PART I: INTRODUCTION

1. INTRODUCTION
1.1 Short Title, Extent and Commencement [Section 1]
 The relevant law for partnership businesses in Pakistan is the Partnership Act, 1932.
 Referred to as “the Act” or “this Act” in this chapter and the next two chapters.
 Enforced from October 1, 1932, applicable throughout Pakistan.
1.2 Definitions [Section 2 and 4]
 Partnership Act, 1932 defines key terms:
 "Partnership": A relation between persons sharing business profits.
 "Partners": Individuals in the partnership.
 "Firm": The collective term for partners.
 "Firm name": The name under which the business operates.
 "Act of a firm": Actions or omissions by partners or agents with enforceable
rights.
 "Business": Encompasses trade, occupation, and profession.
 "Third party": A person not part of the partnership.
 Example 01 illustrates these definitions.
1.3 Application of Contract Act [Section 3]
 Provisions of Contract Act, 1872 apply to firms unless inconsistent with Partnership
Act, 1932.

2. TEST OF PARTNERSHIP
2.1 Mode of determining existence of Partnership [Section 6]
 Criteria for determining a partnership:
 Association of persons.
 Agreement.
 Carrying on business.
 Sharing profits.
 Mutual agency.
 Example 02 illustrates illegal association due to excess partners.
 Example 03 shows a valid partnership of professional persons.
2.1.2 Agreement
 Partnership is a contractual agreement, express or implied.
 Partnership deed includes essential details.
 Example 04: Partnership with a written agreement.
 Example 05: Implied partnership agreement.
2.1.3 Carrying on business
 Partnership requires an agreed business activity.
 Example 06: Co-owners, not partners, due to no business activity.
2.1.4 Sharing of profits
 Essential for partnership; partners decide profit-sharing terms.
 Example 07: Varied profit-sharing agreement.
 Example 08: Sharing revenues, not profits.
2.1.5 Mutual agency
 Mutual agency: Each partner is agent and principal.
 Example 09: Illustration of mutual agency in partnership.
2.2 Not a Partnership
2.2.1 Joint or common interest in the property [Section 6]
 Joint property ownership doesn't constitute partnership.
 Example 10: Co-owners sharing rent, not partners.
2.2.2 Sharing of Profits is not a Conclusive Evidence of Partnership [Section 6]
 Receipt of profits doesn't guarantee partnership.
 Examples 13 and 14: Various scenarios of non-partnership.
2.2.3 Loan from Banking Company [Section 6A]
 Agreement between a banking company and a person for profit-sharing is not a
partnership.
2.2.4 Partnership Not Created by Status [Section 5]
 Relationship arises from contract, not status.
 Example 17: Hindu undivided family and Burmese Buddhist couple not partners.
3. TYPES OF PARTNERSHIP AND PARTNERS
3.1 Types of Partnership
3.1.1 Partnership-at-will [Section 7]
 Partnership without a specific duration or termination provision.
 Example 18: Dissolving a partnership-at-will.
3.1.2 Particular partnership [Section 8]
 For specific ventures or a fixed period.
 Example 20: Interior design project partnership.
 Example 21: Transformation from particular to partnership-at-will.
3.2 Types of Partners
3.2.1 Actual or ostensible partner
 Actively engaged in business and an agent for all partners.
 Example 22: Active partner in a trading business.
3.2.2 Sleeping or dormant partner
 Unseen partner, liable for debts.
 Example 23: Secret partners in a trading business.
3.2.3 Nominal partner
 Lends name to the firm without capital contribution.
 Example 24: A retired lawyer lending name to a law firm.
3.2.4 Partner in profits only
 Shares profits without liability for losses.
 Example 25: Profit-sharing agreement with no loss liability.
3.2.5 Sub-partner
 Shares profits with a stranger, not part of the firm.
 Example 26: Sub-partnership arrangement without firm association.
3.2.6 Silent partner
 No management role but fully liable for debts.
 Example 27: Silent partners in a trading business.
3.2.7 Partner by estoppel or holding out [Section 28(1)]
 Holds out as a partner, liable as one.
 Example 22: Holding out as a partner in a trading business.

Relationship of Partners with one Another:

1. THE DUTIES, RIGHTS AND LIABILITIES OF PARTNERS:
1.1 General duties of partner:
 Duty to carry on business to the greatest common advantage [Section 9]:
 Partners obligated to operate the business for the collective benefit.
 Example 01: Raheem's failure to buy sugar at market rates breached the duty.
 Duty to be just and faithful [Section 9]:
 Partners must act with fairness and fidelity towards each other.
 Example 02: Raheem's undisclosed profit from sugar sales violated this duty.
 Duty to render true accounts [Section 9]:
 Obligation to provide accurate accounts of firm transactions.
 Example 03: Aftab, as the managing partner, must render true accounts to
Badal and Chand.
 Duty to provide full information [Section 9]:
 Partners must disclose all relevant information affecting the firm.
 Example 04: Aftab must share all pertinent information with Badal and
Chand.
 Duty to indemnify for loss caused by fraud [Section 10]:
 Partners must compensate the firm for losses due to their fraudulent actions.
 Example 05: Habib indemnifies the firm for losses caused by his fraudulent
sale.
1.2 Rights and Duties by Contract [Section 11]:
 Mutual rights and duties may be determined by contract, either express or implied.
 Variation in Partnership Contract:
 Partnership contract can be varied with the consent of all partners.
 Example 06: Nazar and Zafar's acceptance of varied profits ratio implies
consent.
 Agreement in Restraint of Trade:
 Exception to the voidness of agreements in restraint of trade under the
Contract Act, 1872.
1.3 Rights and Duties relating to the Conduct of the Business [Section 12]:
 Rights and duties subject to contractual modifications.
 Right to take part in the conduct of the business:
 Every partner has the right to participate.
 Example 07: Badal and Chand, though silent partners, have the right to take
part.
 Duty to attend diligently to his duties:
 Each partner must diligently perform assigned duties.
 Example 08: Aftab is obligated to attend diligently to his duties.
 Decision Making / Right to be consulted:
 Partners have the right to be consulted on decisions.
 Example 09: Majority decision on opening a bank account.
 No change in the nature of business without unanimous consent.
 Example 10: Unanimous agreement required for a change in the business
nature.
 Right to have access to the books:
 Every partner has the right to access and inspect firm books.
 Example 11: Badal and Chand have the right to inspect the firm's accounts.
1.4 Mutual Rights and Liabilities [Section 13]:
 Mutual rights and liabilities can be altered by contract among partners.
 Remuneration:
 No entitlement to remuneration unless agreed upon.
 Example 12: Aftab not entitled to remuneration unless agreed.
 Sharing Profits and Losses:
 Equal profit sharing in the absence of a contrary agreement.
 Example 13: Adeel and Kashif share profits equally.
 Agreement to share profits implies agreement to share losses.
 Example 14: Implicit agreement to share losses in the same ratio as profits.
 Interest on Capital:
 Interest on capital allowed only with explicit agreement.
 Example 15: No interest on capital without a specific agreement.
 Interest on Advance (Loan) from Partner:
 Interest on advances allowed at an agreed rate or 6% if not specified.
 Example 16: Adeel entitled to 6% interest on his loan.
 Right to be indemnified:
 Right to claim indemnity for payments made in the ordinary conduct of
business.
 Example 17: Saima entitled to reimbursement for protecting firm inventory.
 Duty to indemnify for wilful neglect:
 Duty to compensate the firm for losses due to wilful neglect.
 Example 18: Habib must compensate for losses caused by neglect.
1.5 Personal Profits earned by Partners [Section 16]:
 Duty to account for personal profits derived:
 Partner must account for personal profits obtained from partnership
transactions.
 Example 19: Tom must account for the profit made from selling equipment to
the partnership.
 Duty not to compete with the business of the firm:
 Partner liable for profits earned from competing with the partnership.
 Example 20: Zahid must account for profits earned from competing with the
partnership.
1.6 Rights and Duties of Partners after a change in firm [Section 17]:
 Mutual rights and duties remain unless otherwise agreed upon.
 Example 21: Reconstituted firm partners retain the same rights and duties unless
otherwise agreed.
2. THE PROPERTY OF THE FIRM:
2.1 Partnership Property [Section 14]:
 Property includes contributions, rights, acquisitions, and goodwill.
 Goodwill:
 Represents the intangible value of the business.
 Example 22: Property purchased with partnership money is deemed
partnership property.
 Contrary intention in property acquisition:
 Without contrary intention, property purchased with partnership money is
deemed partnership property.
  Example 24: Land bought by a partner for personal benefit is not partnership
property due to a clear contrary intention.
2.2 Application of the property of the firm [Section 15]:
 Duty to use partnership property exclusively for business purposes.
 Example 26: Abid's use of firm's assets for personal benefit requires compensation to
the firm.

Relations of Partners to Third Parties

1. Authority and Liabilities of a Partner and the Firm
1.1 Partner as an Agent of the Firm [Section 18]
 A partner is the agent of the firm for the purpose of the business.
 Example 01: Ali, Bilal, and Chand are partners. Ali, being an agent of the firm, can
bind Bilal and Chand. The firm is accountable for Ali's actions.
1.2 Authority of Partners
1.2.1 Actual Authority
 The authority of a partner may be specified in the partnership agreement.
 Example 02: Aftab, Badal, and Chand agreed that Aftab manages the business.
Aftab's order for goods on behalf of the firm is within his actual authority.
1.2.2 Implied Authority [Section 19]
 Implied authority allows a partner to bind the firm for ordinary business.
 Example 03: Jazib's implied authority to borrow money is restricted. Borrowing
without informing other partners makes the firm liable.
 Example 04: Azam's purchase on behalf of the firm within the scope of implied
authority makes the firm liable.
1.2.3 Statutory Restrictions on Implied Authority [Section 19]
 Certain acts are not included in implied authority without a specific agreement.
 Example 08: Zahid's unauthorized transfer of property is not valid; partners are not
liable.
1.2.4 Restriction of Implied Authority by Contract [Section 20]
 Partners can restrict implied authority by contract; effective if third parties are
aware.
 Example 09: Selling goods against restrictions makes the firm liable only if the third
party is unaware.
1.2.5 Extension of Implied Authority by Contract [Section 20]
 Partners can extend implied authority by ratifying unauthorized acts.
 Example 10: Ratification can make partners liable for exceeding the authority limit.
1.2.6 Partner’s Authority in an Emergency [Section 21]
 In emergencies, a partner can act to protect the firm from loss.
 Example 11: Yasir's sale during a market slump is within his authority to prevent
losses.
1.2.7 Mode of Exercising Authority [Section 22]
 Acts must be done or instruments executed in the firm's name or implying an
intention to bind the firm.
1.3 Liability of Partner and Firm
1.3.1 Effect of Admissions by a Partner [Section 23]
  Partner admissions are evidence against the firm if related to firm affairs in the
ordinary course of business.
 Example 12: Partner's admission of tax evasion is evidence against the firm.
1.3.2 Effect of Notice to an Active Partner [Section 24]
 Notice to an active partner is notice to the firm if it relates to firm affairs and no
fraud is involved.
 Example 13: Legal notice served to an active partner is binding on the firm.
1.3.3 Joint and Several Liability [Section 25]
 Partners are jointly and severally liable for firm acts.
 Example 15: Supplier can sue all partners jointly or any individual partner for unpaid
liability.
1.3.4 Liability of the Firm for Wrongful Acts of a Partner [Section 26]
 Firm is liable for losses caused by a partner's wrongful acts in the ordinary course of
business.
 Example 16: The firm is liable for stolen goods sold by an active partner.
1.3.5 Liability for Misapplication by Partners [Section 27]
 The firm is liable if a partner misapplies money or property received from a third
party.
 Example 17: The firm is liable for misappropriation of a security deposit by a partner.
2. Holding Out
2.1 Partner by Holding Out [Section 28]
 A person representing himself as a partner is a partner by holding out; liable if credit
is given on that basis.
 Example 18: Paras falsely represents as a partner; liable under the holding out
principle.
2.2 Direct and Indirect Representation [Section 28]
2.2.1 Direct Representation
 Partner by holding out may directly represent himself as a partner.
 Example 19: Zahid falsely represents to Yasir, who gives credit on that basis.
2.2.2 Indirect Representation
 Partner by holding out may knowingly permit indirect representation.
 Example 20: Leonardo's indirect representation leads to credit given to the firm.
2.2.3 Silence as Representation
 Silence may also constitute holding out representation.
 Example 21: Nadir's silence, when introduced as a partner, makes him liable under
holding out.
2.3 Knowledge of the Third Party [Section 28]
 The other party must act on the faith of the representation; knowledge of the
representation reaching the party is crucial.
 Example 22: Amir's statement reaching Bilal and Qasim not objecting makes the firm
liable.
2.4 Application of Holding Out on Outgoing Partners [Section 28]
 Holding out applies to retiring partners; not applicable to deceased or insolvent
partners.
 Example 24: Retired partner Rehman is liable to debts contracted post-retirement if
public notice is not given.
3. Rights of Transferee of a Partner’s Interest
3.1 Transfer of Interest [Section 29]
 A partner may transfer interest with the consent of all partners.
3.2 Right of Transferee to Share of Profits [Section 29]
 Transferee is entitled to the share of profits of the transferring partner.
3.3 Rights of Transferee on Dissolution [Section 29]
 On dissolution, the transferee is entitled to the share of assets and an account for
ascertaining the share.
3.4 Restrictions on Transferee [Section 29]
 Transferee is not entitled to partner status, interference in business, requiring
accounts, inspecting books, challenging profits, or suing for dissolution.
4. Minor Admitted to the Benefits of Partnership
4.1 Introduction [Section 30]
 A minor can be admitted to the benefits of an existing partnership with the consent
of all partners.
 Example 26: A partnership must exist before a minor can be admitted to its benefits.
4.2 Position of a Minor Before Attaining Majority [Section 30]
4.2.1 Rights
 A minor admitted has rights to a share of property, profits, and access to and
inspecting accounts.
4.2.2 Limited Liability
 Limited liability for acts of the firm; only the minor's share is liable.
4.2.3 Disabilities
 No status as a partner; cannot sue partners for profit; no entitlement to book
inspection.
4.3 Position of a Minor on Attaining Majority [Section 30]
4.3.1 Decision to Continue or Leave
 Must decide within six months of majority whether to continue or leave.
4.3.2 Liability if Decision to Continue
 If continuing, becomes a partner from the date of admission.
4.3.3 Liability if Decision to Leave
 If leaving, entitled to share at the date of leaving and not liable for post-leaving
transactions.
5. Liability of a Firm for Wrongful Acts of Partners
5.1 Introduction [Section 31]
 The firm is liable for wrongful acts of partners done in the usual course of business or
with authority.
 Example 30: The firm is liable for a partner's act of negligence resulting in a client's
loss.
5.2 Liability for Fraudulent Acts [Section 31]
 The firm is liable for fraudulent acts of a partner acting with authority.
 Example 31: The firm is liable for a partner's fraudulent misrepresentation leading to
a contract.
5.3 Liability for Misapplication by a Partner [Section 31]
 The firm is liable for a partner's misapplication of money or property received from a
third party.
 Example 32: The firm is liable for a partner's misappropriation of funds meant for
business expenses.
5.4 Liability for Breach of Trust [Section 31]
 The firm is liable for a partner's breach of trust in the course of business.
 Example 33: The firm is liable for a partner's unauthorized use of client funds.

Incoming and Outgoing Partners

31. Introduction of a Partner
 Consent Requirement
 No person can be introduced as a partner without the consent of all existing
partners.
 Subject to the contract between partners and Section 30 provisions.
 Liability
 A person introduced as a partner is not liable for any firm act before
becoming a partner.
32. Retirement of a Partner
 Retirement Modes
 With consent of all partners, according to an express agreement, or, in a
partnership at will, by giving written notice to all partners.
 Liability After Retirement
 A retiring partner may be discharged from liability by agreement with third
parties.
 Retired partners continue liability until public notice of retirement, but not to
parties unaware of the retirement.
 Notice
 Public notice of retirement can be given by the retired partner or any partner
of the reconstituted firm.
33. Expulsion of a Partner
 Expulsion
 Good faith exercise of contract-conferred powers is the only valid reason for
expulsion.
 Provisions of Section 32 regarding the retired partner apply to an expelled
partner.
34. Insolvency of a Partner
 Insolvency Effect
 Adjudication of insolvency results in the partner ceasing to be a partner.
 The firm may or may not dissolve based on the partnership contract.
35. Liability of Estate of Deceased Partner
 Non-Dissolution
 If the partnership contract stipulates, the estate of a deceased partner is not
liable for firm acts after death.
36. Rights of Outgoing Partner to Compete
 Competing Business
 An outgoing partner can engage in a competing business and advertise it.
 Cannot use the firm name, represent as carrying on the firm's business, or
solicit former customers unless specified otherwise in the contract.
 Agreement in Restraint of Trade
 Outgoing partners may agree not to carry on a similar business for a specified
period or within certain limits.
37. Right of Outgoing Partner to Share Subsequent Profits
 Unsettled Accounts
 If the surviving partners continue the business without settling accounts with
the outgoing partner, the outgoing partner is entitled to a share of profits.
 Option
 The outgoing partner or his estate has the option for a share of profits or
interest on his share of the firm's property.
38. Revocation of Continuing Guarantee by Change in Firm
 Continuing Guarantee
 A guarantee given to a firm or third party for firm transactions is revoked for
future transactions upon a change in the firm's constitution unless agreed
otherwise.

DISSOLUTION OF PARTNERSHIP [Sections 39-47]

2.1 Dissolution of Partnership

CHAPTER VI: DISSOLUTION OF A FIRM

39. Dissolution of a Firm
 Definition: Dissolution of partnership among all partners is termed "dissolution of
the firm."
40. Dissolution by Agreement
 A firm can be dissolved with:
 Consent of all partners.
 Accordance with a contract among partners.
41. Compulsory Dissolution
 Grounds for compulsory dissolution include:
 Adjudication of all partners (or all but one) as insolvent.
 Events making business unlawful.
 Exception for separate lawful adventures.
42. Dissolution on Certain Contingencies
 Firm dissolves:
 Fixed term expiration.
 Completion of specified ventures.
 Death of a partner.
 Adjudication of a partner as insolvent.
43. Dissolution by Notice of Partnership at Will
 At will partnerships can dissolve with written notice to all partners.
 Dissolution effective from the mentioned date or communication date if not
specified.
44. Dissolution by the Court
 Court can dissolve a firm on grounds such as:
 Unsound mind of a partner.
 Permanent incapacity of a partner.
 Conduct affecting business prejudicially.
  Willful or persistent breach of agreements.
 Transfer of interest without consent.
 Business cannot continue without loss.
 Other just and equitable grounds.

2.2 Consequences of Dissolution

45. Liability for Acts After Dissolution
 Partners remain liable for acts post-dissolution until public notice.
 Exception for deceased, adjudicated insolvent, or retiring partners unknown to the
dealing party.
46. Right of Partners for Business Winding Up
 Each partner, or their representative, is entitled to:
 Apply firm property to pay debts.
 Distribute surplus among partners according to their rights.
47. Continuing Authority of Partners for Winding Up
 Partners retain authority post-dissolution to wind up affairs and complete ongoing
transactions.
 Exception for partners adjudicated insolvent.
48. Mode of Settlement of Accounts
 Rules for settling accounts after dissolution:
 Losses paid from profits, then from capital, and finally by partners
individually.
 Assets applied to pay debts, advances, capital, and surplus divided among
partners.
49. Payment of Firm and Separate Debts
 Joint debts of the firm paid first from firm property.
 Surplus used for separate debts or paid to partners.
 Separate property used for separate debts, surplus for firm debts.
50. Personal Profits After Dissolution
 Clause (a) of Section 16 applies to post-dissolution transactions, subject to the
partnership contract.
 Goodwill buyer retains the right to use the firm name.
51. Return of Premium on Premature Dissolution
 Partner entitled to the return of a premium paid on premature dissolution unless:
 Dissolution due to their misconduct.
 Agreement lacks a provision for the return.
52. Rights in Case of Rescinded Partnership Contract
 Party entitled to rescind due to fraud or misrepresentation has rights including:
 Lien on the surplus.
 Creditor rank for payments made.
 Indemnification against all debts.
53. Right to Restrain Use of Firm Name or Property
 Post-dissolution, partners can restrain others from using the firm name or property
until winding up is complete.
 Exception for goodwill buyers' right to use the firm name.
54. Agreements in Restraint of Trade
 Partners may make valid agreements restricting business post-dissolution, provided
the restrictions are reasonable.