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By :

OMPRAKASH
KIIT LAW SCHOOL
KIIT UNIVERSITY

RIGHTS AND OBLIGATION


OF PARTNERS IN
CONTRACT OF
PARTNERSHIP

INDEX
Chapter I

Introduction
ResearchMethodology
Objectives and
scopes
Issue

Survey of the existing


literature
Hypothesis

Chapter 2

determination of rights and duties of partners .


Duties of the partners
Chapter 3
Rights of the partners
conclusion

chapter 1:

INRODUCTION

A partnership is a type of business entity in which partners


(owners) share with each other the profits or losses of the
business undertaking in which all have invested. Partnerships are
often favored over corporation for taxation purposes, as the
partnership structure does not generally incur a tax on profits
before it is distributed to the partners (i.e. there is no dividend tax
levied). However, depending on the partnership structure and the
juridiction in which it operates, owners of a partnership may be
exposed to greater personal liability than they would as
shareholders of a corporation.
The Indian Partnership Act was passed in 1932 to define and amend the law
relating to partnership. Indian Partnership Act is one of very old mercantile law.
Partnership is one of the special types of Contract. Initially, this was part of Indian
Contract Act itself (Chapter IX - sections 239 to 266), but later converted into
separate Act in 1932.
The Indian Partnership Act is complimentary to Contract Act. Basic provisions of
Contract Act apply to contract of partnership also. Basic requirements of contract
i.e. legally enforceable agreement, mutual consent, parties competent to contract,
free consent, lawful object, consideration etc. apply to partnership contract also.
Partnership Contract is a ‘concurrent subject’ - ‘Contract, including partnership
contract’ is a ‘concurrent subject, covered in Entry 7 of List III (Seventh Schedule
to Constitution). Indian Partnership Act is a Central Act, but State Government can
also pass legislation on this issue. Though Partnership Act is a Central Act, it is
administered by State Governments, i.e. work of registration of firms and related
matters is looked after by each State Government. The Act is not applicable to
Jammu and Kashmir.
UNLIMITED LIABILITY IS MAJOR DISADVANTAGE - The major
disadvantage of partnership is the unlimited liability of partners for the debts and
liabilities of the firm. Any partner can bind the firm and the firm is liable for all
liabilities incurred by any firm on behalf of the firm. If property of partnership firm
is insufficient to meet liabilities, personal property of any partner can be attached
to pay the debts of the firm.
Partnership Firm is not a legal entity - It may be surprising but true that a
Partnership Firm is not a legal entity. It has limited identity for purpose of tax law.
As per section 4 of Indian 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 one of them acting for all. - - Under partnership law, a partnership firm is
not a legal entity, but only consists of individual partners for the time being. It is
not a distinct legal entity apart from the partners constituting it - Malabar
Fisheries Co. v. CIT (1979) 120 ITR 49 = 2 Taxman 409 (SC).
FIRM LEGAL ENTITY FOR PURPOSE OF TAXATION - For tax law, income-
tax as well as sales tax, partnership firm is a legal entity - State of Punjab v.
Jullender Vegetables Syndicate - 1966 (17) STC 326 (SC) * CIT v. A W Figgies -
AIR 1953 SC 455 * CIT v. G Parthasarthy Naidu (1999) 236 ITR 350 = 104
Taxman 197 (SC). Though a partnership firm is not a juristic person, Civil
Procedure Code enables the partners of a partnership firm to sue or to be sued in
the name of the firm. - Ashok Transport Agency v. Awadhesh Kumar 1998(5)
SCALE 730 (SC). [A partnership firm can sue only if it is registered].
Research Methodology :
For this project, I followed doctrinaire method which includes both descriptive
method and analytical method of writing throughout this project. I go through
number of books, article and various websites. Deep study of every articles and
books. Visit the websites like legal service of india and contract of partnership
of 1932 .

AIM AND OBJECTIVE :


The main aim and objective of this project are to critically study about the
rights and obligation of partners in contract of partnership . for searching the
answer of following question : what is partnership ? what are the general rights
and duties of partners in contract of partnership ? how rights and duties varies
with different condition ? what are the method to determine the rights and
duties of contract of partnership ?. after completing this project I will get the
answer of all the above question .

ISSUES :

. What are the general rights of partner in contract of partnership ?

. What are the general duties of partners in contract of partnership ?


. What are the mutual rights and duties in different condition of contract of
partnership?
.What are the method to determine the rights and obligation of partners in contract
of partnership

Survey of the Existing Literature.


While concluding the research work which is in the form of doctrinal method.
Doctrinal method of research includes studies of various books such as Avtar
singh, Anson’s law of contract and surfing on the internet in the websites available
in the sites of law.

HYPOTHESIS :
In the contract of partnership the partners have certain specific rights which
should not be violated by another partner and also have certain specific duties
which each partner should follow according to Indian partnership act 1932 .
Chapter 2
Determination of rights and duties of partners :
Determination of rights and duties of partners by contract
between the partners - Subject to the provisions of this Act, the
mutual rights and duties of the partners of a firm may be
determined by contract between the partners, and such contract
may be express or may be implied by a course of dealing. - - Such
contract may be varied by consent of all the partners, and such
consent may be express or may be implied by a course of dealing.
[section 11(1)]. - - Thus, partners are free to determine the
mutual rights and duties by contract. Such contract may be in
writing or it may be implied by their actions.

Duties of the partners :


General duties of partners. (Sec 9)
Partners are bound to carry on the business of the firm to the
greatest common advantage, to be just and faithful to each other,
and to render true accounts and full information of all things
affecting the firm to any partner or his legal representative.

Sec 10.Duty to indemnify for loss caused by fraud. Every partner shall
indemnify the firm for any loss caused to it by his fraud in the conduct of the
business of the firm .

Sec 12b every partner is bound to attend diligently to his duties in the
conduct of the business;
Sec 13 f
a partner shall indemnify the firm for any loss caused to it by his wilful
neglect in the conduct of the business of the firm .
sec14 The property of the firm. 14.The property of the firm. Subject to
contract between the partners, the property of the firm includes all property
and rights and interests in property originally brought into the stock of the
firm, or acquired, by purchase or otherwise, by or for the firm, or for the
purposes and in the course of the business of the firm, and includes also
the goodwill of the business. Unless the contrary intention appears,
property and rights and interests in property acquired with money belonging
to the firm are deemed to have been acquired for the firm .
sec15 Application of the property of the firm. 15.Application of the property
of the firm. Subject to contract between the partners, the property of the
firm shall be held and used by the partners exclusively for the purposes of
the business.

Chapter 3:

Rights of the partners :

sec12aThe conduct of the business. Subject to contract between the


partners- (a) every partner has a right to take part in the conduct of the
business .
sec12(c) any difference arising as to ordinary matters connected with the
business may be decided by a majority of the partners, and every partner
shall have the right to express his opinion before the matter is decided, but
no 8 change may be made in the nature of the business without the
consent of all the partners ;
sec12(d) every partner has a right to have access to and to inspect and
copy any of the books of the firm.
Sec13(b) the partners are entitled to share equally in the profits earned,
and shall contribute equally to the losses sustained by the firm ;
Sec13(c) where a partner is entitled to interest on the capital subscribed by
him such interest shall be payable only out of profits ;
Sec13 (d) a partner making, for the purposes of the business, any payment
or advance beyond the amount of capital he has agreed to subscribe, is
entitled to interest thereon at the rate of six per cent. per annum ;
Sec13 (e) the firm shall indemnify a partner in respect of payments made
and liabilities incurred by him-

Conclusion :
By this we conclude that certain rights and duties are specified in a Indian
partnership act 1932 which regulate the proper functioning of firm and
without which a firm cannot be run .

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