PARTNERSHIP ACT-1932

Definition:

Section 4 of Indian Partnership Act-1932 Defines

that 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.
Essential Elements of Partnership

There must be association of 2 or more

persons.
Agreement
Business
Mutual Agency
Sharing of profits
If we analyze the definition :
1.There must be association of 2 or more persons. The partnership firm
consists at least 2 persons to start the business. No provision is there with
regarding to maximum no. of person in partnership Act. But Sec. 11 of the
Contract Act indirectly provides the No. of partners in case of banking
business should not exceed 10, in any other Business 20. If the number
exceeds their partnership becomes illegal.
2.Agreement: The partnership can arise only on the basis of an agreement.
The agreement may express or implied. The agreement may be for a fixed
period or for execution of a particular act or it may give option to the
partners to withdraw from the partnership at any time
3.Business: For a partnership to exist, it is essential that there should be a
business. Business includes, trade, occupation, profession.
4.Mutual Agency: the business of the partnership may carried on by all the
parties or any of them acting for all. Like an agent and principal.
5.Sharing of profits: The object of the partnership is to make profit. The
profit must be distributed at agreed ratios. The profit includes the shares of
loses also.
PARTNERSHIP DEED
It is nothing but the written Document of an agreement between the partners. The
deed contains:

•Name of the partnership firm.

•Nature and place of business.
•Name & address of the partners.
•The duration of the firm.
•Profit sharing ratio.
•Interest on capital & drawings.
•Valuation of goodwill on the death of a partner or retirement of
partner
Management of accounts
It was stamped duly under Indian
Stamp Act 1889.
Capacity of the Partners Every person who is competent to
enter into a contract of partnership may enter. Except persons
alien enemy, unsound mind, and minor.
Test of partnership: means the partnership contain all the
above essential elements.
Reg. of Partnership Firm: Indian partnership Act 1932 does
not provide for the compulsory registration. It has left to the
option of the firm to get registered.
Effects of Non-Registration (Sec.69):

• A partner of an unregistered firm cannot file a suit against the firm

or any partner, in case if the unregistered firm is not paid his share
of profits.
•No suit can be filed on behalf of an unregistered firm against a
third party for the purpose of enforcing a right arising from a
contract.
Procedure of Registration (under SEC 58 & 59): The reg. may be
affected at any time files the application before the registrar of firms
in the respective area established by the state governments. The
application must contain :
The firms name
Place of business
The names of any other places where the firm carries the business
The date of joining of the parties
The names & address of the partners and duration of the firm.
• If the registrar of the firm satisfies with the above information
make an entry in the record, and issues certificate of registration.

Alteration:
Any alteration if they made, the same must be informed to
the registrar of firm.
Type of Partners
Actual or Ostensible Partner

Sleeping or Dormant Partner

Nominal Partner

Partners in profit only

 Sub Partner

 Partner by Estoppel or Holding out

Type of Partners:
1.Actual or Ostensible Partner: A partner who becomes a partner by an
agreement and is actively engaged in the conduct of the business of the
partnership is known as Actual partner.
2.Sleeping or Dormant Partner: A sleeping partner is one who does not take
an active part in conducting the business of the firm. He also liable equally with
other parties even though his existence is kept secret.
3.Nominal Partner: A partner who registers his name into the firm, without
having any real interest in it, is called nominal partner. He does not invest, he
does not share the profits, he doesn’t take part in the management of business,
but he is liable to outsiders for all the debts of the firm along with other
partners.
MINOR PARTNER SEC-30
MINOR PARTNER SEC-30:

Sec-30 of Partnership Act lays down that minor cannot

be a partner in partnership firm but with the consent of other
partners he can appointed for the time being. The position of the
minor is under two heads.
Position before attain majority. Rights

1.He has right to share the property and profits of the firm.
2.He has right to inspect the accounts
3.When he is not give up his share he has a right to file a case
Liabilities: His liabilities is concerned only to the extent of
his share only, over and above he neither personally liable
nor his estate is liable.
# Minor cannot be declares as insolvent, if the total firm is
declared insolvent, his share is kept with Official Receiver.
Position after attaing the majority:

After attaining majority the minor partner should decide

within 6 month whether he shall continue as a partners or
not. If he wants to continue as a partner, he becomes
personally liable to the 3rd parties.
DUTIES OF THE PARTNER(s)
According to Sec.9 of the Act
 To observe good faith
 To indemnify for fraud
 To attend diligently (showing care and effect)

 Not to claim remuneration

 To share losses
 To use the property of the firm exclusively for the firm only

 To account for personal profit

 To account for profits in competing business

To act within the authority

Not to assign his rights

Duties of the Partners: According to Sec.9 of the Act
1. To observe good faith: It is general duty of the parties to observe good faith towards
the partners and firm.
2. To indemnify for fraud: it is the duty of every partner to indemnify the firm for any
loss caused to it by his fraud in the conduct of the business.
3. To attend diligently (showing care and effect:) It is the duty of every partner should
work hard to conduct the business.
4 Not to claim remuneration: A partner is not entitled to receive any remuneration in
any form for taking part in conduct of business.
5. To share losses
6. To use the property of the firm exclusively for the firm only.
7. To account for personal profit: If the partner enjoyed any benefit without consent of
the other parties he shall account for it and pays it to the firm.
8. To account for profits in competing business: If any of the partner carrying any
business of the same nature as competing with that of the firm, he is bound to account for
and pay to the firm all profits made by him in that firm.
9. To act within authority.
10.Not to assign his rights
RIGHTS OF THE PARNER (S)
Right to take part in the business
Right to be consulted
Right to access accounts
Right to share in profits
Right to claim interest on capital
Right to claim interest on advances
Right to Indemnified
Right to use partnership property
Right to act as an agent of the firm
Right to retire.
Rights of Partners:
1.Right to take part in the business: every partner has a right to take part in the
business, as per their agreement.
2.Right to be consulted: Every partner has a right to be consulted in all matter
affecting the business of partnership and express his views before any decision
taken by the partners. If any deference of opinion arises it may be settled by the
decision of majority of partners.
3,Right to access accounts.
4.Right to share in profits
5.Right to claim interest on capital: If the agreement contain a clause as to the
right of partners to claim interest on capital. It is payable out of the profits.
6.Right to claiminterest on advances: If any partner make any advances paid to
the firm above his capital he can claim interest.
7.Right to Indemnified: Where a partner in the course of partnership business or
emergency incurs any liability, the firm shall indemnify him in respect of
payments made and liabilities incurred by him.
8.Right to use partnership property:
9.Right to act as an agent of the firm.
10.Right to retire.
Liabilities towards 3rd parties:

• Every partner is liable for the acts of the firm (Sec-25).

• The firm is liable for wrongful acts of the partners( Sec-26).
• The firm is Liable for misappropriation of money. If any partner
misuses the money receives from the 3rd party, the firm is liable to
make loss good.
Dissolution of the Firm( Sec-39)
Dissolution of the Firm
Dissolution of partnership
Dissolution of the Firm( Sec-39):

Dissolution of firm means completly closing of the firm whereas

dissolution of partnership means change in relationship of the
partners [new partners].
 Dissolution of the Firm
Dissolution without the
interventions of the Court
By agreement (Sec.40)
Compulsory Dissolution (Sec-41)
Dissolved by happening of
certain contingencies (Sec-42)
Dissolution by notice of
partnership at will (Sec-43)
Dissolution by courts (Sec-44)
Insanity (Sec.44 (a)
Permanent incapacity (b)
Misconduct (c)
Breach of agreement (d)
Transfer of interest (e)
Business working at loss (e)
Any other ground the court may
observe(f)
Dissolution without the interventions of the Court :

1.By agreement (Sec.40): With the consent of the all the partners or in according
to their contract.
2.Compulsory Dissolution (Sec-41): If any one of the partner declared as an
insolvent or all partners may declare as an insolvent the firm is compulsory
dissolve or any unlawful business is to be carried on by the firm thus firm is
dissolved.
3. Dissolved by happening of certain contingencies (any event) (Sec-42):
i. By the expiring of the period for which the firm is constituted
ii. On complition of a particular event.
iii. By the death of a partner.
iv. By the adjudication of a partner as an insolvent.
4. Dissolution by notice of partnership at will (Sec-43):
The firm may be dissolved by any partner giving notice in writing to other partners
for his intention to dissolved the firm.
Dissolution by courts (Sec-44):
1.Insanity: where the parties become unsound mind (Sec-44 (a)).
2.Permanent incapacity: Permanently incapable of performing the duties
[Sec-44 (b)].
3.Misconduct: When the parties guilty of misconduct in partnership [Sec-
44(c)].
4.Breach of agreement: When the parties commits any breach of agreements
relating to management of affairs [Sec-44 (d)].
5.Transfer of interest: When the parties transfer the interest of the firm to 3rd
parties or if the share of any of the partner has been attached to a court order
[Sec-44 (e)].
6.Business working at loss [Sec44-(e)]
7.Any other ground the court may observe[Sec-44(f)]
Reconstitution of Partnership Firm
Introduction of a new partner

Retirement of a partner

Expulsion of a Partner

Death of a Partner

Transfer of Partner’s share

Distinction between Partnership and Joint-Hindu Family (Sec.5)
PARTNERSHIP FIRM
1.Section 4 of Indian Partnership Act-1932
Defines that 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.
2.Mode of Creation: Partnership arises out of
agreement.
3.Interest in Business: In partnership a person does
not acquire interest in the business by birth.
4.New Members: In a partnership a new member
can be admitted with the consent of the other
partners
5.Authority of members In partnership each parties
has implied authority in the firm.
6. Liability of members: in partnership all the
partners are liable.
7.Right to ask A/C- Any partner has a right to ask
accounts of the firm.
JOINT-HINDU FAMILY
1.Joint Family means if an ancestral business falls
on the members of the family or if they start a
common business out of the Joint funds at any
time after the death of the ancestor.
2. J.H family arises out of status.
3. In J.H family the male members are acquire
interest by birth.
4.In J.H family male member becomes a member
by birth.
5. in J.H.F only the Karta [eldest male member] is
having the authority.
6. where as in the J.H.F the karta only liable.
7. It is not possible in J.H.F.