INDIAN

PARTNERSHIP ACT,
1932
 SALIENT FEATURES OF
PARTNERSHIP ACT
 The Indian Partnership Act was enacted in 1932 and it came into force on 1st day of October,
1932.
 The present Act superseded the earlier law relating to Partnership, which was contained in
Chapter XI of the Indian Contract Act,1872. The Act is not exhaustive.
 It purports to define and amend the law relating to Partnership.
 The act came into force on 1st day of October 1932 except section 69 , which came into force
on the 1st Oct, 1933.
 The provisions of Indian Contract Act, 1872 also applies to firms except where the Indian
Partnership Act 1932, specifically provides to the contrary. (Sec-3)
 PARTNERSHIP (Sec-4)
 Partnership is the relation between two or more persons who have agreed to share the profits of a business carried
on by all or any of them acting for all.
 ESSENTIAL ELEMENTS OF PARTNERSHIP
 1. Two or More Persons-Must be at least 2 persons to form a partnership & all such persons must be competent to
contract. Sec-11 talks about the competency of parties. (Minor, Unsound Mind, Disqualified by law are
incompetent)
 2. Agreement (Sec-5)
 3. Business (Sec-2(b)- trade, occupation and profession
 4. Sharing of Profits – Prima facie evidence and not a conclusive evidence
 5. Mutual Agency
 Meaning of Partner, Firm, and Firm Name
 Persons who have entered into Partnership with one another are called individually ‘Partners’
and collectively a ‘firm’.
 The name under which their business is carried on is called the ‘Firm Name’.

The maximum limit on no. of Partners

As per Sec-464 of Companies Act, 2013, the maximum limit is 100.
If the no. of partners exceeds the aforesaid limit, the partnership firm becomes an illegal
Association.
 NATURE OF PARTNERSHIP FIRM

 A partnership firm is not a person in the eyes of law. It has no separate legal identity apart from
the partners constituting it.
 The firm themselves cannot enter into a contract for partnership though their partners can.
 TEST OF PARTNERSHIP (LEGAL POSITION)
 Sec-6 is based on the principle laid down in an important case of Cox v. Hickman(1860). The
analysis of this section reveals that the following is the true test of partnership:
 (a) The partnership is determined from the real relation between partners and such relation
must show the existence of Mutual Agency relationship, and
 (b) the sharing of profit is prima facie evidence but not a conclusive test of partnership.
 REGISTRATION

 Registration means getting the partnership registered with the registrar of Firm of the area in which the place of
business of the firm is situated or proposed to be situated.
 PRACTICAL STEPS INVOLVED IN THE REGISTRATION
 Step 1. Obtain a Statement in the prescribed form from the office of the Registrar of Firms of the area in which any
place of business of the firm is situated or proposed to be situated.
 STEP 2. State the following information in the statement:
 (A) Name of the Firm
 (b) the principal place 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 addresses of the partner
 (f) the duration of the Firm
 STEP 3. Get the statement duly verified and signed by all the partners or by their duly authorized agents.
 STEP 4. File the Statement along with prescribed fees with the Registrar of the Firms of the area.
 STEP 5. Obtain a Certificate from the Registrar.

 When can a firm be registered

 Since the registration of a firm is not compulsory , it can be effected at any stage, i.e. at the time of its formation
or at anytime thereafter.
 Sec 69(2) provides that no suit can be filed by or on behalf of an unregistered firm in a court. This means the
firm must be registered before any suit is filed in the court.
 When does the Registration becomes effective?
 Registration becomes effective from the date of filing of the duly signed and verified statement along with the
prescribed form.

 Under the Indian Partnership Act 1932, the registration of a firm is not compulsory. But indirectly, by creating
certain liabilities from which an unregistered firm suffers, the law has made the registration of firms desirable.
 EFFECTS OF NON-REGISTRATION
 1. NO SUIT BY A PARTNER AGAINST THE FIRM OR OTHER PARTNER(Sec-69(1))
 2. NO SUIT BY THE FIRM AGAINST THE THIRD PARTIES (Sec-69 (2))
 3. NO RIGHT TO CLAIM SET OFF IN EXCESS OF Rs. 100 (Sec 69(3))
 MUTUAL RIGHTS AND DUTIES
 MANDATORY DUTIES (Sec 9 & 10 )
 These provisions lay down the mandatory duties of partners which cannot be changes by mutual agreement
amongst partners.
 Mandatory Duties are
 To carry on the business of the firm to the greatest common advantage
 To be just & faithful to each other
 To render true accounts and full information of all things affecting the firm to any partner or his legal
representative
 To indemnify the firm for loss caused to it by his fraud in the conduct of the business of the firm.
 GENERAL DUTIES OF PARTNERS
 TO ATTEND DILIGENTLY (Sec 12(b)
 NOT TO CLAIM REMUNERATION FOR TAKING PART (Sec 13 (a)
 TO CONTRIBUTE EQUALLY TO THE LOSSES (Sec 13 (b)
 TO INDEMNIFY THE FIRM (Sec 13 (f)
 TO HOLD & USE FIRM’S PROPERTY FOR BUSINESS PURPOSE (Sec-15)
 TO ACCOUNT FOR & PAY THE PERSONAL PROFITS FROM TRANSACTIONS OF FIRM etc. (Sec 16(a)
 To ACCOUNT FOR & PAY THE PERSONAL PROFITS FROM A COMPETING BUSINESS (Sec 16 (b)
 RIGHTS OF PARTNERS
 1. RIGHT TO TAKE PART (Sec-12(a)
 2.RIGHT TO EXPRESS OPINION (Sec-12 (c )
 3. RIGHT TO HAVE ACCESS TO BOOKS (Sec-12(d)
 RIGHT TO SHARE PROFITS EQUALLY (Sec-13(b)
 4. RIGHT TO RECEIVE INTEREST ON CAPITAL OUT OF PROFITS (Sec-13 (c)
 5. RIGHT TO BE INDEMNIFIED
 6. RIGHT TO PREVENT THE INTRODUCTION OF A NEW PARTNER (Sec 31)
 7. RIGHT TO RETIRE (Sec-32)
 8.RIGHT NOT TO BE EXPELLED ( Sec-33)
 9. RIGHT TO CARRY ON COMPETING BUSINESS (Sec 36(1)
 10. RIGHT TO SHARE SUBSEQUENT PROFITS (Sec-37)

 RELATION OF PARTNERS WITH THIRD PARTIES (Sec-18)

 The relations of partners with third parties are governed by the mutual agency relationship
existing among the partners. According to Section 18, “every partner is an agent of the firm for
the purposes of the business of the firm . In other words , every partner has the capacity to bind
other partners by his acts done in firm’s name . Therefore all partners are liable to third parties
for the acts of every partner done for the purpose of the business of the firm.
 IMPLIED AUTHORITY OF A PARTNER

 The authority of a partner means the capacity of a partner to bind the firm by his act. This
authority may be express or implied. The authority conferred on a partner by mutual agreement
is called ‘express authority’.
 The authority conferred on a partner by the provisions of sec-19 is called Implied Authority.
Implied authority covers those acts of partners which fulfill the following three conditions.
 A. The act must relate to the normal business of the firm ;
 B. The act must have been done in the usual way of carrying on the business of the firm.
 C. The act must be done in the firm’s name or in any other manner expressing or implying an
intention to bind the firm.
 INCOMING PARTNER (Section-31)
 Subject to the provisions of Sec-30(regarding minor partner) a person may be admitted as a
partner either-
 (i) with the consent of all the existing partners, or
 (ii) in accordance with a contract already entered into between the existing partners for the
admission of a new partner.
 The partnership agreement between X & Y provides that X could introduce into partnership
any of his sons on attaining the age of majority. X decides to admit his son (who has attained
majority) as a partner. Y refused to consent, Y’s consent is not required since the clause in the
partnership agreement operated as a consent.
 LIABILITY OF AN INCOMING PARTNER FOR FIRM’S ACTS DONE BEFORE HIS
ADMISSION- An incoming partner is not liable for all the acts of the firm done before his
admission . This general rule has 2 exceptions –
 i. An incoming partner is liable for the acts done before his admission if (a) the new firm
assumes the liabilities of the old firm
 (ii) A minor who, on attaining majority decides to become a partner , is liable for all acts of the
firm done since he was admitted to the benefits of partnership.
 LIABILITY OF AN INCOMING PARTNER FOR FIRM’S ACTS DONE AFTER HIS
ADMISSION- An Incoming partner is liable for all the acts of the firm done after his
admission.
 RETIREMENT OF A PARTNER (Sec-32)
 A partner may retire from the firm in any of the following ways
 (i) with the consent of all the other partners, or
 (ii) in accordance with an express agreement among the partners, or
 (iii) in the case of partnership at will, by giving a notice to all other partners of his intention to
retire.
 LIABILITIES OF A RETIRING PARTNER – The liabilities of a retiring partner may be
discussed as under:
 A. For Firm’s acts before his retirement (Sec 32 (2)
 B. For Firm’s acts after his retirement (Sec 32(3) (4)
 RIGHTS OF A RETIRING PARTNER (Sec 36 & 37 )
 A Retiring partner has the following rights-
 A. Right to carry on competing business (Sec-36)
 B. Right in case of no final settlement of accounts (Sec-37)
 DISSOLUTION OF FIRM (Sec 39 -47)
 DISSOLUTION
 The term “Dissolution” stands for discontinuation. Under the Indian Partnership Act, 1932, the dissolution may
be either of Partnership or of a Firm.
 DISSOLUTION OF PARTNERSHIP refers to the change in the existing relations of the partners. The firm
continues its business after being reconstituted. This may happen on admission, retirement or death of a partner
or change in profit sharing ratio in the firm.
 Dissolution of a firm means the dissolution of partnership between all the partners of a firm. In such a situation,
the business of the firm is discontinued, its assets are realised, the liabilities are paid off and the surplus (if any)
is distributed among the partners according to their rights.
 DISSOLUTION BY AN ORDER OF COURT
 1. INSANITY (Sec-44 (a)
 2. PERMANENT INCAPACITY (sec-44 (b)
 3. MISCONDUCT (Sec-44 (c)
 4. PERSISTENT BREACH OF AGREEMENT (Sec 44 (d)