PARTNERSHIP

SOME WORDS OF
THANKFULNESS
I would like to say a big thanks to my respectable
teacher on behalf of my all group members, who
gave us this huge learning opportunity to enhance
our knowledge.

GROUP
MEMBERS:

BILAL HAMEED
ABUZER SABAR
FAISAL LIAQAT
MUHAMMAD JAZIB JAVED
MUHAMMAD ALI SHAHID
ALI HASSAN RAZA
HUSNAIN IRSHAD

CONTENTS:

Partnership
Partnership agreement
Rights of a partner
Duties & Liabilities of a partners
Limited liability & Unlimited liability
Personal profit earned by partner
Implied authority
Act of Holding out

CONTENTS:

Types of partners
Minor partner
Rights and liabilities of minor partners
How to reconstitute a partnership firm?
Dissolution of partnership firm
Rights & liabilities of partners after dissolution
of partnership

PARTNERSHIP
A partnership is the relationship between two or
more persons who join to carry on a trade or
business. Each person contributes money,
property, labor or skill, and expects to share in
the profits and losses of the business.
A partnership combines
CAPITAL
Of the partners

TALENT

EXPERIENCE

PARTNERSHIP AGREEMENT
A partnership agreement is the written and
legal agreement between business partners. It
is always recommended but not essential for
partners to have such an agreement.

RECOMMENDED ELEMENTS OF THE PARTNERSHIP

AGREEMENT
1. Name and address of partnership.
2. Duration of partnershippartners can point to a specific
termination date or include a general clause explaining that the
partnership will exist until all partners agree to dissolve it or a
partner dies.
3. Business purposefor example, to purchase and lease out
residential real estate.
4. Bank account informationthis section should note which bank
accounts are to be used for partnership purposes, and which
partners have check-signing privileges.
5. Partners' contributionsvaluation of all contributions, whether
in cash, property or services.

RECOMMENDED ELEMENTS OF THE PARTNERSHIP

AGREEMENT
6. Partners' compensationdetermine in detail how and when
profits (and salaries, if applicable) will be distributed.
7. Management authoritywhat are the operational responsibilities
of each partner? Will partners be able to make some decisions on
their own? Which decisions will require the unanimous consent of
all partners? What are the voting rights of each partner? How will
tie votes be resolved?
8. Circumstances under which new partners might be admitted into
the partnership.
9. Work hours and vacation.
10. Kinds of outside business activities that will be allowed for
partners.
11. Disposition of partnership's name if a partner leaves.

RIGHTS OF PARTNERS
Every partner has a right to take part in the conduct
and management of the firm's business.
Every partner has a right to be consulted and express
his opinion on any matter related to the firm.
Every partner has a right to have access to inspect and
copy any books of accounts and records of the firm.
Every partner has the right to an equal share in the
profits of the firm, unless otherwise agreed by the
partners.
Every partner has the right to receive interest on loans
and advances made by him to the firm.

RIGHTS OF PARTNERS
Every partner has the right to be indemnified for the
expenses incurred and losses sustained by him in the
ordinary conduct of the firm's business.
Every partner has a right to continue in the firm
unless expelled in accordance with the terms of the
partnership agreement.
Every partner has a right to retire in accordance with
the terms of the partnership agreement or with the
consent of other partners.

DUTIES AND LIABILITIES OF PARTNERS

Every partner must act honestly in the discharge of his
duties to the maximum advantage of all the partners.
Every partner must act in a faithful manner towards
each other.
Every partner must act within the scope of the authority
entrusted to him.
Every partner is bound to share the losses of the firm
equally unless otherwise agreed.
Every partner must indemnify the firm against losses
sustained due to his willful negligence in the ordinary
course of business.

DUTIES AND LIABILITIES OF PARTNERS

No partner can transfer or assign his interest in the
firm to others without the consent of others partners.
Every partner must maintain true and correct
accounts relating to the firm's business.
No partner must engage himself in a business in
competition with the firm; otherwise he will be liable
for any loss suffered by the firm. He will have to
surrender private profits to the firm.
Every partner should use the firm's property only for
the firm's business and interest.

DUTIES AND LIABILITIES OF PARTNERS

No partner should make secret profits by way of
commission or otherwise from the firm's business. He
is liable to account for and pay to the firm any private
profit from the transactions of the firm or from the use of
its property or goodwill.
Every partner is liable jointly with all the other partners
and also severally for all the debts of the firm. The
liability of a partner to third parties is unlimited

DUTIES

RIGHTS

LIABILITIES

Loyalty and Good Faith Management

Firm Contracts

Obedience

Share of Profits

Torts of Employees
Partners Within
Scope of Business

Reasonable Care

Repayment of Loans

Breach of Duties

Information

Payment of Interest

Partners Remain Liable

After Dissolution

Accounting

Contribution and Indemnity New Partner Not

Personally Liable for
Participation in Distribution Existing Debts
of Capital

Inspection of Books

TYPES OF LIABILITIES IN PARTNERSHIP

Limited liability
is
where
a
person's
financial liability is limited
to a fixed sum, most
commonly the value of a
person's investment in a
company or partnership. If
a company with limited
liability is sued, then the
plaintiffs are suing the
company, not its owners or
investors.

TYPES OF LIABILITIES IN PARTNERSHIP

Un-Limited liability
is where
a type of
investment in which a
partner or investor can
lose an unlimited amount
of money. Opposite of
limited liability

PERSONAL PROFIT EARNED BY PARTNERS

Subject to the contract between the partners (SEC 16)
If a partner derives profit for himself from any transaction
of the firm or from the use of the property or business
connection of the firm or the firm name, he shall account
for that profit and pay it to the firm.
If a partner carries or any business of the same nature
as a competing with that of the firm he shall account for
and pay to the firm all profit made by him in that business.

IMPLIED AUTHORITY
Under partnership act 1932 the authority of partner to
bind the firm by his act is called his implied authority. It
is not given by agreement but is implied by law.

IMPLIED AUTHORITY OF PARTNER

A partner can do following act under implied authority.
(Sec. 19 (1) )
1. He can sell the goods of the firm but he cannot sell the
immovable property of the firm without the consent of other
partners.
2. He can purchase goods for the firm on credit if it is necessary
for the carrying on the business.
3. He can accept payments on the behalf of the firm and issue
receipt for them.
4. He can issue and accept cheques or other negotiable
instruments on behalf of the firm.
5. He can defend any suit filed against the firm.
6. He can raise loans by mortgaging the property of the firm.
7. He can employ staff for the conduct of the business of the firm.
8. He can settle accounts with persons dealing with the firm.

ACTS OUTSIDE IMPLIED AUTHORITY

A partner cannot do the following act under implied
authority unless there is usage or custom of trade. (Sec.
19 (2) )
1. To submit a dispute relating to the business of the firm for
settlement.
2. To open a bank account on behalf of the firm in his own
name.
3. To compromise any claim of the firm.
4. To withdraw any suit filed by the firm.
5. To admit any liability in a suit against the firm.
6. To acquire any immovable property of the firm.
7. To transfer immovable property of the firm.
8. To make an agreement with others on behalf of the firm.

PARTNER BY HOLDING OUT

Legally binding partnership that may arise where, in fact,
no formal partnership agreement is in effect. A person who
by conduct or words represents, or allows him/herself to be
represented, as a partner in a firm is liable for the credit or
loans obtained by firm on the basis of such representation.
Also called presumption of partnership.
OR
If a person who is declare to be a partner (when actually
he is not) does not deny the fact that he is a partner, he
being held out as a partner is responsible for all liability of
the business.

TYPES OF PARTNERS

MINOR PARTNER
A minor is a person who has not attained majority. In order
to form a partnership there must be an agreement among
the partners. The person who wants to enter in the
partnership must have capacity to contract. As a minor has
no capacity to contract, so he cannot become a partner.
But with the consent of all the partners he may be admitted
to the benefits of partnership by an agreement made by his
guardian on his behalf, with other partners.

RIGHTS AND LIABILITIES OF MINOR PARTNERS

i.
ii.
iii.
iv.
v.

He has a right to share in the property and profits of

the firm.
He is entitled to have access to inspect and take
copies of the accounts of the firm.
His agreed share in the property and profits of the firm
is liable for the acts of the firm.
He has no right while he continues to be a member to
file a suit against the other partners.
He can only do so, when he wants to break his
connection with the firm.

RIGHTS AND LIABILITIES OF MINOR PARTNERS

vi. Within 6 months of his attaining majority, the minor
must give public notice, as defined by sec. 72, notifying
whether he has elected to become or not to become as
partner.
vii. where the minor elects to become a partner
(a) his rights and liabilities as between the partners
continue the same till such date.
vi. If the minor elects not to become a partner,
(a) his rights and liabilities, as between the partners,
shall continue the same as before till the date of
notice.

RECONSTITUTE OF A PARTNERSHIP FIRM

A partnership firm is said to be reconstituted when any of
the following changes occurs and the firm continues.
Introduction of a new partner Sec. 31
Death of a partner Sec. 35
Insolvency of a partner Sec. 34
Transfer of partners interest Sec. 29
Retirement of a partner Sec. 32
Expulsion of a partner Sec. 33

INTRODUCTION OF A NEW PARTNER

Cannot be made without consent of all partners
Liability
For acts done after he becomes partner
Depends on mutual agreement
DEATH OF A PARTNER
Firm dissolved
Property not liable after death
No public notice required

INSOLVENCY OF A PARTNER
Ceases to be partner from the date of declaration by court
Firm is dissolved
Partners property not liable for firm acts after adjudication
Firm not liable for acts of the insolvent after this
TRANSFER OF PARTNERS
INTEREST
Can do so with all partners consent
Transferee cannot become partner
Cannot interfere in the business, require accounts
& inspect
Entitled to receive profits

RETIREMENT OF A PARTNER
If he ceases to be partner but others continue
It happens
With the consent of all
In accordance with express agreement
In partnership at will, by giving notice
Liability
For all acts before his retirement
Continues to be liable until public notice is given
Rights
May carry on competing business
Can claim 6% interest on share in property
Share of profits

EXPULSION OF A PARTNER
Can be done if
Power is given to partners by express contract
Exercised by majority of partners
Exercised in absolute good faith
Is in interest of the firm
Served with notice
Opportunity of being heard is given
Rights & Liabilities same as retiring partner

DISSOLUTION OF A FIRM
A firm may be dissolved in the following manner:
1.Dissolution by Court
2.Dissolution by agreement
3.Dissolution by operation of law
4.Dissolution on the happening of certain contingencies
5.Dissolution by notice

DISSOLUTION BY COURT
The court may dissolve a firm at the suit of any partners on
any of the following grounds namely :
a.Insanity of a Partner: that a partner has become of unsound
mind. The insanity of a partner does not ipso facto dissolve
the firm and the next friend or continuing partners has to file
suit foe dissolution.
b.Permanent Incapacity of a Partner: that a partner has
become permanently incapable of performing his duties as
partner.
c.Conduct Affecting Prejudicially The Business: that a partner
is guilty of conduct, which is likely to affect prejudicially the
carrying on the business of the firm.

DISSOLUTION BY COURT
d. Breach of Partnership Agreement: that a partner willfully
or persistently commits breach of agreements relating to
the management of the affairs of the firm or the conduct
of it - s business or otherwise conducts himself in matters
relating to the business, that it is not reasonably practical
for the other partners to carry on the business with him.
e. Transfer of Interest of a Partner : that a partner has in any
way transferred the whole of his interest in the firm to a
third party.
f. Loss: that the business of the firm cannot be carried on
save at a loss
g. Just And Equitable : on any other ground that renders it
just an equitable that the firm should be dissolved.

DISSOLUTION BY AGREEMENT
A firm may be dissolved with the consent of all the partners
or in accordance with the contract between the partners.
The partnership agreement may contain a proviso that the
firm will be dissolved on the happening of certain
contingency.
DISSOLUTION BY OPERATION OF LAW
A firm is compulsorily dissolved on the following grounds
a.Insolvency of partners
b.By the happening of any event which makes it unlawful
for the business of the firm to e carried on

DISSOLUTION DUE TO CONTINGENCIES

A firm stands dissolved on the happening of the any of the
following contingencies:
a.On expiry of partnership period, if constituted for a fixed
period.
b.On completion of the firms venture for which the firm was
formed.
c.On the death of a partner.
d.On the adjudication of a partner as an insolvent

THE RIGHTS OF A PARTNER ON DISSOLUTION OF A FIRM

i.

Right of partners to have the business wound up (Section

47).
ii. Right to have the debts of the firm settled out of the
property of the firm (Section 49).
iii. To account for personal profits after dissolution
[Section 16(a) and Section 50].
iv. Right to return of premium on premature dissolution
(Section 51)
v. Right where partnership contract is rescinded for fraud or
misrepresentation (Section 52)
vi. Right to restrain from use of firm name or firm property
(Section 53)

THE LIABILITIES OF A PARTNER ON DISSOLUTION OF FIRM

(i) Liability for acts of partners done after dissolution Until public
notice of dissolution of the firm is given, partners continue to be liable
to third parties for any act done by any of them. However this liability
does not apply to a partner who is dead or who is adjudged as
insolvent or a sleeping partner.
(ii) Continuing authority of partners for purpose of winding up After
dissolution of a firm, the authority of each partner to bind the firm and
the other mutual rights and obligations of the partners continue, so far
as may be necessary
(a) to wind up the affairs of the firm and
(b) To complete transactions began but unfinished, at the time
of the dissolution.
(iii) Liability to share profits earned after dissolution If any partner
earns any profit from any transaction connected with the firm, after the
dissolution, he must share it with the other partners and the legal
representative of any deceased partner.

39

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more than welcome.