Corporate Law

By

Cdr (R) Abdul Ghaffar Advocate

LL.B, LL.M
CSRT (USA)
ECTC (UK)
FIBUA (USA)
UNMO (B/Desh)
MCTC (KSA)

Senior Lecturer
DEPARTMENT OF LAW
BAHRIA UNIVERSITY ISLAMBAD
Types of Partnership
Types of Partnership

 On the basis of Duration

 Specified duration
 Special adventure only known as Particular partnership § 8

 Unspecified duration ( partnership at will) § 7

 Nature of business ( trading/not trading)
 Trading partnership..involve in trading business..grocery business
 Non trading partnership..other than trading partnership..ex. Law
Firm/medicine/accountants
 Liability of partners
 Unlimited partnership
 Limited liability partnership ..introduced in 2017 in Pakistan
Type of Partners

 Corporate Partners..legal person § 4

 Provided that constitution of company allow that
investment
 Investment in associated undertakings. § 199 of Company
Act 2017
 What about liability of company as partner?
 To the extent of its assets only.
Salaried Partner

 If one partner gives more time and energy and skill?

 Is he entitled to extra remuneration?
 Salaried Partner:
 partner not entitled to remuneration.. § 13(a)
 subject to contract between partners

 Junior partners in professional firm don’t contribute

capital, rather work on salary
 Incoming Partner/New
partner Ch. V § 31
 Whether new partner can be added?
 Subject to contract and § 30
 Consent of all partners to add new partner
 Subject to § 30
 Is new partner liable for all acts of firm done before and after his inclusion?
 New partner not thereby liable for acts of firm done before his admission
 However he may be liable if
 an novation ( new agreement) is made b/w partners regarding past debts in which
creditor is also involved OR
 he takes part in an indemnity contract regarding past debts
 Such an agreement may be express or implied
 creditor continues to deal with the partnership in full knowledge of the change of
partners
 Similarly no object from new partners in respect of this debt
 Outgoing and Retiring Partner § 32

 The partner who leave or retire from partnership

 A partner may retire –
 with the consent of all the other partners,
 in accordance with an express agreement by the partners, or
 partnership is at will, by giving notice in writing to all the other partners of his
intention to retire
 What about his liability?
 He and other partner liable for any act that is supposed to be act of the firm
UNLESS public notice is given
 Provided that he not liable if 3rd party did not know that he was partner
 Notice of retirement may be given by any partner
 Retiring partner may be discharged from liability to 3rd Party for earlier acts
of firm by agreement
 Between 3rd party and other partners
Example

 Thus A, B and C are partners.

 A retires, and a new partner X is introduced into the
firm.
 X agrees to take over the liability of A.
 D, the creditor agrees with A and the reconstituted
firm of B, C and X that he will look only to the new
firm for the payment of debt.
 A, the retiring partner, is discharged from liability to
D.
 Partner by Holding
out/estoppel/nominal partner §
28
 Literally means to show up, extend up
 Based on principle of Contract Act § 237
 When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his
principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced
such third persons to believe that such acts and obligations were within the scope of the agent’s
authority.

 § 28 (1) Any one who by words spoken or written or by conduct represents himself, or
knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner
in that firm to any one who has on the faith of any such representation given credit to the
firm, whether the person representing himself or represented to be a partner does or does not
know that the representation has reached the person so giving credit.

(2) Where after a partner's death the business is continued in the old firm name, the continued
use of that name or of the deceased partner's name as a part thereof shall not of itself make his
legal representative or his estate liable for any act of the firm done after his death.
 Two situations
 Represented himself

 Permits to be represented
 In Practice..People willing to deal with A (reputed person) and reluctant with B.
 A may give his name after getting any benefit
 Ex. Mr A allows his name on letter-head of firm
 Two condition should be present for application of § 28
 1. There must be representation
 2. Another person must have given credit to the firm on the faith of such representation.
 Representation may be express or implied
 It is irrelevant weather such a representation is fraudulent or negligent..
 Even ignorance of the effects of such representation would not absolve him from
liability if a common reasonable man may be induce from such representation.
 A former partner, if so represented, does not become liable merely because his name
continues in firm’s name..he would be liable if he has not given the notice of leaving
the firm
 HBL v Mian Muhammad Yaqoob and Mian
Muhammad Shah etc 1982 CLC 714 Kar

 HBL bring suit for recovery of amount from Four Def.

 1 Firm (Yaqoob and Shah),
 2 &3 (sons of Yaqoob) and
 4. A company controlled by Def 3&4
 HBL provided overdraft facilities to firm. In a similar loan extended to firm,
two partners made promissory note in favor of firm as a consideration.
 Failure to pay and thus instant suit was filed
 Counsel contended that firm not registered and was not existing.
 Court held that both partners had executed different promissory notes and
letter of guarantee on behalf of firm, sufficient to conclude that there
were partner of the firm
 They hold themselves out to be partners, banks granted credit, thus § 28
applicable.
 30. Minors Partner

 Whether minor may become partner?

 Generally NO but some exceptions
 A person who is minor according to the law to which he is subject may not be a
partner in a firm, but, with the consent of all the partners for the time being,
he may be admitted to the benefits of partnership § 30(1)
 He has limited rights and limited liabilities
 Two conditions for minor to be admitted
 The existence of valid partnership
 Mutual consent of partners to admit him for the benefit of firm
 Inclusion of minor in partnership may be mutually beneficial. How?
 Property of the minor may be invested and profit earned
 Partnership received some investment that can be used for partnership advantage
 Minor may be admitted with the consent of all partners for the benefits of
partnership
Right of minor partners

 Such a minor has right

 To share property of firm
 To share profits as agreed upon
 Access, inspection and copy of accounts
 How about liability?
 His share is liable for acts of firm but not personally liable (limited
liability)
 Can’t sue for accounts/payment of his share in property/profit of firm
 except on severing the connection with the firm. Why?
 in that suit, all partner together or partner entitled to dissolve the firm may request court to
dissolve the firm, and then all accounts thereby settled accordingly
 Isnot personally liable for the acts of the firm and
thus his personal property not to be used for the
debt of the firm
 In 6 months of attaining majority, OR of obtaining
knowledge regarding his share in firm whichever
later, the minor
 Has option to become partner and entitled to share to
which he was entitled as minor OR
 Has option not to become partner
 On choosing to be partner ?
 He become full partner.
 Would he be personally liable for previous debts?
 Rights and liabilities continue up from joining date AS WELL AS
personally liable for previous acts
 Same shares to property and profit
 On choosing not to be partner ?
 Right and liabilities as minor partner continue until public
notice of his decision
 After notice, his share not liable for acts of firm
 Entitled to sue partners for his accounts and profits
 Sub-section 7 and 8 (above two situations) no to affect holding out
provisions
 1988 PTD (Trib.)383
 A firm was refused to be registered because minor were named as partners
and not partners for the benefit of firm. Thus appeal to tribunal.
 Benefit of the firm and not profit of firm
 Profit include advantage only and benefit is broader term that does not
excludes loses to minor. i.e. if minor may bear losses for the benefit of
firm
 Benefit (bien fait) good dead
 Profit pro forward fit to do/make thus to progress/gain
Right and Duties of Partners

 Again Law of Partnership based on Contract

 Thus duties and right may be determined by contract
 Sharing of profit and loss, or adjust account
 Both Express and Implied (from the practises)
 Partners are owner and agents of firm
 Generally rights based on ownership
 Duties based on agency principles
Rights of Partners
Right to take part in business

 § 12(a) each partner has right to take part in conduct of

business
 Right vests irrespective of his contribution
 Possession of property of firm
 §15 says property to be held by partners exclusively for the
purposes of firm. Thus he can possess
 If a partner restrained, can obtain injunction..however exclusion
of such right is not unusual in partnership deed
 § 12(d) Right to have access to books, inspect and copy
 Such right may be exercised by agent ( for ex. An accountant to verify
accounts)
 objection on agent may be raised if trade secrets are involved
 § 13(a) Right to Remuneration
 a partner not entitled to receive remuneration for conducting business
But
 Subject to contract between partners
 Thus may by consent of all pay remuneration to managing partner
 13 (b) Right to share profit
 Entitled to share profit and losses equally..
 however deed may provide that any partner not liable for
loss..
 secondly since profit is earned annually, better to determine
an monthly income to drawn from partner’s account
 13 (c) Interest on Subscribed capital
 It may be provided in contract that a partner to get interest on capital
but should be paid out of profit only…Why?
 because his contribution is not debt to the company, hence his returns
should logically be from profit and not from capital of the company
 For instance during business, firm needs money for any project, and a
current or new partner commits that money as partner, that would be
part of capital and thus any interest if claimed would be deducted
from profit of business.. 2014 WL 2194566
 13(d) Interest on loan to firm
 payment by partner beyond subscription of capital, interest of 6
percent..here loan is involved
 13(e) Right to indemnity
 the firm shall indemnify a partner in respect of
payments made and liabilities incurred by him-
 (i) in the ordinary and proper conduct of the business, and
 (ii) in doing such act, in an emergency, for the purpose of
protecting the firm from loss, as would be done by a person of
ordinary prudence, in his own case, under similar
circumstances
Liability of partners

 First has to see whether firm is bound by acts of partner?

 § 22. Mode of doing act to bind firm:
In order to bind a firm, an act or instrument done or executed by a partner or
other person on behalf of the firm shall be done or executed in the firm name,
or in any other manner expressing or implying an intention to bind the firm.

 § 19. Implied authority of partner as agent of the firm:

(1) Subject to the provisions of section 22, the act of partner
which is done to carry on, in the usual way, business of the
kind carried on by the firm, binds the firm.
 If above provision applicable, then partners liable for acts of firm
 §25. Every partner is liable jointly and also severally for all acts of
the firm done while he is a partner.
Thank you

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