Implementation of the

Partnership Act, 1932

HP
Implementation of the Partnership Act, 1932

Submitted to
Shakil Huda
Professor
Course Name: Legal Environment of Business (W201)
Institute of Business Administration
University of Dhaka

Submitted by
Group 16
Mohammad Ayman Chowdhury ( Roll 48)
Nafis Mubarrat Kazi (Roll 86)
Section: B
Batch: BBA 26th

Institute of Business Administration

University of Dhaka
Date of Submission: October 17, 2019
 Letter of Transmittal

October 17, 2019

Shakil Huda
Professor
Institute of Business Administration
University of Dhaka

Dear Sir:

Subject: Term paper on Implementation of the Partnership Act, 1932 in a local

partnership business.

Here is the term paper on Implementation of the Partnership Act, 1932 that you asked us to
prepare and submit as a part of the course curriculum.

As you can see in our report, we are primarily interested in getting an insight as to how the the
sections mentioned in the Partnership Act, 1932 apply in the perspective of a local partnership
firm. We also explore possible shortcomings that may arise from such laws and the
recommendations to solve these problems.

Preparing this report helped us to learn more about the laws that exist regarding partnership
businesses in our country. It also gave us an insight as to how partnership businesses operate.
We, therefore, thank you for providing us with the opportunity to work on such an interesting
issue.

We hope you will appreciate our sincere effort.

Sincerely

Mohammad Ayman Chowdhury (ZR-48)

Nafis Mubarrat Kazi (ZR- 86)

 Table of Contents
1 Introduction...................................................................................................................................1
1.1 Definition of Partnership........................................................................................................1
1.2 Statement of the problem.......................................................................................................1
1.3 Objective of the report...........................................................................................................1
1.4 Limitation of the report..........................................................................................................2
1.5 Significance of the report.......................................................................................................2
2 Methodology.................................................................................................................................2
3 Autofast.........................................................................................................................................2
4 Implementation of the Partnership Act..........................................................................................3
4.1 The nature of partnership.......................................................................................................3
4.2 Relation of partners as to one another....................................................................................3
4.3 Relation of partners as to third parties...................................................................................5
4.4 Incoming and outgoing partners............................................................................................6
4.5 Registration of Firms.............................................................................................................9
4.6 Supplemental.......................................................................................................................10
5 Possible problems arising from the Partnership Act....................................................................11
6 Recommendation.........................................................................................................................12
7 Conclusion...................................................................................................................................12
 Executive Summary
Partnership is the most convenient vehicle for carrying out business by more than one person. In
comparison with company, partnership has less obligations in terms of both tax and Register of
Joint Stock Companies and Firm (“RJSC”) return filling. It also cost less to maintain a
partnership than a company. In Bangladesh, the relevant law for regulating partnership is the
Partnership Act 1932 . With respect to a local partnership business, we want to see how the
sections present in the Partnership Act, 1932 are implemented. We also look to see if there are
any flaws associated with these laws. Recommendations as to how to improve such conditions
have been provided.
Introduction
With the growth of economy, Bangladesh has seen a rise in the number of partnership businesses
throughout the decades. Partnerships are created through voluntary agreements of minimum two
and maximum 20 persons. In Bangladesh, a partnership firm is to be formed under the provisions
of the Partnership Act 1932. Azad (2011) states that the the total number of partnership firms
registered in Bangladesh under the Partnership Act 1932 as of December, 2000 was 32,726. A
large number of partnership firms became ineffective or liquidated due to non-compliance of
conditions of contract, appropriation of funds, distrust, and other malpractices by the partners.
However, the number of partnership firms rose to 33,632 by the end of the year 2011. These
partnership business plays a dominant role in the trade sector in Bangladesh.

Definition of Partnership
Section 4 of the Indian Partnership Act, 1932 provides that: “A 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”. It has three essential elements-

1) There must be an agreement between two or more persons

2) The agreement must be to share the profits of a business

3) The business must be carried on by all or any of them acting for all

Statement of the problem

The report delves into the partnership act of 1932, the act that any partnership within the
demographic borders of the country has to abide by in an order to operate a partnership business.
The report analyses how the local businesses operate abiding by the conditions laid down by the
act. Autofast is a car dealership partnership business based in Dhaka, Bangladesh and has three
partners. We analyse how the business operates in a practical setting adhering to the conditions
of the partnership act.

Objective of the report

The report aims to find out how a partnership based in Bangladesh complies with The
Partnership Act, 1932 .We want to see how the sections present in The Partnership Act,1932
applies in the case of Autofast, a car dealership business . We also look to find possible flaws
that may be associated with the Partnership Act,1932.
 Limitation of the report
The report was created strictly through primary research. Hence, the incumbent who answered
our questions may not have revealed certain details about the partnership. The inability to access
certain details about the partnership has produced certain constraints toward making this report.

Significance of the report

The report analyses how the partnership act is implemented in the context of Bangladesh.
Partnership is one of the oldest forms of business, formed by the coming together of 2 or more
partners who accept to take part in legal transactions with the goal of making a profit. All the
partnership businesses are bound to form and operate within the limits set by The Partnership
Act of 1932. The report tries to analyse how local businesses operate their business adhering to
The Partnership Act of 1932. It also looks at possible scope for improvement of the Partnership
Act,1932.

Methodology
This report was created through primary research. We interviewed Ahsan Habib, one of the
partners of a car dealership partnership business named Autofast to find out how each of the
sections of the Partnership Act,1932 applied to his business. We also asked him about possible
shortcomings that he feels is present in the Partnership Act,1932 which may have impacted his
business along the way.

Autofast
Autofast is a car dealership business founded by Ahsan Habib , Sultan Nazif and Shahed Sarwar.
in late 2018 .It is a general partnership where each partner participate actively in the operations
of the business. Each individual provided a capital of 20 lac BDT to be a part of this firm. The
firm imports car from Japan and sells them to clients in Bangladesh. The office is situated in
Baridhara.
Implementation of the Partnership Act
The sections mentioned in the Partnership Act,1932 have been applied with respect to the
partnership Autofast.
The nature of partnership
Definition of "partnership", "partner", "firm" and "firm name" (Section 4)
The partnership named “Autofast” is a car dealership business formed the mutual agreement of 3
individuals Ahsan Habib , Sultan Nazif and Shahed Sarwar. The above mentioned individuals
are the partners of the business.
Partnership not created by status (Section 5)
The partnership was created through a contract signed by the 3 parties( X Y Z) and not through
any status
Partnership at will (Section 7)
No provision has been made for the duration or completion of the partnership. Hence it is a
partnership at will.
Particular partnership (Section 8)
The partnership isn’t formed for a particular period or for a particular transaction. The car
dealership business is an ongoing business the partners have co-founded for the foreseeable
future. Hence it is not a particular partnership.

General duties of partners (Section 9)

The general duties of the partners as ascertained by the contract are-
1) Deal with clients (Government, suppliers, customers) in a manner that benefits the company.
2) Conduct Auction for the customers as per the orders
3) Inspect quality of vehicle before sale
4) Fix problems regarding the vehicles for sale
5) Be responsible for the cleaning of vehicle before shipping
6) Securely transport the vehicle to port
Duty to indemnify for loss caused by fraud (Section 10)
Any partner personally responsible for any type of fraud in the conduct of business will be liable
to indemnify the partnership of the loss.
Determination of rights and duties of partners by contract between the partners (Section
11)
The rights and duties of the partners are determined through the contract as signed during the
formation of the partnership. Each partner has a copy of the contract to ensure the respective
rights and duties. However, the rights and duties of the partners can be amended if all the
partners agree to it.
The conduct of the business (Section 12)
Every partner of the Autofast partnership is bound to attend diligently to his duties in the conduct
of the business.
Mutual rights and liabilities (Section 13)
The mutual rights and liabilities are-
1) Unlimited liability exists
2) Each of the three partners will equally share the profits that derive from the sale of each
vehicle. This applies for the loss sustained as well.
3) No type of salary or remuneration is given to the partners for taking part in the business
4) The property of the partnership must be used for business purposes only. Office space ,
vehicles etc. must be strictly used for business purpose and not for any personal reasons
5) Each partner has duty to manage the business and its dealings in a manner that benefits the
business the most
6) Each partner has the right to inspect the book account and financial statement
7) Autofast shall indemnify a partner in respect of payments made and liabilities incurred by him
The property of the firm (Section 14)
Property (vehicles, office space), rights (trademarks of the company) and interest acquired with
money belonging to Autofast are deemed to have obtained for the business itself .
Application of the property of the firm (Section 15)
None of the three partners have any right to use any of the property of the partnership for
personal uses. The property (office space, vehicles) can only be used for the regular conduct of
the business.
Personal profits earned by partners (Section 16)
A partner has the scope to earn personal profits through their own means. However , the contract
specifies that the partners cannot make any secret profits from the course of conducting business
related to Autofast.
Rights and duties of partners after a change in the firm (Section 17)
The mutual rights and duties of the partners stay the same even if there is a change in the
constitution of the firm .However. upon agreement of all partners these rights and duties can be
changed.
Relation of partners as to third parties
Partner to be agent of the firm (Section 18)
Each partner is the agent of the business Autofast. Actions of the partners as to the dealings of
the car dealership business binds the firm.
Implied authority of partner as agent of the firm (Section 19)
Any act of a partner which is done to carry on, in the usual way, business of the kind carried by
the firm, binds the firm. These include marketing of Autofast, making contacts with possible
buyers and sellers , conducting auction in a fair manner, ensuring the safety of imported vehicles,
shipping of the products e.t.c
Extension and restriction of partner's implied authority (Section 20)
The implied authority of the partners can be subject to change provided all three members of the
partnership agree to such a change. On this basis, the authority may be extended or restricted.
Partner's authority in an emergency (Section 21)
Fire /major accident in workplace, accidents during shipping and stock out are the current
“emergency” situations the partners believe they may face. The contract gives each partner the
authority, in an emergency to do all such acts for the purpose of protecting Autofast from loss ,
as would be done by a person of ordinary prudence, in his own case, acting under similar
circumstances. Such acts bind the firm.
Mode of doing act to bind firm (Section 22)
Any action of any of the three partners which may express or imply an intention to bind
Autofast, automatically binds the firm to the respective duties. Hence partners are encouraged to
communicate between themselves and come up with a decision before doing any such activity
which may bind the firm to any troublesome situation .
Effect of admissions by a partner (Section 23)
Any admission made by the partners regarding the matters of Autofast is evidence against the
firm, if it is made in the ordinary course of business. Therefore, the partners maintain a list of
what can and cannot be said regarding the firm while dealing with any stakeholders. The partners
try to update and follow this list to ensure better management of the firm.
Effect of notice to acting partner (Section 24)
Other than cases of fraud, any notice given to any partner of Autofast regarding matter of the
firm serves as a notice to the firm itself. Hence the partners maintain a logbook as well as a
Whatsapp group to continuously update and notify the partners about any dealings.

Liability of a partner for acts of the firm (Section 25)

Each of the 3 partners of Autofast are jointly liable for acts of the firm. Hence, careful
consideration is done before doing any sort of activity.
Liability of the firm for wrongful acts of a partner (Section 26)
Any wrongful act done by any partner of Autofast in the ordinary course of business makes the
firm liable to the third party who was the victim of such an act.
Liability of firm for misapplication by partners (Section 27)
Misapplication in the dealership business mainly includes misplacement of order ,
misappropriation regarding shipment, misuse of client’s money e.t.c among other things.
Whatever the case maybe, the firm is liable to make good for any type of loss caused during its
course of business.
Minors admitted to the benefits of partnership (Section 30)
There is no provision regarding any minor enjoying any benefits of the firm or anything related
to it.
Incoming and outgoing partners
Introduction of a partner (Section 31)
A partner can be only introduced to Autofast if the existing 3 partners agree to it. A capital
deposition (as agreed by the 3 partners) is required before admitting a new partner to the business
Retirement of a partner (Section 32)
Since the business is a partnership at will, any partner who wishes to retire must give a prior
notice before retiring. The contract states that the partner must give notice of his intention to
retire at least one month ahead of retirement.
Expulsion of a partner (Section 33)
Expulsion of a partner from the partnership requires arbitration from the court as regards to the
contract. The contract does not allow expulsion of a partner through the vote of the remaining
partners. The matter must be taken up for arbitration. The court decision is final in this regard.
Insolvency of a partner (Section 34)
The contract says that the remaining two partners (whoever they maybe) shall not dissolve the
partnership if the third partner is adjudicated as insolvent.
Death of a partner (Section 35)
The contract states that the firm will continue to exist even after the death of a partner.
Rights of outgoing partner to carry on competing business (Section 36 )
The contract prohibits any outgoing partner from associating themselves with any business
concerning buying and selling of vehicles.

Right of outgoing partner in certain cases to share subsequent profits (Section 37)
The contract provides provision for continuing partners to purchase the interest of the outgoing
partner. The outgoing partner is not entitled to any further or other share of profits. The final
settlement of accounts between the existing and outgoing partners is done based on the clauses
mentioned in the contract.

Dissolution of Firm (Section 39)

The termination of the business is termed as the dissolution of the firm in the contract of
Autofast.

Dissolution by Agreement (Section 40)

The business will be dissolved if all of the partners agree mutually to dissolve the business. But,
if the decision is not unanimous and one partner wants to leave the partnership (which would end
this partnership and create a new one) the other partners have to be notified with a prior notice at
least before 1 month.

Compulsory Dissolution (Section 41)

The firm acknowledges that the partnership might be dissolved by the intervention of events like-

a. Insolvency of all partners but one.

b. Or by the happening of any event which makes it unlawful for Autofast to carry on or for
the partners to carry it on in partnership

Dissolution on the Happenings of Certain Contingencies (Section 42)

Since the business is not for a fixed time only and also not for a certain number of transactions,
these two factors do not affect Autofast. However, in case of death or insolvency, the partnership
will be dissolved according to the contract signed.

Dissolution by notice of partnership at will (Section 43)

Since, this is a partnership at will, the business will be dissolved by the intervention of a
partner’s wish to discontinue his association. But, the contract, due to the nature of business,
requires partners to provide the notice before 6 months of the formal resignation.

Dissolution by the Court (Section 44)

The contract acknowledges that the business can be dissolved due to the intervention by a court.
Such event can occur on grounds like- a partner losing sanity, losing the capability to perform
duties as a partner etc.
Liability for Acts of Partners after Dissolution (Section 45)
The company agrees that all of the partners are liable for actions taken for the company by any of
the partners and will be held responsible for this, unless in the case of a public notice of
dissolution.
Right of Partners to have Business Wound Up after Dissolution (Section 46)
In case of dissolution the partners will be allotted to the surplus of the business (after the
payment of debts and settlements) according to their share (one third for each) in the partnership.
Continuing Authority of Partners for the Purposes of Winding up (Section 47)
The authority of the partners shall remain intact as long as all the debts, clearings, and
settlements are not completed. The contract binds this on the partners and they will be eligible to
enforce their power as long as they need to wind up the transactions. A fixed time limit is not
present.
Mode of Settlement of Accounts between Partners (Section 48)
The following rules apply-
a. Losses and deficiencies of capital will be paid out of profits of the business Autofast, then
from the capital based on (33-33-33) rule, in case of further losses they will be settled by
the partners individually according to their profit distribution ratio (33-33-33).
 b. They will first settle their debts of any third parties in transaction with Autofast, then
paying the partners if they were about to receive from the business and any further assets
shall be distributed as one third of the total assets to each partner
Payment of Firm Debts and Separate Debts (Section 49)
In case of joint debts due from Autofast, and simultaneously individual debts from a partner, the
properties of Autofast at first will be used to settle debts of Autofast.

Personal Profits Earned after Dissolution (Section 50)

Provisions of 16 (a) in the contract shall apply here in case of a death for the settlements of
profit.

Return of Premium on Premature Dissolution (Section 51)

Does not apply to Autofast as all members are ordinary partners.
Rights where partnership Contract is rescinded for fraud or misrepresentation (Section
52)
The party to rescind shall be treated as a priority creditor.

Rights to Restrain from Using the Name Autofast or its Property (Section 53)
The partners, in case of winding up will not engage in a similar business by using the name and
goodwill of the firm as it may come as deceptive banking on the goodwill of Autofast. Unless the
action of provision 55 is enacted.

Agreements in restraint of trade (Section 54)

The contract allows the partner to be a part of any other business other than which concerns
buying, selling and importing of vehicles of any type.

Sale of Goodwill after Dissolution (Section 55)

The goodwill of the organization might be sold alongside all other properties in case of winding
up.

Registration of Firms
Appointment of Registrars (Section 57)
Registrars appointed by the government of Bangladesh may within their rights, exercise their
power.
Application of Registration (Section 58)
The application has to meet all of the conditions as laid by the contract act, and Autofast’s
application is made with respect to that. The conditions are added on the appendix section of this
report.
Registration (Section 59)
Registration was completed after the fulfilment of section 58.
Recording or alterations in firm name and principle place of Business (Section 60)
In case of any alteration or change of place, Autofast agrees to send a written statement issued to
the registrar informing them of the change.
Noting of Closing and Opening Branches (Section 61)
Any of the three partners, or an appointed agent shall immediately inform the registrar of a new
branch of any event of closing.
Noting of Changes in Names and Addresses of Partners (Section 62)
The partners of Autofast, in case of a change brought in their name, or permanent address are
bound to inform the registrar and agree to take immediate action to adhere to it.
Recording of Changes in and Dissolution of the firm (Section 63)
Followed according to section 59.
Rectification of Mistakes (Section 64)
Registrar reserves all the right to rectify the mistakes done by Autofast.
Amendment of Registrar by Order of Court (Section 65)
Courts decision in any matter of Autofast will be accepted and actions following that by the
registrar is also final.
Inspection of Register and Filed Documents (Section 66)
Autofast agrees on full support in case of an inspection of register and filed documents by the
order of the registrar.
Grant of Copies (Section 67)
For any requirement of copies the firm will ask for grant from the registrar.
Rules of Evidence (Section 68)
Registrar’s decision in this regard shall be accepted by Autofast.
Effect on Non-registration (Section 69)
In case, a partnership does not register they shall not be eligible for any of the support structure
designed for the registered entities. For, that reason Autofast has registered and this section does
not apply to them.
Penalty for Furnishing False Particulars (Section 70)
Autofast accepts and acknowledges any legal consequence that may follow in case of furnishing
false particulars. And in this regard, respect and agree any verdict by the court of law under the
section 70a, 70b and 70c of partnership act.
Power to Make Rules (Section 71)
Authorities like the Government can make rules according to the section 71, for the industry
Autofast is in (the automobile industry). All of these changes are to be accepted by Autofast
without any condition.
Supplemental
Mode of giving Public Notice (Section 72)
Autofast to agree on notifying the public in case of retirement, expulsion, change to registered
firm, dissolution and any other major milestone according to the instructions of the registrar
abiding by the partnership act.
Savings (Section 74)
Nothing in this act or any repeal will affect the right, title or liability already acquired or incurred
or done before the commencement of the act. Law not consistent with the partnership act shall
not be used against the business in the court of law.

Possible problems arising from the Partnership Act

There are certain issues that may arise due to the laws mentioned in the Partnership Act
(a) No clause for limited liability partnership
The Partnership Act, 1932 as deployed in Bangladesh has 76 sections. However, it has no section
related to the rules and regulations of a limited liability partnership. Recently, India and Pakistan
have adopted limited liability partnership considering its need without repelling the Partnership
Act 1932. This was done by separate legislative enactments, the Limited Liability Partnership
Act 2008(India) and Limited Liability Partnership Act 2016 (Pakistan). However, Bangladesh
has remained inactive regarding this matter and have succumbed to its adverse effects. Limited
liability partnerships provide benefits in tax planning and financial structuring. As there is no
limit on the number of owners that can be involved with the business, it evenly spreads out the
amount of liability that each partner can have if something were to go wrong with the business.
Hence, Bangladesh government should actively consider enacting a statute to enable the business
community of our jurisdiction to avail the advantages of such 'legal business form' to foster and
enhance their trade and commerce.

(b) Registration of firm

The Partnership Act, 1932 does not make it compulsory to register the partnership. However, any
unregistered partnership business faces a big problem. Section 69(2) implies that an unregistered
firm cannot sue any third party for the enforcement of any right arising from a contract. A suit
can be brought only by or on behalf of a registered firm and that also by persons whose names
appear as partners in the register of firms. As such, it is seen that many partnership businesses in
our country, which haven’t registered themselves due to the complexities arising from the
process of registration, have been unable to file cases against third parties. This is a cause for big
loss for a lot of these partnership business.
(c) No Public Confidence
The registration of the firm is not compulsory. There is absence of government control
.Moreover, the firms need not publish their accounts. Due to these reasons, the firm cannot get
the confidence of the public.
(d) Instability
The continuity of the firm is always doubtful because it comes to end by the death, insolvency
or insanity of any of the partner. Hence, there is always a sense of instability around the business.
This is not a flaw regarding the law itself but rather a risk that every partnership must deal with.

Recommendation
1) Introduce laws regarding limited liability partnership which may include
i) Use of appropriate words to advertise their status (the name of a limited liability partnership
business must end with the expressions 'Limited Liability Partnership' or abbreviation 'LLP')

ii) Mandatory provision for registration pursuant to the LLP statute along with requirements that
records be always kept updated.

iii) Enough adoptable provisions for dealing with bankruptcy/insolvency as well as winding-up
of the LLP business

2) The law should be modified in a way where registration is compulsory or ensure that
unregistered companies can file suit.
3) Introducing laws to give government more control over the partnership businesses to ensure
check and balance. It would help to ensure more public confidence in the firm.
Conclusion
One of the oldest forms of business, partnership is still today one of the most popular forms of
business due to its easy formation, legal support and other advantages. All the partnership
businesses are required to follow the Partnership Act to operate their business legally. The report
tried to analyse how the partnership act has changed the landscape by providing such businesses
a structure and legal support causing such businesses to flourish in Bangladesh.