Right to take part in the conduct of the business:
2. Right to be consulted: (decision on majority basis)
3. Right of access to books of accounts: (+ copy)
4. Right to share profits equally: (unless different agreed)
5. Right to receive interest on capital: (if agreed and firm
earns profit)
6. Right to receive interest on advance: (@6% or as
agreed)
7. Right to be indemnified:
8. Right to retire: (+ public notice)
9. Right of outgoing partner: (6% Interest or Share of
Profit until settled)
10. Variation in Partnership: (with consent of all partners)
11. Rights of partners after a change in firm: (mutual
rights same as before)
Absolute/General/Mandatory duties of Partners: Qualified duties of Partners: Property of the firm includes:
1. Joint and Several Liability: (i.e. Each partner has unlimited 1. Duty to use firm’s property exclusively for 1. Property (OR rights or interest in property) originally
liability) the firm: (return if benefit obtained) brought into common stock;
2. Duty to act within authority: (compensate firm if exceeded 2. Duty not to engage in competing business: 2. Property (OR rights or interest in property) acquired by
authority) A partner can do any other business but the firm or for the firm;
3. Duty in case of emergency: (can do acts to save firm from loss) cannot do similar/competing business. 3. Goodwill of firm;
4. Duty to carry on business to the greatest common advantage: 3. Duty not to assign/transfer his interest:
(no personal gain) 4. Duty to contribute to the losses: Any property purchased with partnership money will be
5. Duty to be just and faithful: 5. Duty to indemnify for willful neglect: deemed to be partnership property, unless any contrary
6. Duty to provide true accounts: 6. Duty to perform diligently his duties: intention appears.
7. Duty to provide full information: (disclose all interests in 7. Duty to work without remuneration:
transactions)
8. Duty to indemnify for fraud:
 Overview:
CAF 04: Business Laws This chapter discusses:
Chapter 10: Partnership
Part 1: Essentials of Partnership and Basic Terms
Secret Sheet for Quick Revision Premium Content
Part 2: Mutual Rights and Duties of Partners
(For students of Muhammad Asif, FCA) (For Spring 2022)
Part 3: Authority and Liability of Partners + Other Concepts (Estoppel, Transferee, Minor)

Part 3: Authority, Liability

LO 7: Authority of Partners LO 8: Liability of Partners, and Notices

Implied Authority of a partner:
1. To buy and sell goods (of business).
2. To borrow money (in trading business).
3. To receive and pay cash.
4. To settle accounts.
5. To employ servants
6. To pledge movable property of firm
7. To draw cheques or negotiable instruments.
8. To sue or defend suits.
Firm shall be liable to third parties if a third party
makes such agreements with a partner.
Exceptions: Parties who share profit, but are not
partner:
1. Lender.
2. Employee/Agent.
3. Retired/Deceased Partner.
4. Previous owner of business.
5. Minor admitted into benefits.
6. Transferee of interest.
Restrictions on Implied Authority:
1. Submit a dispute of the firm to arbitration.
2. Open a bank account on behalf of the firm in his own
name.
3. Compromise or relinquish any claim or portion of a claim
by the firm.
4. Withdraw a suit or proceeding filed on behalf of the firm.
5. Accept any liability in a suit or proceeding against the
firm.
6. Acquisition of immovable property on behalf of the firm.
7. Transfer immovable property belonging to the firm.
8. Enter into partnership on behalf of the firm.
Firm shall not be responsible if a third party makes such
agreements with a partner.
Case Study Tip: Legal Position if Partner
exceeds its Authority:
If a Partner exceeds his authority, Firm is
liable for his acts if:
1. Firm ratifies it, or
2. It is a case of emergency, or
3. Third party did not know actual authority.
Liability of a partner for acts of the firm: Effect of notice received by a partner:
Each partner has unlimited liability. Notice is served to whole firm if:
If paid more than share, reimbursement from 1. given to active partner.
other partners. 2. relates to affairs of firm.
3. Does not relate to fraud by partner receiving notice.
Liability of firm for wrongful acts of a partner:
With respect to Third Parties: Effect of representation/statement by a partner:
Firm liable to third parties (if ordinary Representation can be used as evidence if:
course, third party acted in good faith) 1. relates to affairs of the firm.
2. made in the ordinary course of business.
With respect to Partners:
Guilty partner bears whole loss, and
indemnifies firm.
Liability of firm for misapplication of money or
property by partners:
The firm is liable to third parties.

Case Study Tips:

1. If any essentials not present, no partnership.
2. A partner may NOT share losses, participate in
management or bring capital.
3. A partner may also get salary or interest, if
agreed.

Part 3: Other Concepts

LO 9: Principle of Estoppel or Holding out LO 10: Transferee of a Partner’s Interest LO 11: Minor in a Partnership
Partner

Principle of Holding out partner:
If a person is represented as a partner
and third parties gave credit to firm on such
representation, person is liable for debt.
Examples/Application: (when a non-partner
is liable)
1. Minor attaining age of majority (if no
public notice given for 6 months)
2. Retirement of Active Partner (if no public
notice given)
Exceptions: (when a partner is not liable)
1. Death of a partner:
2. Insolvency of a partner:
Rights of Transferee:
1. To receive share of profits.
2. On dissolution:
(a) share of the assets, and
(b) Accounts of firm from dissolution.
Restrictions/Disabilities/Limitations
of Transferee:
Transferee shall NOT:
1. interfere in business.
2. inspect books.
3. require accounts.
4. challenge Accounts.
5. sue for dissolution
Legal Status of a minor admitted to benefits
of a partnership:
Rights of minor admitted to partnership:
1. to share profits and property of firm.
2. to access accounts.
3. cannot be declared insolvent.
Liabilities of minor admitted to partnership:
1. No personal/unlimited liability.
2. Only share in firm is liable.
Restrictions/Disabilities of minor admitted
to partnership:
1. Not a partner.
2. Cannot file suit for profit and property,
unless he disconnects.
3. No access to books.
Legal Status of a minor on attaining age of majority:
Make Decision and Public Notice whether to become
Partner:
Within 06 months of attaining majority (or becoming
aware of partnership whichever is later)
If elected to become a partner:
1. his share as minor will be share as partner.
2. Personal/unlimited liability, since admission as minor.
If elected NOT to become a partner:
1. Continues as minor till public notice.
2. No liability for acts of firm after public notice.
3. Can sue for recovery of his share of profits and property.