PARTNERSHIP ACT

DEFINITION

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 [sec 4,para 1].
Persons who have entered into partnership with
one another are individually called ‘Partners’
and collectively ‘Firm’
ESSENTIALS OF A PARTNERSHIP

1. Association of two or more persons

2. Agreement
3. Business
4. Sharing of profits of the business
5. Mutual agency
RIGHTS OF A PARTNER

Subject to the agreement between the partners,

a partner has the right –
1. To take part in the conduct of the business of
a firm
2. Be consulted
3. Of access to accounts and books
4. To share in the profits of the business
5. To interest on capital (only if there is an
agreement)
6.To interest on advances at 6 percent per
annum
7.To be indemnified where he incurs liability in
the ordinary course of business of the firm.
8.To have the use of partnership property for the
purpose of the business of the firm
9. To retire.
10. Not to be expelled.
DUTIES OF PARTNERS

1. To observe good faith

2. To indemnify for fraud
3. To attend diligently to the business of a firm
4. Not to claim any remuneration
5. To share losses
6. To indemnify for willful neglect.
7. To hold and use the property of the firm for
the firm
8. To account for personal profits
9. To account for profits in completing business
10. To act within the authority
11. To be liable jointly and severally
12. Not to assign his rights
KINDS OF PARTNERS

1. Actual partner
2. Sleeping partner
3. Nominal partner
4. Partner in profits only
5. Partner by estoppel or holding out
6. Minor partner
1. Actual partner

Is the one who becomes a partner by an

agreement and is actively engaged in the
conduct of the business of partnership
2. Sleeping partner

Is the one who :

 Does not take an active part in the conduct of

the business of the firm

 He is, however liable for the debts of the firm
3. Nominal Partner

 He is the one who lends his name to the firm,

without having any real interest in it.
 He is, however, liable for the debts of the firm
4. Partner in Profits only

 He is the one who gets a share in profits only

and is not to contribute towards losses.
 He is however, liable to outsiders for the
debts of the firm.
5. Partner by estoppel or holding out

Sometimes a person who is not a partner in

firm may, under certain circumstances, be
liable for its debts as if he were a partner.
Such a partner is called a partner by estoppel

E.g. a retired businessman of some repute assumed the

honorary president ship of the business of certain
persons who requested him for the same.

Held, he was liable for the debts lf the firm to those who
gave credit to the firm in the bona fide belief that hw was
a partner .
6. Minor partner
 He has the right to share of the property and of the
profits of the firm as agreed upon

 He has the rights to have access to and to inspect

and copy of the accounts and not books of the firm

 His liability is however confined only to the extent of

his share in the profits and property of the firm

 He, on attaining majority within six months has to

confirm his interest in continuing or not as a partner.
REGISTRATION OF FIRMS

The application for registration of a firm shall

be accompanied by the prescribed fee. It
shall state:
a. The name of the firm

b. The place or principal place of business of

the firm
c. The names of other places where the firm
carries on business
d. The date when each partner joined the firm

e. The names in full and permanent address of

the partners

f. The duration of the firm.

Effects of non-registration of a firm

1. The partner of an unregistered firm cannot file a suit

against the firm or any partner thereof for the
purpose of enforcing a right arising from a
contract.

2. No suit can be filed on behalf of an unregistered firm

against any third party for the purpose of enforcing
a right arising from a contract
3. An unregistered firm cannot claim a set-off
exceeding Rs.100.
Procedure for Registration
 The application for registration should be
accompanied by the prescribed registration fee.

 If the Registrar is satisfied that the provisions as

laid down in the Act have been duly compiled with
he records an entry of the statement in the Registrar
of firms, and files the statement

 He then issues a certificate of registration.

DISSOLUTION OF FIRM

 The dissolution of partnership between all the

partners of a firm is called the “dissolution of
the firm” (Sec 39)

 Dissolution of a firm means complete

breakdown of the relation of partnership
between all the parties
 If the breakdown of the relationship is
between a few and not all the partners, it
amounts to dissolution of partnership and not
the firm

 Dissolution of a firm may be voluntary or it

may take place by the order of the court.
Dissolution of a firm without the order
of the court.
1. Dissolution by agreement
2. Compulsory dissolution
3. Dissolution by happening of certain
contingencies
4. Dissolution of notice by partnership-at-will
Dissolution of a firm with the order of
the court
At the suit of a partner, the court may dissolve
a firm on any of the following grounds:
a. Insanity of a partner

b. Permanent incapacity of a partner

c. Misconduct of the partner.

d. Persistent breach of agreement by a partner

 Transfer of interest by the partner
 Business working at loss or
 On any other grounds which the court deems
just and equitable.
Rights of partners on dissolution
 Have the business of the firm wound up and
the debts of the firm settled out of the
property of the firm

 Share in the profits of the firm earned after

dissolution
 Have the premium returned on premature
dissolution

 Restrain the use of firm name or property by

any partner for his own benefit.
Liabilities of partners on dissolution

 If a public notice is not given of the

dissolution of a firm the partners continue to
be liable to third parties for any act done by
any of them after dissolution

 After the dissolution of the firm, the partners

continue to be liable for acts done to wind up
the affairs of the firm and to complete
transactions begun but unfinished at the time
of dissolution.
Reconstruction of a firm
 Introduction of a new partner (Sec 31)
 Retirement of a partner (Sec 32)
 Expulsion of a partner (Sec 38)
 Insolvency of a partner (Sec 34)
 Death of a partner (Sec 42)