1. Partnership Act 1932

2. Forms of business Sole transaction (one man business, nosharing of liability, no formalities involved)) Partnership (based on agreement betweenthe parties, less formalities involved, good forsmall business, liability unlimited) Company business( Limited liability,formalities involved, good for big/large scalebusiness, corporate personality.) 3. Partnership A partnership is an association of 2 or morepersons to carry on, as co-owners, a businessfor profit. Each partner is a co-owner. Partners havejoint control over the businesss operationsand the right to share in its profits. A partnership is considered a generalpartnership unless specifically designated asa limited partnership 4. Definition Section 4 of the partnership act 1932, _Partnership is the relationship betweenpersons who have agreed to share the profitsof a business carried on by all or any of themacting for all. Persons who have entered into partnershipwith one another are individually calledpartners and collectively firm-and the nameunder which the firm is carried on is called thefirm name. 5. Partnership Law Agency concepts found in partnership law: Each partner is an agent of the partnership for thepurpose of conducting the partnership's business . Partners have liability for the acts of otherpartners that occur in the course of conductingpartnership business. Each partner is a fiduciary of the other partners. 6. Partnership Law The existence of a partnership is an inferenceof law based on established facts, but nofactor alone is determinative. Factors a courtwould use in determining whether apartnership exists: Profit sharing (creates presumption of apartnership) Joint ownership of business (but not just jointownership of property) Right to manage the business 7. Partnership Law Duration of partnership: Partnership for a term orPartnership at will. A joint venture is a partnership formed for a specificpurpose (e.g. to buy land and develop a retail shoppingcenter). No express agreement is required for a partnership toexist. Partnership agreements can be oral, but it isadvisable to put an agreement into writing. Each partner make a capital contribution in exchangefor his partnership interest (expressed as a %). Contributions may be in the form of cash, time/talent, orproperty; additional contributions may be required by thepartnership agreement. 8. Kinds of Partners Active or Actual Partner: A person who takes active part, inthe affairs and management of the business is called activepartner. He contributes his shares in the capital and is alsoliable to pay the obligations of firm. Sleeping Partner: those who merely put in their capital and donot take active participation. A person who (a) does notconduct the management of the firm personally (b) is notknown to the outsiders as a partner of the firm, is calledsleeping partner. But he invests his amount in the business andis liable to clear the debts of the firm. He is also called dormantpartner. Silent partner: He is that kind of partner who does notparticipate in the affairs of the business but is known tooutsiders as a partner of the firm. He is liable to pay the debtsof the firm like other partner. does not have any voice in themanagement. 9. Partners in profits only: He is an individual who gets a shareof the profits only without being liable for the losses. He doesnot participate in the management of the business. He will beliable to outsiders for all acts of the firm. Sub partner: a person with whom one partner agrees to sharehis portion of profit. No right & liability The person whoreceives a share of profit from one of the regular partners iscalled the Sub-Partner. He is not liable to pay the debt is ofthe firm. He has no rights and privileges against the firm. Limited partner who has not to pay any obligation more thanthe share he holds in the firm is liable only up to the value ofhis capital contributions in the firm, and the like. 10. Minor Partner: There is no restriction to join the minor in thepartnership by law. Although he may become partner butwith the consent of all existing partners.In this case, he can be admitted to the profits of the firm onlybut not losses. He is not personally liable for the obligationsof the firm. But minor has the right to inspect and copy .theaccounts of the firm. Within six months of his attainingmaturity, he has to give public notice whether he wants toremain partner or not. After his decision, he will deemed asfull fledged partner. 11. Kinds of Partners Partner by estoppel or holding out: a person who representshimself as a partner of a firm to third parties though he is nota partner. On such representation he becomes liable to thirdparties if it can be proved that the third party acted on thefaith of his representation. It is irrelevant whether the personrepresenting knows of such faith or not. Nominal Partner : He is not in reality a partner of firm but hisname is used as if he is a member of the firm. He is notentitled in the profit or loss of the business but he is liable toall the acts of the firm. The person who has good prestige andstatus is given, the position of nominal partner. 12. Rights of the partners In the absence of a partnership agreement (oral orwritten) The Partnership Act govern the partners rights. These default rules include: Management of partnership: each partner has an equalvoice in management. One vote each--majority wins;unanimous consent required for some actions. Partnership income/losses: equal profits, losses sharedas profits shared. Compensation: none. Inspection of the books and records. A partner can demand an accounting of partnershipassets or profits to determine value of each partnersshare. May occur when other partner(s) suspected ofcommitting fraud or embezzlement, or any time it isjust and reasonable. 13. Duties and Liabilities Fiduciary duties. Partners are fiduciaries andgeneral agents of one another and thepartnership. Fiduciary duties include duty ofcare and duty of loyalty. General agency powers. All partners have impliedauthority to conduct ordinary partnershipbusiness (but may need unanimous consent tosell assets, enter into debt agreements, or certainother activities). Duty to make contributions to cover losses. 14. Liabilities All partners in a general partnership haveunlimited personal liability for the partnershipdebts, but the assets of the partnership must beexhausted first. The partnership is liable for the torts committedby the partnerships employees and partners foracts committed within the scope of their businessduties. New admitted partner has no personal liabilityfor existing partnership debts and obligations. 15. Liabilities Joint and several liability (majority rule). Allpartners are both jointly and severally(separately) liable for all partnership debtsand liabilities that cannot be satisfied from thepartnerships assets. A judgment creditor canattempt to collect the amount due against thepersonal assets of any of the generalpartners--regardless of their percentageinterest in the partnership. 16. Dissociation Dissociation occurs when a partner ceases to be associatedwith the partnerships business. This may occur by: A partner voluntarily giving notice of intent to withdraw. Occurrence of event specified in the partnership agreement(such as death). By a unanimous vote of other partners. A wrongful dissociation by a partner may result in liabilityto the partnership. Upon a dissociation, the partnership must either: Buy out the exiting partners interest and continue operating; or- Terminate the partnership and distribute remainingassets among all of the partners. 17. Termination of Partnership Business The termination of a partnership occurs in twostages: Dissolution is the legal death of the partnership(may be triggered by agreement or by a partnerwithdrawal), and Winding up (collecting and distributingpartnership assets). 18. The grounds of Dissolution By Agreement (sec.40) Compulsory dissolution (sec.41) On the happening of certain contingencies (sec.42) By Notice (sec.43) Dissolution by court (sec.44)- Insanity- Partners parmanent incapacity- Guilty conduct- Persistent breach of agreement- Transfer of whole interest- Loss 19. Winding up and distribution of assets: Partners have no authority to conduct partnershipbusiness after dissolution occurs except to: Complete transactions already begun. Wind up by collecting and preserving partnershipassets, discharging liabilities, and accounting to eachpartner for the value of his share. If liabilities are greater than assets, partners areliable for the losses in the same proportion in whichthey shared profits, unless agreed otherwise. If one partner does not contribute his share tocover losses, other partners are liable for his share,but they have the right of contribution against thatpartner that didnt pay. 20. Advantages and disadvantages ofpartnership Advantages Easy to create and maintain; no state formationdocuments Single level of taxation: partnership does not pay federalincome taxes. Partners report and pay federal incometaxes on their allocated share of partnership income. Management flexibility (may designate managing partner) Disadvantages Partners are personally liable for contracts, torts, andbusiness debts. Financing is difficult to obtain (partner contributions ordebt are generally the only options).