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The Indian Partnership Act, 1932 lays down the important provisions relating to partnership contracts. However, the general principles of the Indian Contracts Act, 1872 which formally contained the provisions of the law of partnership shall apply so far as they are not inconsistent with this Act. (Section 3)
Partnership
(1) (2)
(3) (4)
According to Section 4 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. Therefore, in order that persons may become partners, it is essential that the following four elements co-exist: There must be at least two persons; There must be a relationship arising out of an agreement between two or more persons to do a business; The agreement must be to share the profits of a business; The business must be carried on by all or any of them acting for all.
Formation of Partnership
The partnership agreement must comply with all the essentials of a valid contract. Two exceptions, however, may be noted: (i) A minor may be admitted to the benefits of a partnership with the consent of all other partners. (ii) As relations of partners inter se are that of agency, no consideration is required to create the partnership.
Kinds of Partners
(i) (ii) (iii) (iv) (v) (vi) Actual, Active or Ostensible Partner Sleeping or Dormant Partner Nominal Partner Partner in Profits Only Sub-Partner Partner by Estoppel or Holding Out Effects of Holding out Exceptions to Holding Out The doctrine of Holding Out is not applicable in the following cases: 1. It does not apply to cases of torts committed by partners. 2. It does not extend to bind the estate of a deceased partner, where after a partners death the business of the firm is continued in the old firm name. 3. It also does not apply where the Holding Out partner has been adjudicated insolvent.
Dissolution
The Partnership Act makes a distinction between the dissolution of partnership and dissolution of firm. Where there is dissolution of partnership between all the partners of a firm, it is a dissolution of the firm (Section 39). Where there is an extinction of relationship between some of the partners only, it is a dissolution of partnership. The dissolution of partnership takes place (even when there is no dissolution of the firm) in the following circumstances: (a) By the expiry of the fixed term for which the partnership was formed. [Section 42(a)] (b)By the completion of the adventure. [Section 42(b)] (c) By the death of a partner. [Section 42(c)] (d)By the insolvency of a partner. [Section 42(d)] (e) By the retirement of a partner. [Section 42(e)]
Effect of Dissolution
Continuing authority of partners Continuing liability of partners Right to Return of Premium unless dissolution was caused by (i) agreement, or (ii) misconduct of the party seeking return of the premium, or (iii) death of a partner. (Section 51) Rights of a partner in case of dissolution on account of fraud or misrepresentation.(i) lien on surplus assets for any sum paid by him for purchase of his share in the firm or for any capital contributed by him;(ii) to rank as a creditor in respect of any payments made by him towards firms debts; (iii) to be indemnified by the partner(s) guilty of fraud or misrepresentation against all the debts of the firm.(Section 52)
Treatment of losses: Losses including deficiencies of capital are to be paid in the following manner: First out of profits; Then out of capital; Lastly by partners individually in their profit sharing ratio. Application of Assets: The assets of the firm, including the sums, contributed by the partners to make up losses or deficiencies of capital shall be applied in the following manner and order: in paying outside creditors; in repaying advances made by partners rateably (distinct from investment of capital); in repaying capital to partners rateably; and the ultimate residue, if any, shall be divided among the partners in the proportions in which profits are divisible.
Effects of Non-registration
Following are restrictions if the firm is not registered and the person suing is or has not been shown in the Register of Firms as a partner in the firm. Sub-section (1) of Section 69 places a bar on the right of the partners of a firm to sue each other or the firm for enforcing any right arising from a contract or conferred by the Partnership Act, Sub-section (2) of Section 69 places a bar on the institution of a suit by or on behalf of a firm against a third-party There is no bar on the right of third-parties to sue the firm or any partner.