Partnership

Lecture 7
Partnership is the second stage in the evolution of
 forms of business organization.  It means 
the association of two or more persons to carry on 
as co‐owners,  i.e. a business for profit.  
The  persons  who  constitute  this  organization 
are  individually  termed  as  partners  and 
collectively known as firm; and the name under
 which their business  is conducted  is called 
“The Firm Name”. 
• “Partnership is the relation between persons wh
o have agreed to share the profits of a
business carried on by all or any of them acting
 for all.” 
• “A contract of two or more competent persons t
o place their money, efforts, labour
and skills, some or all of them, in a lawful 
commerce or business and to divide the 
profits and bear the losses in certain proportion.” 
 The Partnership act 1932
• An Act to define and amend the law relating
to partnership.
• It extends to the whole of Pakistan.
• It received the assent of the Governor-General
on 8 April 1932 and came into force on 1 October
1932.
•  Before the enactment of this act, partnerships
were governed by the provisions of the Indian
Contract Act, 1872.
• According to section 4 of the Partnership Act
of 1932, "Partnership is defined as the relation
between two or more persons who have
agreed to share the profits of a business
carried on by all or any one of them acting for
all”.
 Number of partners
• In ordinary business the number of partners
should not exceed 20.
• In case of banking business the number of
partners should not exceed 10.
 Application for registration
• The registration of a firm may be effected at any time by sending by post or
delivering to the Registrar of area in which any place of business of the firm is
situated or proposed to be situated, a statement in the prescribed form and
accompanied by the prescribed fee, stating -
(a) the firm name,
(b) the place or principal place of business of the firm,
(c) the names of any other places where the firm carries on business,
(d) the date when each partner joined the firm,
(e) the names in full and permanent addresses of the partners, and,
(f) duration of the firm.
• The statement shall be signed by all the partners, or by their agents specially
authorized in this behalf.
• District Registrar is Registrar of Firms in his District is the authority to register
partnership firm.
 Types of partnerships
• Partnership Act, 1932 provides different types of
partnership 
– Partnership at-will
Partnership at-will is a partnership where no provision is made
by contract between the partners for the duration of their
partnership. It is a partnership for indefinite period but can be
dissolve after giving notices to all the partners.
– Particular partnership: Particular Partnership is a partnership
where a person may become a partner with another person in
particular adventures or undertakings for a specified period.
Particular partnership will be dissolved on the completion of
particular business or undertaking.
 What is a partnership deed?
• Partnership deed or agreement is a document
in which mutual rights and obligations of all
the partners and conditions relating to
partnership and the regulations governing its
internal management and organizations are
documented, the said deed should be signed
by all the partners.
 Elements of partnership
• Association of at least two persons
• Contractual relationship
• Earning of profit
• Mutual agency
– The business of partnership maybe carried on by
all the partners or by any of them acting for all.
Thus every partner is an agent of other partners
and at the same time of the firm
 Characteristics
• Agreement:
Agreement is necessary for partnership. 
 Partnership agreement may be written or oral.  
It is better that the agreement is in written
 form to settle the disputes. 
• Business activity:
Partnership is a business unit and a business is a
lways for profit.  It must not include club or 
charitable trusts, set up for welfare. 
• Cooperation:
In partnership mutual cooperation and mutual
confidence is an important factor.  
Partnership cannot take place with out
cooperation. 
• Dissolution:
  It is dissolved if a partner leaves, dies or declared b
ankrupt.
– Dissolution of partnership
– Dissolution of firm
• Legal entity:
If partnership is not registered, it has no legal
 entity.  Moreover, partnership has no
separate legal entity from its members and 
vice versa.  
• Management:
In partnership all the partners can take part or 
participate in the activities of business
 management.  Sometimes, only a few persons are al
lowed  to manage the business affairs.
• Number of partners:
In partnership there should be at least two 
partners.  But in ordinary business the 
partners must not exceed 20 and in case of
banking business it should not exceed 10.
• Profit and loss distribution: the distribution of
profit and loss among the partners is done
according to their agreement.
• Share in capital:
According to the agreement, every partner 
contributes his share of capital.  Some partners
 provide only skills and ability to become a 
partner of business and earn profit.
• Transfer of rights:
In partnership no partner can transfer his 
shares or rights to another person, without the 
consent of all partners.
• Taxation : If a firm is registered under the income tax
act, the profit of the firm is first divided among the
partners and then assessed separately. In case it is not
registered within the meaning of income tax act, the
firm will be assessed on total profit as a single unit.
• Unlimited liability:
In partnership the liability of each partner is 
unlimited.  In case of loss, the private property of the 
partners is also used up to pay the  business debts. 
• Implied authority: Each partner is an agent of the other partner
and at the same time principal of the firm. This is an implied
authority. The moment the agreement is entered into between
the partners, this authority automatically comes to each of the
partners.
• The regular acts of business such as buying, selling of goods,
hiring of employees etc, by a partner is considered the act of the
firm or the act of all the partners.
• Each partner thus is both an agent and a principal. As an agent
he has the capacity to bind other partners by his acts done. Each
partner is principal in the sense that he is bound by the acts of
the other partners.