PARTNERSHIP ACT, 1932

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 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“

Essential elements of partnership:

1. Two or more persons:
2. Agreement:
3. Business
4. Sharing of profits
5. Mutual agency
 Partnership and Joint Hindu family

1. Basis of Formation(Agreement, Status)

2. Regulating Law(Partnership Act, 1932 and Hindu Succession Law,1956)
3. Number of Members(For Banking 10, for other than Banking 20)
4. Admission of New Members (Need consent of Partners, By birth male child
become the member, female does not become a member by birth)
5. Minor Member(minor can be admitted to the benefits)
6. Authority of Members (Only Karta has implied authority for the ordinary
course of business)
7. Liability of Members(Unlimited liability of partners, Karta is personally liable
and other members are liable for the contracts they involved with)
8. Right to accounts(Other members can not ask Karta for the past dealings or
profit and loss)
9. Registration (Does not require, Law made it compulsory indirctly)
Partnership and Co-Ownership

 Mode of Creation
 Business
 Transfer of interest
 Members
 Authority of Members(Agent Principle relationship)
 Partition of Property(A partner can not ask for, a co-
owner) can
 Lien for expenses( A partner can exercise the lien)
Duration of Partnership
 Partnership for a fixed term
 Partnership at will
 Particular Partnership
Registration of Firms
 Registration of firms is not compulsory
 As Sec. 69 deals with disabilities where firms can not
present their side in court of law without registration.
 Law made it indirectly compulsory.
 In case of registration, necessary information must be
given which is included in partnership deed in an
application which must be submitted to Registrar of
firms.
Information for the Registration
 Name of the firm
 Place of business

 Names of other places where firms are carrying

business
 Date when each partner joined the firm

 Full address of partners

 Duration of the firm

Application must be signed by all partners.

Effects of Non-Registration
1. Suits between partners and firm
2. Suits between firm and third parties
3. Claim of Set off
 Non-registration, however does not affect the following
 The third party can file a suit against the firm The partners of the firm
can file a suit for
 Dissolution of a firm

 Accounts of the dissolved firm

 Realize the property of the dissolved firm

 Right to set-off where the claim does not exceed ₹ 100

 The Official Assignee or Receiver of Court may bring an action to

realize the property of an insolvent partner

Alterations
 A statement of intimation must be sent to registrar of
firms,
1. Changing and opening of branches
2. Change in names and addresses of partners
3. Change in the constitution of firms.
 Penalty for false particulars: imprisonment extended upto 3
months or fine or both
 Inspection of Registrar Firms and documents and grant of
copies will be open to the public associated with the firm.
 Rules of evidence: the statements , notice recorded with
registrar will be considered as proof in court of law.
 Relations of Partners
 Rights of Partner:
1. Right to take part in business
2. Right to be consulted
3. Right to access accounts
4. Right to share in profits
5. Right to interest on capital
6. Right to avail interest on advances
7. Right to be indemnified
8. Right to the use of partnership property
9. Right of partner as agent of the firm
10. No new partner to be introduced
11. No liability before joining
12. Right to retire
13. Right not to be expelled
14. Right of outgoing partner to share in subsequent profit
 Duties of Partner
1. To carry on the business to the greatest common advantage
2. To be just and faithful to each other
3. To indemnify for fraud
4. To attend diligently to his duties
5. Not to claim remuneration
6. To share losses
7. To indemnify for willful neglect
8. To hold and use property of the firm exclusively for the firm.
9. To account for personal profit.
10. To account for profits in competing business.
11. To act within authority.
12. To be liable jointly and severally.
13. Not to assign his rights.
Property of the Firm
 Along with all acquired property, goodwill will be included
 Goodwill is the value of reputation and connections which the
firm establishes over time due to its integrity, efficient service
quality of products etc.
 An intangible asset.(According to Supreme Court)
 Agreement between partners in restraint of trade

 Exceptions:
1. A partner must not carry any competing business.
2. An outgoing partner may agree on , not to carry the similar
business within specified time limit or local limits.
3. All partners may give agreement in anticipation of dissolution
that any of them will not carry the similar business within
specified time limit or local limits.
4. Where the goodwill is sold after dissolution, a partner may
carry on a competing business but can not use the name of firm,
can not show that he is acting as a partner of the firm.
5. Agreement shown in pt. no. 3 can be made between partners
and the buyer.
 Implied Authority of a partner with subject to following
conditions:
1. The act done must relate to the usual business of firm.
2. The act done must be in usual way of business.
3. The act must be done in the name of the firm.
Examples of Implied Authority:
Purchasing Goods, Selling Goods, Receiving Payments,
borrowing money etc.
Not implied Authority: Any legal proceeding’s submission, opening
a bank account on own name, Any decision regarding
immovable property, withdraw or compromise in any legal suit.
Implied authority and third parties
 Extension and restriction of a partner’s implied authority
 Effect of admissions by a partner
 Effect of notice to an acting partner
 Liability of a partner for acts of the firm and vice versa
 Liability of firm for misapplication
Types of Partners
 Actual or ostensible partner
 Sleeping or dormant partner
 Nominal Partner
 Partner in profits only
 Sub-partner
 Partners by estoppel or holding out
 Minor partner
Reconstitution of firm
 Introduction of Partner-Liability
 Retirement of a partner-with consent, by will, by an

express agreement-Liability(Before and after[until

a public notice is given to the third party])
 Rights of retired partners:

1.To carry on competing business, use firm name,

sharing subsequent profit and interest on his share
of amount in property.
 Expulsion of partner:
1. Power of expulsion should be conferred from the
contract.
2. The power exercised by majority of partner
3. Power should be exercised in good faith
4. Expulsion must be in the interest of partnership
5. The partner expelled is served with a notice and
given an opportunity to be heard.
Irregular Expulsion: without satisfying above conditions.
Insolvency of partner
 Estate of insolvent partner is not liable for the acts
of the firm.
 The firm is not liable to the any act done by an
insolvent after the order.
Death of partner
 Firm will be dissolved if it is not prevented by the
contract
 No public notice is needed

 The estate of deceased partner is not liable after his

death.
Transfer of interest: by Sale
Rights and Duties of partners after a change in the
constitution of firm

 Remains same
 After the expiry of term –rights and duties will
remain same as it will be converted into partnership
at will.
 In addition of undertakings or adventures-the rights
and duties will remain same for the new if nature
remains same.
Dissolution of firm
 Extinction of the relationship
Dissolution without the order of court:
 Dissolution by agreement

 Compulsory dissolution(insolvency, unlawful activity)

 Dissolution on the happening of certain

contingency(expiry of the term, completion of

adventure, death of partner, if the partner become
insolvent)
 Dissolution by notice of partnership at will
Dissolution by Court
 Insanity
 Permanent incapacity
 Misconduct (certain act of partner may reduce the
efficiency to carry on the business)
 Persistent breach of agreement
 Transfer of interest
 Perpetual losses
Rights of a Partner on Dissolution

1. Right of equitable sharing of firm's property

2. Right to return of premium on premature winding-up
3. Right in the event of dissolution on explanation of
fraud or misrepresentation
4. Lien of surplus assets
5. Right of subrogation
6. Right to be indemnified
7. Rights to restrain any partner or his representatives
from use of firm name or firm property
Liabilities of a Partner on Dissolution

1. Liability for Acts of Partners done after

Dissolution
2. Liability for Winding up the Affairs of the Firm
and Completing Unfinished Transactions
Settlement of account
 The manner for settling partnership accounts after dissolution of the
firm, is usually provided in the partnership contract itself. If,
though, the partnership contract is silent on the matter, the accounts
of the dissolved firm shall be settled just as to the rules given is
sections 48, 49 and 55 of the Act.
 These rules are as follows;
1. Sharing of Deficiency
2. Application of Assets
3. Sale of Goodwill
4. Loss Arising from Insolvency of a Partner
5. Payment of Firm’s Debts and Separate Debts of Partners