Lecture No.
11
Partnership Act
The Nature of Partnership
Definitions
“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”. (Section 4)
“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”.
(Section 4)
“An act of firm means any act or omission by all the partners, or by any partner or agent fo the firm
which gives rise to a right enforceable by or against the firm”. (Section 2(a))
“Third party used in relation to form or to a partner therein means any person who is not a partner
in the firm”. (Section 2(d))
Essential Elements of a Partnership
Association of two or more persons
The partnership is an association between at least two or more persons and all persons must be competent to
contract. Following are the maximum number of partners:
In case of a partnership firm carrying on banking business maximum number is 10.
In case of a partnership firm carrying on any other business maximum number is 20.
In case of a partnership firm of professional persons maximum number may exceed 20.
Agreement
A partnership is a contractual agreement between the partners.
Carrying on business
To constitute a partnership, the parties must have agreed to carry on a business.
Sharing of profits
The next essential element of partnership is that there must be an objective to make profit.
Mutual agency
There must exist a mutual agency relationship among partners.
Test of Partnership
In determining
whether a group of persons is or is not a firm or
whether a person is or is not a partner in an firm regard shall be given to the real relationship between
the parties as shown by ALL RELEVANT FACTS TAKEN TOGETHER i.e. (Section 6)
o Association of two or more persons
o Agreement
o Carrying on business
o Sharing of profits
o Mutual agency
Types of Partnership
Partnership-at-will
Where no provision is made between the partners for the duration of their partnership, or for the
determination of their partnership, the partnership is called partnership at will.
Particular partnership
Where a partnership is created for any particular, adventure or undertaking it is called a particular
partnership.
Relations of Partners to One Another
General Duties of Partner
These are mandatory duties of a partner that cannot be changed by an agreement amongst the partners. They
are:
Every partner must be just and faithful to his co-partners.
Every partner is bound to carry on the business of the firm to the greatest common advantage.
Every partner must render true and proper accounts to his co-partners when required.
A partner must give full information to the other partners, in relation to everything affecting the
partnership.
Every partner shall indemnify means (compensate) the firm for any loss caused to it by his fraud in
the conduct of the business of the firm.
Every partner is bound to act within the scope of his actual or apparent authority.
In case of emergency it ist he duty of the partner to do all such acts for the purpose of protecting the
firm from loss.
Qualified Duties of Partner
The qualified duties of a partner can be changed by an agreement amongst the partners. Unless, otherwise
agreed by the partners, every partner has the following duties:
Every partner is bound to attend diligently to his duties in the conduct of the business without
remuneration.
The partners are bound to contribute to the losses sustained by the firm.
Every partner is under a duty to indemnify the firm for any loss caused to it by his willful neglect.
It is the duty of every partner to use the property of the firm exclusively for the purposes of the
business.
A partner must ‘account to the firm’ for any benefit obtained.
Rights of Partner
Every partner irrespective of the amount of capital contribution has right to take part in the conduct
of the business of the firm.
Every partner has the right to be consulted before any matter is decided.
Every partner has a right to have access to and to inspect and copy any of the books of the firm.
In the absence of a contract to the contrary every partner has a right to share profits equally earned
by the firm.
Every partner has a right to claim indemnify from the firm in respect of payments made or liabilities
incurred by him in the ordinary and proper conduct of the business.
A partner has a right to retire
o With the consent of all the partners or
o In accordance with an express agreement between the parties or
o Where the partnership is at will, by giving notice in writing to all the other partners of his
intention to retire.
Rights of Transferee of a Partner’s Interest
A partner may transfer his interest in the firm by sale, mortgage or change fully or partially. (Section 29)
Rights of Transferee
He is entitled to receive the share of the profits of the transferring partner.
On the dissolution of the firm or on retirement of the transferring partner he is entitled to receive:
o the share of the assets of the firm to which the transferring partner is entitled.
Disabilities of Transferee
No status of a partner.
Disability to interfere in the conduct of the business during the continuance of the firm.
Disability to require accounts.
Disability to inspect the books of the firm.
Disability to challenge the accounts of profits agreed to by the partners.
Disability to sue for dissolution of the firm.
Minors Admission to the Benefits of Partnership
Since the minor is not capable of entering into a contract, a contract by or with a minor is void ab-initio i.e.
from the beginning. Since partnership is formed by a contract, a minor cannot enter into a partnership
agreement but with the consent of all the partners for the time being a minor may be admitted to the benefits
of partnership.
Position of a minor before attaining majority
Rights
Right to share property and profits of the firm as agreed by the partners
Right to have access to accounts of the firm ONLY and not to the secret books
Right not to be adjudged insolvent.
Liabilities
Personally not liable i.e. limited liability.
His share is liable for the acts of the firm.
Disabilities
No status of a partner.
No suit against partners for profit and property except after disconnecting his relation with the firm.
Not entitled to have access to books other than accounts.
Position of a minor or attaining majority
On attaining majority the minor partner has to decide within six months whether he shall continue in the
firm or leave it.
Where such person elects to become a partner
The following holds:
Personal liability since the date of admission to the benefits of the firm.
Same share in the profits and property of the firm to which he was entitled as a minor.
Where such person elects not to become a partner
The following holds:
The status of a minor up to the date of public notice
His share not liable for any act of the firm after the date of public notice
Right to sue partners for share of the property and profits
