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Definition:

The Indian Partnership Act defines partnership


as “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.”
The Essential Features of Partnership :
1. An association of two or more persons;
2. An agreement entered into by all persons
concerned;
3. Business;
4. The business being carried on by all or any
of them acting for all; and
5. Sharing of profits (including losses) of the
business.
From the accounts point of view, the chief
point to remember is that the relations among
the partners will be governed by mutual
agreement called Partnership Deed.
INTRODUCTION
• A partnership is an arrangement where parties, known as partners, agree to cooperate to advance
their mutual interests. The partners in a partnership may be individuals, businesses, interest-
based organizations, schools, governments or combinations.Organizations may partner together to
increase the likelihood of each achieving their mission and to amplify their reach. A partnership
may result in issuing and holding equity or may be only governed by a contract. Partnership
agreements can be formed in the following areas:
• Business: two or more companies join forces in a joint venture[1] or a consortium to i) work on a
project (e.g. industrial or research project) which would be too heavy or too risky for a single entity,
ii) join forces to have a stronger position on the market, iii) comply with specific regulation (e.g. in
some emerging countries, foreigners can only invest in the form of partnerships with local
entrepreneurs[2]). In this case, the alliance may be structured in a process comparable to a Mergers
& Acquisitionstransaction.
• Politics (or geopolitics): In what is usually called an alliance, governments may partner to achieve
their national interests, sometimes against allied governments holding contrary interests, as
occurred during World War II and the Cold War.
• Knowledge: In education, accrediting agencies increasingly evaluate schools, or universities, by the
level and quality of their partnerships with local or international peers and a variety of other
entities across societal sectors.
• Individual: Some partnerships occur at personal levels, such as when two or more individuals agree
to domicile together, while other partnerships are not only personal, but private, known only to the
involved parties
AIMS AND OBJECTIVES
• Brief information on procedure of winding up
a company.
Rights of Partners:
Broadly, the provisions of the Act regarding rights, duties and powers of partners are as under:
(a) Every partner has a right to take part in the conduct and management of business.
(b) Every partner has a right to be consulted and heard in all matters affecting the business of
the partnership.
(c) Every partner has a right of free access to all records, books and accounts of the business,
and also to examine and copy them.
(d) Every partner is entitled to share the profits equally.
(e) A partner who has contributed more than the agreed share of capital is entitled to interest at
the rate of 6 per cent per annum. But no interest can be claimed on capital.
Duties of Partners:
(a) Every partner is bound to diligently carry on the business of the firm to the greatest
common advantage. Unless the agreement provides, there is no salary.
(b) Every partner must be just and faithful to the other partners.
(c) A partner is bound to keep and render true, proper, and correct accounts of the
partnership and must permit other partners to inspect and copy such accounts.
(d) Every partner is bound to indemnify the firm for any loss caused by his willful
neglect or fraud in the conduct of the business.
(e) A partner must not carry on competing business, nor use the property of the firm
for his private purposes. In both cases, he must hand over to the firm any profit or
gain made by him but he must himself suffer any loss that might have occurred.
(f) Every partner is bound to share the losses equally with the others.
(g) A partner is bound to act within the scope of his authority.
Registration of Firm:
Under the Indian Partnership Act, 1932, the registration of the firm is not compulsory. Because
an unregistered firm suffers from certain limitations, hence the registration of the firm is
desirable. Registration can be done at any time.
The registration of partnership firm involves the following procedure:
The firm will have to apply to the Registrar of Firms of the respective State Government in a
prescribed application form. The form should be duly signed by all the partners.
The application form should contain the following information:
1. The firm-name.
2. The name of business place.
3. Names of other places, if any, where the firm is carrying on its business.
4. Date of commencement of business.
5. Date when each partner joined the firm.
6. Full names and permanent addresses of all the partners.
7. The duration of the firm, if any.
When the Registrar of Firms is satisfied that all formalities relating to registration have been fully
complied with, he makes an entry in the Register of Firms. Thus, the firm is considered to be
registered. The Registrar issues a certificate called ‘Registration Certificate’ to the firm. The
Register of Firm remains open for inspection on payment of the prescribed fee for the purpose.
Dissolution of Firm:
There is a difference between the dissolution
of partnership and dissolution of firm.
Dissolution of partnership occurs when a
partner ceases to be associated with the
business, whereas dissolution of firm is the
winding up the business.
In other words, in case of dissolution of
partnership, the business of the firm does not
come to an end but there is a new agreement
between the remaining partners. But in case of
dissolution of firm, the business of the firm is
closed up. In brief, dissolution of partnership
does not imply the dissolution of firm. But,
dissolution of firm implies dissolution of
partnership also.
Following are the various ways in which a firm may be dissolved:

1. Dissolution by Agreement:
The partnership firm may be dissolved in accordance with a contract already made
between the partners.

2. Compulsory Dissolution:
A firm stands compulsorily dissolved under the following circumstances:
(a) By the adjudication of all the partners or of all the partners but one as insolvent,
or
(b) By the happening, of any such event that makes the business unlawful.

3. 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 firm’s venture for which the firm was formed.
(c) On the death of a partner.
(d) On the adjudication of partner as a solvent.
4. Dissolution by Court:
Under any of the following cases, a court may
order the dissolution of a firm:
(a) Any partner has become of unsound mind.
(b) Any partner has become permanently
incapable of performing his duties as a partner.
(c) A partner’s misconduct is likely to affect
prejudicially the business of the firm.
(d) A partner willfully commits breach of the
partnership agreement.
(e) A partner transfers his interest in the firm,
but unauthorized, to a third party.
(f) The business of the firm can be carried on
at loss only.
(g) It is just and equitable, on the basis of any
other reasonable ground, that the firm should
be dissolved.
Formation
The formation of a partnership requires a voluntary "association" of persons who "coown" the b
usiness and intend toconduct the business for profit. Persons can form a partnership by written
or oral agreement, and a partnership agreementoften governs the partners' relations to each ot
her and to the partnership. The term person generally includes individuals,corporations, and oth
er partnerships and business associations. Accordingly, some partner-
ships may contain individuals aswell as large corporations. Family members may also form and o
perate a partnership, but courts generally look closely atthe structure of a family business befor
e recognizing it as a partnership for the benefit of the firm's creditors.
Certain conduct may lead to the creation of an implied partnership. Generally, if a person receiv
es a portion of the profitsfrom a business enterprise, the receipt of the profits is evidence of a p
artnership. If, however, a person receives a share ofprofits as repayment of a debt, wages, rent,
or an Annuity, such transactions are considered "protected relationships" anddo not lead to a le
gal inference that a partnership exists.
Relationship of Partners to Each Other
Each partner has a right to share in the profits of the partnership. Unless the partnership agree
ment states otherwise,partners share profits equally. Moreover, partners must contribute equall
y to partnership losses unless a partnershipagreement provides for another arrangement. In so
me jurisdictions a partner is entitled to the return of her or his capitalcontributions. In jurisdictio
ns that have adopted the RUPA, however, the partner is not entitled to such a return.
In addition to sharing in the profits, each partner also has a right to participate equally in the ma
nagement of the partnership.In many partnerships a majority vote resolves disputes relating to
management of the partnership. Nevertheless, somedecisions, such as admitting a new partner
or expelling a partner, require the partners' unanimous consent.
Each partner owes a fiduciary duty to the partnership and to copartners. This duty requires that
a partner deal withcopartners in Good
Faith, and it also requires a partner to account to copartners for any benefit that he or she recei
veswhile engaged in partnership business. If a partner generates profits for the part-
nership, for example, that partner must holdthe profits as a trustee for the partnership. Each par
tner also has a duty of loyalty to the partnership. Unless copartnersconsent, a partner's duty of l
oyalty restricts the partner from using partnership property for personal benefit and restricts th
epartner from competing with the partnership, engaging in self-
dealing, or usurping partnership opportunities.
Relationship of Partners to Third Persons
A partner is an agent of the partnership. When a partner has the apparent or actual auth
ority and acts on behalf of thebusiness, the partner binds the partnership and each of th
e partners for the resulting obligations. Similarly, a partner'sadmission concerning the pa
rtnership's affairs is considered an admission of the partnership. A partner may only bind
thepartnership, however, if the partner has the authority to do so and undertakes transa
ctions while conducting the usualpartnership business. If a third person, however, knows
that the partner is not authorized to act on behalf of the partnership,the partnership is g
enerally not liable for the partner's unauthorized acts. Moreover, a partnership is not res
ponsible for apartner's wrongful acts or omissions committed after the dissolution of the
partnership or after the dissociation of thepartner. A partner who is new to the partners
hip is not liable for the obligations of the partnership that occurred prior to thepartner's
admission.
Winding Up
Winding up refers to the procedure followed for distributing or liqui
dating any remaining partnership assets after dissolution.Winding u
p also provides a priority-
based method for discharging the obligations of the partnership, suc
h as makingpayments to non-
partner creditors or to remaining partners. Only partners who have
not wrongfully caused dissolution orhave not wrongfully dissociated
may participate in winding up the partnership's affairs.
State partnership statutes set the procedure to be used to wind up p
artnership business. In addition, the partnershipagreement may alte
r the order of payment and the method of liquidating the assets of t
he partnership. Generally, however,the liquidators of a partnership p
ay non-
partner creditors first, followed by partners who are also creditors of
the partnership.If any assets remain after satisfying these obligation
s, then partners who have contributed capital to the partnership are
entitled to their capital contributions. Any remaining assets are then
divided among the remaining partners in accordancewith their resp
ective share of partnership profits.

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