THE INDIAN PARTNERSHIP

ACT’

“ 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.”
CHAPTER ONE

 Nature of partnership
ESSENTIAL ELEMENTS OF A
PARTNERSHIP

a) There must be a contract between two or

more persons who agree to carry on
business.(voluntary agreement)

b) the agreement must be with the object of

sharing profits.

c) The business must be carried on by all or

any of them acting for all.(partners are agents
and principals
WHO CAN BE A PARTNER

 A partnership firm can not form a partnership

firm with other firm. However all the partners of
a firm and form with all the members of other
firm.
 A company, minor, unsound mind person, an
alien, enemy, can’t form partnership firm.
SPECIAL TYPES OF ORGANIZATIONS
 Partnership and co-ownership- co ownership is joint ownership is different
from partnership business in case of agency, agreement or operation of law,
transferring interest to third part, existence of business, and lien.
 Partnership and club- club is an association of persons formed for social
purpose is different from partnership in case of existence of business, profit
earning, agency, liability, death and registration of a member.
 Partnership and joint hindu family firm- hindu joint family carries on a trade
inherited from its ancestors is different fro partnership in case of forming by
operation of law, autority of one person, liability of authorised person,
position of minor and women, number of members, death of members,
share of ownership holding,
CLASSES OF PARTNERS

 Active partners
 Dormant ,sleeping or nominal partner

 Sub-partners- transferring some portion of

ownership of a partner to another.
A partnership firm can select any name exception
to the existing firm’s business name, and the
word of royal, president etc.
 KINDS OF PARTNERSHIP:

1. Partnership at will:

Where no provision is made by contract

between the partners for the duration of their
partnership, the partnership is ‘partnership at will.’
The essence of a partnership at will is that the
partners do not fix any time of partnership and are
free to break their relationship at their own sweet
will. It is a partnership for an indefinite period.
2. Particular partnership:

When a partnership is formed for a

particular period or for a particular
venture, it is called particular partnership.
In such a case, the partnership is
automatically dissolved at the expiry of the
fixed term or on the completion of the
venture.
3. Limited partnership:

When a partnership is formed in which

the liability for all partners (except one) is
limited it is called limited partnership. In
such a case, the partnership is combination
of general and limited partners.
REGISTRATION OF FIRMS
 Registration is not compulsory. The registration
of a firm can be effected at any time by
sending, by post, or by delivering to registrar of
firms of the locality.
Formalities/ contents of registration:
 A statement in the prescribed form containing
the name, place/ principal place of business,
date of joining of partners, name of the
partners and duration of the firm.
 Prescribed fees
CONSEQUENCES OF NON REGISTRATION

 A partner of an unregistered firm cant file a suit

 No suit can be filed on behalf of unregistered
firm against 3rd party
 An unregistered firm cant claim of a set-off a
suit against other firm which has filed a suit.
 Exceptions: can file a suit for the dissolution of
firm or account, for the realization of property
of an insolvent partner,
Chapter 2

RIGHTS AND LIABILITIES OF PARTNERS

 Rights of Partners
1. Right to take part in the conduct of the business and
express the opinion.
2. Right to be consulted.
3. Right to access, inspect and copy of the books.
4. Right to share the profits equally if the agreement does
not differ.
5. Right to take interest on capital and interest on advances.
6. Right to indemnity- right to save the loss of others
7. Partners authority in an emergency
8. Right to get the firm dissolved under appropriate
circumstances.
9. Right to carryon competing business
10.Right to share the profit after retirement or death
AUTHORITY OF PARTNERS

 Agent
 Expressed authority- expressed agreement of
partner
 Implied authority – bind the firms and partner
by the operation of law
 Alteration of authority- can be altered,
extended, restricted
 Authority in an emergency
DUTIES OF PARTNERS
 Partners are bound to carry on the business of
the firm to the greatest common advantages, to
be just, faithful to each other
 To pay indemnity

 To attend diligently in to meeting

 Equality of loss

 No private benefit

 No secret profit

 Unlimited liability
 INCOMING AND OUTGOING
PARTNERS
No partner can be admitted as a partner into a
firm without the consent of all the existing
partners. Mutual trust and confidence among
the partners being an essential ingredient of an
ideal partnership, it is essential that here must
be a consent of all the partners. Constitution of
a firm can be changed by the introduction of a
new partner, death, retirement, insolvency and
expulsion of a partner.
Liability of an incoming partner
A new partner becomes liable for the debts and acts
of the firm only from the date he is admitted as a
partner.

He cannot be held liable for the acts of the old firm.

A new partner may, however, agree to be liable for
the debts existing prior to his admission but such
agreeing will not give to a prior creditor the right to
sue him because of absence of ‘privity of contract.’
 Retirement of a Partner:

A Partner is said to retire when the surviving partners

continue to carry the business of the firm, and the
retiring member ceases to be a partner.

In case of ‘particular partnership’, a partner may

retire with the consent of all the other partners,
unless otherwise agreed. In case of ‘partnership at
will’, a partner may retire by giving a notice in writing
to all the other partners of his intention to retire,
unless otherwise agreed.
A retiring partner continues to be liable for the
acts of the firm done before his retirement. He
may, however, free himself from his liability
towards the third parties for the debts of the firm
incurred before his retirement by an agreement
with such third parties and the partners of the
reconstituted firm discharging the outgoing
partners from all liabilities. The remaining
partners alone cannot give this freedom to the
retiring partners. He may be discharged if the
creditors agree.
 Expulsion of a Partner
A partner may be expelled from a firm by majority of the
partners only if:

a.) the power to expel has been conferred by contract

between the partners.

b.) such a power has been exercised in good faith for the
benefit of the firm.

The partner who has been expelled must be given

reasonable opportunity to explain his position and to
remove the cause of his expulsion.
 Insolvency of a partner
When a partner in the firm is adjudicated as
insolvent, he ceases to be a partner on the date on
which the order of adjudication is made, whether or
not the firm is thereby dissolved will depend upon
the agreement of partnership between the partners.

The insolvent partner’s share in the firm’s assets will

be used for firm’s debts first and whatever remains
will be utilised for the insolvent partner’s personal
debts
 Death of a Partner

Although on the death of a partner, the firm is

dissolved, but if the other partners so agree
the firm may not be dissolved. When a firm is
not dissolved, the estate of the deceased
partner is not liable for any acts of the firm
done after his death. No public notice of
death is required to relieve the deceased
partner’s estate from future obligations.
 REGISTRATION OF FIRMS

Under the partnership Act, it is not compulsory for every partnership

firm to get itself registered. But an unregistered firm suffers from a
number of disabilities.

An application in the prescribed format along with the prescribed

fees has to be submitted to the Registrar of firms of the State in which
the place of business of the firm is situated. The application must be
signed by all the partners and must contain the following particulars:

a.) The name of the firm.

b.) The place of business of the firm.
c.) The names of any other places where the business of the firm is
carried on.
d.) The date when each partner joined the firm.
e.) The names in full and permanent addresses of the partners.
 Chapter 3
DISSOLUTION OF FIRMS
 Dissolution of the Firm
Section. 39 provides that the dissolution of partnership between all the
partners of a firm is called ‘dissolution of the firm.’ dissolution means
the end of a firm by the break up of the relation of partnership
between all partners.
Modes of dissolution/ grounds of dissolution
A firm may be dissolved in any one of the following ways:
1. By Agreement: -consent of all partners
2. By Notice:- notice in writing in case of partnership at will
3. On the happening of certain contingencies- expiry of time, term,
death, insolvent
4. Compulsory Dissolution:-unlawful business, and all or most
partners are insolvent
5. Dissolution by the Court- insanity, incapacity, guilty conduct
6. Persistent breach of contract regarding management willingly
7. Transfer of whole interest to outsider
1. By Agreement: A firm may be dissolved with the
consent of all the partners or in accordance with a
contract between the partners. Partnership is
created by a contract, it can also be terminated by
a contract.

2. By notice: Where the partnership is at will, the

firm may be dissolved by any partner giving the
notice in writing to all the other partners of his
intention to dissolve the firm. A notice of
dissolution once given cannot be withdrawn
without the consent of all the other partners.
3. On the happening of certain contingencies: Subject
to a contract between the partners, a firm may be
dissolved if:

a.) if constituted for a fixed term, by the expiry of

that term.
b.) If constituted to carry out one or more
adventures or undertakings, by the completion
thereof.
c.) By the death of the partner.
d.) By the adjudication of partner as an insolvent.
4. Compulsory Dissolution: A firm may be
compulsorily dissolved if:

a.) When all the partners, or all the

partners but one, are adjudged insolvent.
b.) When some event has happened which
makes it unlawful for the business of the firm
to be carried on.
5. Dissolution by the Court: Dissolution by the court
is necessitated when there is a difference of opinion
between the partners regarding the matter of
dissolution in cases of:

a.) Insanity
b.) Permanent Incapacity
c.) Misconduct
d.) Persistent breach of agreement
e.) Transfer of interest
f.) Just and Equitable
CONSEQUENCES OF DISSOLUTION

 Acts done after dissolution- partners will be

liable to third party until give public notice
 Winding up- firms come to end and its affairs
must be wound up
 Personal profits earned after dissolution- must
share his earning to other partners.
 Return of premium- if dissolved before expiry
of term, shall be entitled to get that payment