patnership law

7/27/2019 Patnership Law

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Law of Partnership

Jay Singh (2014C5

Jagdeep Singh (2014C5

Medha Gupta (2014C2

Vratika Mittal (2014C2


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Nature of PartnershipIn India Partnership is governed by the Indian Partnership Act, 1932. this Act defines Partnership as the relationship between persons wagreed to share the Profit of a business carried on by all or any

acting for all.The partnership consists of three essential elements.

Partnership must be the result of an agreement between two or more

The agreement must be to share Profits or Losses of the business.

The business must be carried on by all or any of them acting for all.


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Is Sharing of Profits only prima facie evidePartnership?

Sharing of profits, is important but not conclusive. Sharing of profits maycircumstances where there is no question of partnership. For example :

A creditor taking a share of profits in lieu of interest & part payment of pr

An employee getting a share of profits as remuneration.

Share of profits given to workers as bonus etc.

As per Sec.6 of the partnership Act, a true partnership can be tested wheessential elements of partnership are present.


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Limited Partnership

Limited partnership are partnerships containing one or more limited part

Limited partnerships must be registered with the Registrar of Companies.

partners are not liable for the debts as in Section 41.2.


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Characteristics of Limited PartnersTheir liability for the debts of the partnership is limited to the capital they

They can lose that capital, but they cannot be asked for any more money

unless they contravene the regulations relating to their involvement in th

They are not allowed to take out or receive back any part of their contrib

partnership during its lifetime.

They are not allowed to take part in the management of the partnership opower to make the partnership take a decision.

If they do, they become liable for all the debts and obligations of the partthe amount taken out or received back or incurred while taking part in thof the partnership.

All the partners cannot be limited partners, so there must be at least one with unlimited liability.


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Must a firm be registered?

Registration of a partnership firm is not compulsory under the Indian Par

A firm may be registered (Sections 56-71) any time by sending by post or

statement in the prescribed form to the registrar of firms of the area in wis situated.

The statement must be signed by all partners & must be accompanied byprescribed fees. After this the registrar will record an entry in the registe


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What are the effects of Non registration offirm?Consequences of Non registration :

As per the provision of Section 69 of the Indian partnership Act, non regisfollowing disabilities :

No partner can file a suit against the firm or any co-partner.

The firm can not file a suit against third party for breach of contract.

An unregistered firm can not claim a set-off in a suit.


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Active partner, Sleeping partner & NominapartnerActive partnerA person who becomes a partner by an agreement & is aengaged in the conduct of business of the partnership. He contributes cap

entitled to share the profits of the business. He is also liable for the debtsSleeping / Dormant partnerHe does not take active part in the conductbusiness of the firm. He invests capital & shares in the profits of the businliable along with other partners for all the debts of the firm.

Nominal partnerThese partners only allow the firm to use their name aThey do not have any real interest in the business of the firm. They do no

capital, or share profits & also do not take part in the business of the firmthey do remain liable to third parties for the acts of the firm.


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Liabilities of a Partner.

Partnership Act lays down two general rules :

General duties of PartnersPartners are bound to carry on the business

the greatest common advantage, to be faithful to each other & to render to any partner or his legal representative-Sec.9. This section lays down threlationship between partners is one of utmost good faith.

IndemnityEvery partner shall indemnify the firm for any loss caused to in the conduct of the business of the firm Sec.10.


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Liability of Partners to OutsidersThe partners liabilities can be discussed in three categories.

Liability of a Partner for Acts of the firmEvery partner is liable, jointly wother partners & also severally for all acts of the firm done while he is a paSec.25. This section lays down the rule that every partner is liable, to an uextent, for all debts due to third parties from the firm incurred while he w

Liability of the firm for wrongful acts of a partnerWhere, by the wrongfomission of a partner acting in the ordinary course of the business of a firthe authority of his partners, causes injury or loss to any third party or anincurred, the firm is liable therefore to the same extent as the partner Sec


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Liability of a firm for misapplication by partners where

A partner acting within his apparent authority receives money or propertyparty & misapplies it or

A firm in the course of its business receives money or property from a thir

money or property is misapplied by any of the partners while it is in the cfirm, the firm is liable to make good the loss Sec.27.


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Doctrine of Holding Out

Conditions necessary to make a person liable as a partner by holding out are

A person may, under certain circumstances, be liable for the debts of a firm not a partner. If a person, by words spoken or written, or by conduct, repres

knowingly permits himself to be represented, to be a partner in a firm, he ispartner in that firm to any one who has on the faith of any such representatto the firm-Sec.28.

If X induces Y to believe that X is a partner of a firm AB & Y believing that X icredit to AB, X will be responsible for compensating Y. He will not be heard tnot a partner of AB. This is known as partnership by holding out.


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EstoppelEstoppelThe principle of estoppel is a rule of evidence. Estoppel arisesprecluded from denying the truth of anything which you have representealthough it is not a fact.

A minor who falsely represents himself to be a major, & thereby induces ato enter into an agreement with him, can nevertheless plead minority as action on the agreement. In a similar case Khan Gul vs Lakha Singh Court the minor to pay compensation to the other party.


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To hold a person liable as a partner by holding out, it is necessary to estab:

He represents himself, or knowingly permitted himself to be represented

Such representation occurred by words spoken or written or by conduct.

The other party on the faith of such representation gave credit to the firm

Ri ht f P t


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Rights of Partners.

Subject to any contract to the contrary, the important r

partners are summarized below :

Conduct of business Sec.12(a).

Can express opinion Sec.12 c.

Access, inspection & copy books of the firm Sec.12(d).

Equality of Profits Sec.13(b).Interest on Capital Sec 13 c.

Interest on Advance @ 6% P.A. Sec.13(d).

To get indemnity Sec.13(e).


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Application of Property of firm Sec.15.

Partners authority Sec.18 & 19.

Powers in an emergency Sec.21.

Reconstitution through introduction of a new partner, death, retirement oetc.

Dissolution of firm.

Right to carry on a competing business.

Right to share profits after retirement.


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Duties of Partners

Justice, Faithful to partners, provide true accounts & information affectin

Sec.9.

To pay indemnity in case of loss Sec.10.

To attend diligently to his duties Sec.12(b).

No remuneration unless specifically given in the contract Sec .13(a).

Equality of losses Sec.13(b).

To pay indemnity for willful neglect by the partner Sec.13(f).

No private benefit Sec.15.


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To account for secret Profit Sec. 16(a).

Unlimited Liability Sec.25.


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Contract with a MinorA minor can not enter into a contract of partnership business since an agrminor is void. But if all the partners agree, a minor may be admitted to than existing firm.

The rights & liabilities are governed by the following rules. Section 30

The minor has right to such share of property & profits of the firm as maythe partners.

The minor may have access to & inspect accounts.

The minor is not personally liable for any act of the firm.

As long as a minor is a member of the firm, he can not file a suit against thpartners for payment of his share of the property & profits.


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At any time with in 6 months of his attaining majority or his obtaining knohad been admitted to the benefits of partnership, whichever date is latergive public notice that he has been elected to become or not to become afirm.


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The following rules apply when a minor elects to become partner :

He becomes personally liable to third parties for all acts of the firm.

His share in the property & profits of the firm shall be the share to which

entitled as a minor.

The following rules apply when the minor elects not to become a partner

His rights & liabilities continue to be those of a minor up to the date on w

public notice.

His share is not liable for any acts of the firm done after the date of the n

He is entitled to use the partners for his share of the property & profits of


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Rights of an Outgoing Partner

Restraint of Trade from carrying out similar business within a specified pelimits Sec. 36(2).

To carry on competing business when there is no restraining agreement bpartners Sec.36(1).

To share subsequent Profits is to be decided in the following way :

He or his estate is entitled at the option of himself or his representative toprofits made since he ceased to be a partner or to interest @ 6% per annamount of his share capital in the property of the firm.


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Revocation of continuing guarantee by change in firm : A continuing guaraas to future transactions from the date of any change in the constitution o


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