FACULTY OF LAW

JAMIA MILLIA ISLAMIA

PARTNERSHIP, ITS NATURE AND

CONCEPT

PRESENTED TO:
PROF. RAMSHA TANWIR

PRESENTED BY: SAMEER B.A.LL.B.(Hons) SELF FINANCE

SEMESTER-II (2021-22) ROLL NO. 36 STUDENT ID: 202101657
 ACKNOWLEDGEMENT

I would like to express my special thanks and gratitude to my mentor-teacher Professor

Ramshaw Tanwir, who gave me the golden opportunity to express my views on the topic of
Partnership, Its Nature and Concept. Without her constant support, this project would
have been a distant reality.

I would also like to express my special thanks to the Dean of Faculty, Dr. Eqbal Hussain
for their thorough counselling.

This work is an outcome of the unparalleled support that I have received from The Faculty
of Law, Jamia Millia Islamia

Thank You
 TABLE OF CONTENTS

Sr. No. Topic Page number

1 Introduction 3

2 Nature 3

3 Essentials 4

5 Kinds 5

6 Partnership distinguished 5

7 Rights and Duties 8

8 Conclusion 10

9 Bibliography 11
 Partnership, Its Nature and Concept

INTRODUCTION

‘Partnership’ is the relation between persons created by contract whereby the parties to such
contract have agreed to share the profits of a business with the further condition that the
proposed business must be carried out by all or any of them acting for all.1

Partnerships agreements are governed by the provisions of the Indian Partnership Act,1932.
The act is not exhaustive. It purports to define and amend the law relating to Partnership. It has
been expressly provided in the Partnership Act that the unrepealed provisions of the Indian
Contract Act,1872, save in so far as they are inconsistent with the express provisions of this
Act, shall continue to apply.2 The rules of contract regarding the capacity to contract, offer,
acceptance, etc will also be applicable to the partnership. But the rules regarding the status of
minors will be governed by the Partnership Act, 1932 since Section 30 of the Act talks about
the position of the minor.

NATURE

Section 4 of the Indian Partnership Act,1932 says-

‘Partnership’ is the relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all.

Persons who have entered into a partnership with one another are called individually
‘partners’ and collectively ‘a firm’, and the name under which their business is carried
on is called the ‘firm name’.

Partnership is a form of business organization, where two or more persons join together for
jointly carrying on some business. It is an improvement over the sole-trade businesses, where
one single individual with his own resources, skill, and effort carries on his own business. Due
to the limitation of the resources of only a single person being involved in the sole-trade

1
Registrar of Firms, Societies and Non-Trading Corporations, West Bengal v. Tarun Manna, 2009 SCC OnLine
Cal 2699
2
Sec. 3 of the Indian Partnership Act,1932
business, a larger business requiring more investment and resources than available to a sole
trader, cannot be thought of in such a form of business organization. In a Partnership, on the
other hand, a number of persons could pool their resources and efforts and could start a much
larger business. In case of loss also the burden gets divided amongst various partners in a
Partnership.

A firm has been described as a compendious way of describing the individuals constituting the
firm.3 In certain respects, a partnership is a more suitable form of business organization than a
Company. Partnership only requires an agreement between various persons, whereas in the
case of a Company, there are a lot of procedural formalities which have to be gone through
before Company is created. Because of the pronounced advantages of a partnership over a sole-
trade business, and certain advantages even over a company, it is a very popular form of
business organization.

ESSENTIALS

1) There should be an agreement between the persons who want to be partners.

➢ Partnership arises from a contract between at least two or more persons for the
creation of this relationship.
➢ The parties entering into partnership must be competent to contract.4
➢ Only such a person who is not insolvent can become a partner.
2) The purpose of creating partnership should be carrying on of business.
➢ Business that partners agree to carry on must not be unlawful or opposed to public
policy.
➢ Business must be carried on by all the partners or any of them acting for all of them.
➢ Goods should not be purchased for self-consumption, but rather, for the purpose of
resale.
3) The motive for the creation of partnership should be earning and sharing profits.
➢ Although sharing of profits is one of the essential elements of every partnership but
every person who shares the profits need not always be a partner.

3
Rashiklal & Co. v. CIT, (1998) 2 SCC 49
4
Section 11 of The Indian Contract Act,1872
 ➢ Section 6 of the Indian Partnership Act,1932, talks about determining the existence
of partnership, regard must be had to the real relation between the parties, after
taking all the relevant facts into account.
4) The business of the firm should be carried on by all of them or any one of them acting
for all, i.e., in mutual agency.

KINDS

1. On the basis of the duration of the term of partnership-

a) Partnership at will: When no fixed period is prescribed for the expiration of
partnership then it is a partnership at will. Section 7 of the partnership act requires that
there should be no agreement or clause about the determination of the period of
partnership.
b) Partnership for a fixed period: The duration of the partnership firm is fixed by
partners. After the expiration of the fixed period the partnership comes to an end. If the
partners decided to continue with the partnership even after the expiry of the fixed
period, then it becomes a partnership at will.

2. On the basis of the extent of the business carried by a partnership

a) Particular Partnership: Partnership is created for completing any project or
undertaking. Partnership comes to an end when such an undertaking or project has been
completed. The partners have a choice to continue with the firm or dissolve it.
b) General Partnership: Partnership is created for the purpose of carrying out the
business. No particular task to be completed is set. The task is general in nature.

PARTNERSHIP DISTINGUISHED

• Partnership and Hindu Joint Family (HUF)

1. The basis of partnership is a contract between persons. The relation of members of
Hindu Joint Family is based on the status of persons i.e., a person becomes its member
by virtue of his being born in the particular family.
2. A partnership is governed by the provisions of the Indian Partnership Act, 1932. A HUF
business is governed by Hindu Law Succession Act,1956.
3. In a partnership business, the number of members cannot exceed 20 in the case of non-
banking businesses and 10 in the case of banking businesses. But there is no such
ceiling on the number of members (coparceners) in HUF.
4. Consent of all the partners is needed for the addition of a partner in a partnership firm.
no such consent is needed for the addition of a member to the HUF.
5. A minor cannot become a full-fledged partner in a firm; he can be admitted only to the
benefits of a partnership. In a HUF, a male child becomes a full-fledged member by
birth.
6. There is mutual agency between the partners of a partnership firm, and the act done by
any of the partners binds the firm, whereas there is no such mutual agency between the
members of HUF. In HUF this right rests with the Karta only, other members may be
allowed by Karta expressly or impliedly to contract debts on behalf of the firm
7. The liability of a partner is not only joint liability or limited to his share in the
partnership business, the liability is several also. Such liability is unlimited. The liability
of the coparceners, on the other hand, is limited only to the extent of their shares in the
family business.
8. Each partner has the right to inspect the books of account of the firm and demand a
copy thereof, he can even demand the accounts of the past dealings. But a coparcener
has no right to ask for the accounts of past dealings. He can ask for the position of the
existing assets only.
9. A partnership is dissolved by the death or insolvency of a partner but that is not so in
the case of HUF.

• Partnership and Company

1. A partnership firm is merely a collective name of all the partners. It does not have a
separate legal personality. A company is a legal entity different from its members.
2. The registration of the partnership firm is not compulsory whereas to form a company;
it needs to be registered.
3. For the creation of a partnership, there must be at least 2 partners. For the formation of
a company, there must be at least 2 members in the case of private companies and 7 in
regard to public companies.
4. In a partnership business, the number of members cannot exceed 20 in the case of non-
banking businesses and 10 in the case of banking businesses. The maximum numbers
of members in private companies are 50, whereas there is no limit to the maximum
number of members in public companies.
5. The shareholder of a company can transfer his share to anybody he likes, but a partner
cannot substitute another person in his place unless all the other partners agree to the
same.
6. On the death of a member of a company, his legal representative will step into his shoes
for the purpose of his rights in the company, but on the death of a partner, his legal
representatives do not get substituted in his place in partnership.
7. The liability of the members of a company is limited but the liability of the partners is
limited.
8. If all the partners cease to be partners i.e., all of them die or become insolvent, the
partnership firm gets dissolved. A company being a person different from the members,
the members may come and go but the company’s life is not affected thereby.

• Partnership and Co-ownership

1. A partnership arises from an agreement between certain persons but persons may
become co-owners of some property even without an agreement. For instance, after the
death of the father, his sons become co-owners of his property.
2. A partnership is formed under Partnership Act, 1932 but there is no such act governing
co-owners.
3. The purpose of a partnership is the carrying on of business and sharing the profits,
whereas person may become co-owners of the property without engaging themselves
in any business.
4. A partner cannot transfer or sell the whole of his share to an outsider so as to substitute
an outsider in his place. A co-owner on the other hand has a right to transfer his part of
the share to anybody he likes.
 5. In a partnership business, there is mutual agency between the partners and the act dine
by any partner bind the others. There may be no mutual agency between the co-owners,
and the act of one co-owner does not bind the others.

RIGHTS AND DUTIES

• Rights of the Partners

There are various rights granted by the Indian Partnership Act of 1932 to every partner.
These are contained in Sections 12-17 and are ‘subject to contract between the partners.’
Therefore, unless it has been agreed otherwise, the following rights as contained in the
above-mentioned provisions are:

1. Section 12(a) of the provides every partner right to take part in the conduct of the
business. The partners are free to provide in their agreement that only some of them
will take part in the conduct of business and other partners will not.
2. Section 12(c) gives every partner the right to express their opinion.
3. Section 12(d) grants every partner right to access and inspect and copy any books
of the firm. This right is available to both active and dormant partners.
4. Section 13(b) provides every partner right to share profits.
5. Every partner has a right to interest on capital and advances. Section 13(c) says
‘where a partner is entitled to interest on the capital subscribed by him such interest
shall be payable only out of profits.’ Section 13(d) further says ‘a partner making, for
the purposes of the business, any payment or advance beyond the amount of capital he
has agreed to subscribe is entitled to interest thereon at the rate of six percent, per
annum.’
6. Section 13(e) grants the right to indemnity against certain payments and liabilities to
every partner acting on the behalf of firm.

• Duties of the Partners

There are two types of duties incorporated in the Indian Partnership Act,1932-
 1. Subject to contract between partners: Sections 12-17 enlists certain duties which are
subject to contract between the partners. The duties of the partners as incorporated in
these sections are-
a) Duty to be diligent: According to Section 12(b), every partner is bound to attend
diligently to his duties in the conduct of the business of the firm. It has been further
provided in Section 13(f) that if the firm suffers any loss by the wilful neglect of a
partner, he shall indemnify the firm for the same. The expression ‘wilful neglect’ means
an act done intentionally and deliberately rather than by inadvertence or an accident.
b) Duty to properly use the firm’s property: According to Section 15, the property of
the firm is to be used by the partners exclusively for the purpose of the firm’s business
rather than the private and personal use of the partner.
c) Duty not to earn personal profits or to compete: A partner should act for the greatest
common advantage of the firm rather than for personal profits. Section 16(a) makes
every partner accountable to the firm for any profit made by him in certain cases. In
Gordon v Holland,5 a partner sold the land belonging to the firm to a bona fide
purchaser and then repurchased that land himself, it was held that all the benefits made
by this partner on re-purchase of the land had to be given to the firm.
2. Not subject to contract between parties: Section 9 and 10 enlists certain duties which
are not subject to contract between the partners. The duties of the partners as
incorporated in these sections are-
a) Section 9 mentions 4 duties that have to be followed by every partner-
➢ Duty to carry on the business to the greatest common advantage
➢ Duty to be just and faithful to each other
➢ Duty to render true accounts
➢ Duty to render full information of all things affecting the firm
b) Duty to indemnify for fraud: If a partner commits fraud against a third party while
acting in the ordinary course of business of the firm, the third party can make the firm
liable for the same. Section 10 entitles the firm to recover indemnity from the partner
guilty of fraud because of which the firm had to suffer the loss.

5
(1913) 108 L.T. Rep. 385.
CONCLUSION

Partnership is a very common type of business that is prevailing in the country. Partnership is
very important because in day-to-day activities we enter into partnership agreements and by
making partners big goals are achieved with the help of the joint effort of a greater number of
people. Division of work leads to an increase in efficiency at work among different partners.

Partnership is one of the oldest forms of business relationships. Though limited liability
companies have replaced partnership firms in complex businesses, partnerships are still
preferred by professionals and small trading and business enterprises in India and abroad.
It has many advantages for the company. This Act is a complete Act as it covers all the aspect
related to the partnership.
 BIBLIOGRAPHY

1) The Indian Partnership Act,1932

2) Pollock and Mulla. The Sale of Goods Act and The Indian Partnership Act

3) Dr. Avtar Singh. Introduction to Law of Partnership Including Limited Liability

Partnership

4) Dr. R.K. Bangia. Indian Partnership Act

5) The Indian Partnership Act, 1932, India, available at:

http://www.legalservicesindia.com/article/158/Indian-Partnership-Act,1932.html