National University of Modern Languages
Lahore
Assignment # 3
MBA-4(A)
Roll # L-21207
Business Law
Topic: Delineate the process of creation of a Firm, highlight its
types, essentials and outline rights and obligations of the
partners
Submitted to: Sir Brig. Muhammad Saleem
Submitted by: Muhammad Daniyal Tahir
Submission Date: 21-04-2020
Creation of partnership :-
The formation of a partnership requires a voluntary "association" of persons who
"coown" the business and intend to conduct the business for profit. Persons can form a
partnership by written or oral agreement, and a partnership agreement often governs the
partners' relations to each other and to the partnership. The term person generally
includes individuals, corporations, and other partnerships and business associations.
Partnership is the relation between persons who have agreed to share the profits of a
business carried on by all or any one of them acting for all, Section 4, Partnership Act,
1932.
The persons who have entered into partnership are individually called ‘partners’
and collectively a ‘firm’.
The name under which they carry on the business is called ‘the firm name’
What is a Partnership?
A partnership is a form of business where two or more people share ownership, as well as the
responsibility for managing the company and the income or losses the business generates. That
income is paid to partners, who then claim it on their personal tax returns – the business is not
taxed separately, as corporations are, on its profits or losses.
There are three types of partnerships:
General partnership
Limited partnership
Joint venture
General Partnership
In a general partnership, each partner shares equally in the workload, liability, and profits
generated and paid out to the partners. All partners are actively involved in the business’s
operations.
Limited Partnership
Limited partnerships allow outside investors to buy into a business but maintain limited liability
and involvement, based on their contributions. This is a more complicated form of partnership,
which also has more flexibility in terms of ownership and decision-making.
Joint Venture
Short-term projects or alliances that bring together multiple partners for a project are typically
structured as joint ventures. If the venture performs well, it can be continued as a general
partnership. Otherwise, it can be shuttered.
Pros
There are several advantages of choosing to structure a business as a partnership, which include:
Fairly easy to set up and maintain over time
Partners can pool their resources to fund the company’s start-up
Partners can share the workload and the rewards of the business’s success
Being able to offer key employees the potential to one day become a partner in the
business can be a big carrot that encourages them to stay long-term
Cons
Of course, where there are advantages, there are also disadvantages to forming a partnership:
Where more than one owner exists, there are bound to be differences of opinion that
could threaten the business
Although partners split any profits the business generates, if the payout is not in sync
with each partner’s contribution to the company, disagreements can erupt
Unlike corporations, which help to shield owners from liability, partnerships have both
joint and individual liability. That is, all partners are liable for their own actions on behalf of
the company as well as the actions of the other partners
RIGTHS AND DUTIES OF PATNERSHIP
(1) To work for maximum common interest: Mutual interest is the cornerstone of a
partnership. It, therefore, becomes the duty of a partner to conduct the business of
partnership for the maximum common interest of the partners. -Section 9
(2) To be faithful to other partners: Every partner owes it to himself to be just and faithful
to other partners. –Section 9
(3) To give correct accounts: It is the duty of partners to render true or correct account to
the partnership firm. It is also his duty to let the other partners inspect such accounts and
take copies, if they so desire. -Section9
(4) To give correct information: Each partner is an agent of the other, and as such, is
obliged to give correct and full information to the other partners about the conduct of the
firm’s business. –Section9
(5) To indemnify for fraud: If the firm or any partner thereof is put to a loss on account of
fraud by a partner in the conduct of the firm’s business, the liability of the partner who
has committed such fraud is absolute, and he is bound by law to compensate the firm or
the partner for such loss. -Section 10
Section 13(f): To indemnify for willful neglect
According to the Section, a partner of a partnership firm must compensate the firm for any
damages or loss caused to it by willful neglect in the conduct of the business of the firm.
Section 12(b) & Section 13(a): To attend duties diligently without remuneration
According to Section 12(b) of the Indian Partnership Act, every partner is legally bound to attend
to his duties diligently to his duties relating to the conduct of the firm’s business. Moreover,
Section 13(a) enumerates that a partner is not, however, generally entitled to remuneration for
participating in the conduct of the business. A partner is also bound to let his partners have the
advantage of his knowledge and skill.
Section 13(b): To share losses
All the partners of a partnership firm are liable to contribute equally to the injury sustained by
the firm.
Section 16(a): To account for any profit
If a partner of a partnership firm derives any profit for himself for any transaction of the firm or
from the use of the property or business connection of the firm or firm’s name, then the partner is
bound to account for that profit and refund it to the firm.
Section 16(b): To account and pay for profits of competing for business
If a partner carries on a company of the same nature as the firm and competes with that of the
firm, the partner must be accountable for and pay to the firm all the profits made in the business
by the partner. The partnership firm will not be held liable for any losses caused in the business
(1) Right to take part in the conduct of business: Each partner has the right to participate
in the conduct of the business of partnership. It is also possible that a partner might only
invest money in the business and give the right to conduct the business to other partners.
It does not, in this case, imply that, once the partner gives the right to conduct the
business to other partners, he cannot later take part in the conduct of business himself. It
is essential that a partner has the right to participate in the conduct of his business,
whether or not he exercise such right. -Section 12(a)
(2) Right to express opinion: In case there is a disagreement on a business-related issue in
the normal course of business, it is settled by a consensus among the partners. But,
beforea consensus is reached, each partner has the right to express his opinion. If the
matter is important and is likely to affect the policy or profitability of the business, a
consensus amongst partners assumes added importance, and their agreement. -Section
12(c)
(3) (3) Right of access to accounts: Every partner has the right to access the books of
account of the firm, examine the books and take a copy of any account.
(4) (4) Right to share in profit: Every partner is entitled to share in the profit of the firm
equally. Different proportions can be stipulated in the partnership deed. -Section 13(b)
(5) Interest on capital: No partner has the right to get interest on the capital invested by
him in the firm. But if any interest is paid to the partners by agreement, it is only payable
out of the profits of the firm -Section 13(c)
(6) Right to interest on additional capital or loan: If a partner has invested more than his
share of the capital, or has advanced any money as a loan to the firm, he has the right to
get interest on the additional capital or loan to the firm at the rate agreed upon. If no rate
of interest has been agreed upon, the partner has a right to receive interest at the rate of
six percent. -Section 13(d)
(7) Right to indemnity: If a partner, in the normal course of business, or in an emergency
with the intention of protecting the firm from any loss, has done some act that a person
of normal intelligence would do to protect his interest, and has incurred some expense or
taken on some obligation, he has the right to be indemnified by the firm for such
act. Section 13(e)
(8) Right in the firm’s property: As a rule, each partner is a joint owner of the firm’s
property and, unless there is an agreement to the contrary, each partner is presumed to
have an equal share. Such property includes all property purchased with firm’s money,
and is used exclusively for the conduct of the firm’s business.
(9) Right to leave the firm: Every partner has the right to leave the firm with the consent of
other partners. In a partnership at will, a partner has only to give a notice of his intention
and leave the firm.
(10) Right not to be expelled: Every partner has the right to continue to be in the partnership
and not to be expelled from it by the consensus of other partners unless there is no
charge of his having committed a breach of good faith.
(11) Right to do competitive business: Except in circumstance listed in Section 36(1), an
outgoing partner has the right to carry on a competing business. -Section (36)
(12) Right to share in profits after retirement: If the outgoing partner’s account with the
firm has not been cleared and the firm owes him money or is using his assets in its
business, the outgoing partner or his legal representative is entitled to a share in the
profit earned with the aid of such assets, or interest at the rate of six percent. -Section
(37)
