“Relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all”.

Persons who have entered into partnership with one another are called individually ‘partners’ and collectively ‘a firm’ and the name under which their business is carried on is called the ‘firm name’.

1. Contract –(Relation of partnership arises from contract and not from status.)

2. Association of two or more persons3. Carrying on of business4. Sharing of profits-(Sharing of losses not

necessary.)5. Mutual agency-(Every partner is both an

agent and principal for himself and other partners)

Unlimited liability No separate legal entity Utmost good faith Restriction on transfer of interest Unanimity of consent

Based on agreement – oral/written/implied All essential elements of a valid contract must

be present Free and genuine consent of parties competent

to contract Object – lawful and all legal formalities to be

complied with.

1) Minor partner – Minor may be admitted to the benefits of partnership with consent of all partners.

2) Consideration – No consideration is required to create partnership which is an extension of the law of agency.

Agreement made between the partners in writing and such document is called ‘Partnership Deed’ – It must be duly stamped as required by the Indian Stamp Act, 1889.

Contents: provisions relating to – Nature, principal place of business, firm name,

names and addresses of partners, duration of firm, profit-sharing ratio, interest on capital & drawings, valuation of goodwill, management, accounts, etc.

A partnership may be illegal in either of two ways:

1. By being formed to carry on an illegal business. (e.g., to carry on a business of illicit liquor.)

2. Where the number of partners exceeds the maximum limit (i.e. banking business: more than 10 and other businesses: more than 20) or comes down to one person.

1. Partnership for a fixed term2. Partnership at will3. Particular partnership

The partners may, at the time when they enter into partnership agreement, fix the duration of the partnership.

Partnership is entered into for a fixed period of time and when this period is over, it comes to an end.

1)When the partnership is not for a fixed period of time and,

2)When no provision is made as to when and how the partnership will come to an end.

A partnership-at-will can be dissolved at any time by any of the partners notifying his willingness to do so.

When a person becomes a partner with another person or persons in any particular adventure or undertaking.

It comes to an end as soon as that adventure is completed.

1. Active partners2. Sleeping partners3. Silent partners4. Partner in profit only5. Sub-partner6. Partner by estoppel or holding out

1. Right to take part in the conduct of the business.

2. Right to be consulted.3. Right of access to books.4. Right to share the profits.5. Right to interest on capital.6. Right to interest on advances.7. Right to indemnity.

Absolute duties

Qualified duties

Absolute duties1.The duty to carry on the business to the

greatest common advantage.2.The duty to be just and faithful inter-se.3.The duty to render true accounts.4.The duty to provide full information.5.The duty to indemnify for loss caused by

fraud.6.The duty to be liable jointly and severally.7.The duty not to assign his interest.

Qualified duties

1. The duty to attend diligently to his duties.2. The duty to work without remuneration.3. The duty to contribute to the losses.4. The duty to indemnify for willful neglect.5. The duty to use firm’s property exclusively for

the firm.6. The duty to account for personal profits derived.7. The duty not to compete with the business of the

firm.

A statement in the prescribed form and accompanied by the prescribed fee stating:

Name of the firm, The place or principal place of business of the firm, The names of any other places where the firm carries on

business. The date when each partner joined the firm The names in full and addresses of the partners, and The duration of the firm- Signed by all the partners/agents and verified in

prescribed manner.

1) A partner cannot file a suit against the firm or any partner, so as to enforce a right

a) arising from contract, orb) conferred by the Partnership Act.

2) An unregistered firm cannot sue a third party to enforce a right arising from a contract

.

1. Dissolution of Firm2. Dissolution of Partnership

1. By Agreement2. By Notice3. On the happening of certain

contingencies4. Compulsory dissolution5. Dissolution by the court

1. Continuing liability of partners after dissolution

2. Continuing authority of partners for purposes of winding up.

3. Right of partners to enforce winding up.4. Liability to share personal profits.5. Rights where partnership contract is

rescinded for fraud.6. Right to impose restrictions.

Basis Partnership Company

Regulation Act Indian Partnership Act,1932 Companies Act,1956No. of members 2-20 2-50(Pvt.)

7-No limit (Public)

Entity No separate legal entity Separate legal entityLiability Unlimited Limited liabilityManagement By all partners By Board of DirectorsTransfer of interest

Not possible without consent of other partners

Freely transferable

Audit Not mandatory if below Rs.40 lakhs total sales

Mandatory

Registration Not compulsory CompulsoryWinding up By any partner-if partnership at

willRequires majority approval