THE INDIAN PARTNERSHIP ACT, 1932
SUBMITTED BY:
SECTION A, GROUP 8
ABHISHEK SINGH
AMRISH RAI
ANU JAIN
NANDESHWAR PRATIK
KOMAL CHHABRIA
SHANAZ BEGUM
“NEMO DEBET IN COMMUNION INVITUS
TENERI”
NO ONE SHOULD BE RETAINED IN A PARTNERSHIP AGAINST HIS
WILL
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INTRODUCTIO
N"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.
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".
The Indian Partnership Act 1932 defines a partnership as
a relation between two or more persons who agree to
share the profits of a business run by them all or by one
or more persons acting for them all
PARTNERSHIP IS A FORM OF BUSINESS ORGANIZATION , WHERE TWO OR MORE PERSONS JOIN TOGETHER FOR
JOINTLY CARRYING ON SOME BUSINESS
Partnership for a Fixed Term
Partnership at Will Now during the creation of a
When forming a partnership if there is no clause partnership, the partners may agree
about the expiration of such a partnership, we on the duration of this arrangement.
call it a partnership at will. This would mean the partnership was
Kinds of created for a fixed duration of time
partners
hip General Partnership
Particular Partnership
A partnership can be formed for carrying on When the purpose for the formation
continuous business, or it can be formed for one of the partnership is to carry out the
particular venture or undertaking. business, in general, it is said to be a
general partnership.
Active Partner/Managing Partner Dormant/Sleeping Partner
An active partner is also known as Ostensible This is a partner that does not participate in the
Partner. As the name suggests he takes active daily functioning of the partnership firm, i.e. he
participation in the firm and the running of the does not take an active part in the daily activities of
business the firm
Partner by Estoppel
Nominal Partner
This is a partner that does not have any real
Types of If a person holds out to another
that he is a partner of the firm,
or significant interest in the partnership. So, Partnershi either by his words, actions or
in essence, he is only lending his name to the p conduct then such a partner
partnership. cannot deny that he is not a
partner.
Partner in Profits Only Minor Partner
A minor cannot be a partner of a firm according to
This partner will only share the profits
the Contract Act. However, a partner can be
of the firm, he will not be liable for any
admitted to the benefits of a partnership if all
liabilities.
partner gives their consent for the same
TRUE TEST OF PARTNERSHIP
The true test of a partnership is a way for us to determine whether a group or association of persons is
a partnership firm or not. It also helps us recognize the partners of the firm and separate them from
the third parties.
Agreement/Contract between Parties
For there to be a partnership between two or more persons there has to be an agreement of partnership
between them. The partnership cannot arise family status or any operation of law. There has to be a
specific agreement between the partners.
Profit Sharing
Sharing of profits is an aspect of the true test of a partnership. However, profit sharing is only a prima facie
evidence of a partnership. The Act does not consider profit sharing as conclusive evidence of a partnership.
Mutual Agency
This is the truest test of a partnership, it is the cardinal principle of a partnership. So if a partner is both
the principle as well as an agent of the firm we can say that mutual agency exists.
Contract for Partnership
A partnership is contractual in nature. As the definition states
a partnership is an association of two or more persons. So a
partnership results from a contract or an agreement between
two or more persons.
Association of Two or More Carrying on of Business
Persons
There are two aspects of this
A partnership is an association Elements element. Firstly the firm must
between two or more persons. And be carrying on some
persons by law only includes of a business.some business must
individuals, not other firms. The law Partnershi exist and the partners must
also prohibits minors from being participate in the running of
partners. p such business.
Mutual Agency
Profit Sharing
The definition states that the business must be
The sharing of profits is one of the essential
carried out by the partners, or any partner/s
elements of a partnership. The profit sharing ratio is
acting for all of them. This is a contract of mutual
not important. But one partner cannot be entitled to
agency another one of the five elements of a
the entire profits of the firm.
partnership.
PARTNERS: MUTUAL RELATIONS
Rights of Partners Duties of Partners
Right to take part in the conduct of a business Absolute duties
Duty to carry on firm business to the greatest common advantage (Section 9)
Right to be consulted
Duty to act in the good faith (Section 9)
Right of access to books
Duty to render true accounts (Section 9)
Right to share profits equally Duty to provide full information (Section 9)
Right to claim interest on capital Duty to indemnify for loss caused by fraud (Section 10)
Right to interest on advances Duty not to transfer one’s rights and interests (Section 29)
Duties subject to agreement by partners
Right to be indemnified
Duty to attend diligently (Section 12 (b))
Right to use partnership property
Duty to work without remuneration (Section 13 (a))
Right in emergency Duty to share losses (Section 13 (b))
Right to prevent admission of a new partner Duty to indemnify for willful neglect (Session 12 (f))
Duty to hold and use property of the firm exclusively for the firm
Right not to be expelled
(Section 15)
Right to retire Duty to account for personal profits (Section 16 (a))
Right to carry on competing business Duty to account for profits of a competing business (Section 16 (b))
Duty to the act within authority (Section 19 (1))
Right to share profits subsequent to retirement
Right to dissolve the firm
Partners: Relations with Third Reconstitution of a
Parties partnership firm
The authority of a partner to bind the firm in the
context of third parties may be express or The reconstitution of a firm can take place
implied. because of 6 reasons:
Authority is said to be expressed if it is A new partner is added to the partnership
conferred on a partner by mutual agreement.
Any of the partner retires
Implied/ Apparent/ Ostensible authority is an
authority that arises by implications of law and Any of the partners is expelled
not conferred by express agreement among the Any of the partner is declared insolvent
partners.
Section 21 extends the scope of implied Any of the partner dies
authority of a partner in an emergency and One of the partner of the firm transfers
prescribes that ‘a partner has authority, in an his/her shares to another person
emergency, to do all such acts for the purpose of
protecting the firm from loss as would be done
by a person of ordinary prudence, in his own
case, acting under similar circumstances, and
such acts bind the firm’.
OUTGOING PARTNER
A person ceases to be a partner in a firm for the following 5 reasons:
A partner retires
A partner is expelled
A partner is adjudicated as insolvent
One of the partner dies
One of the partner transfers his/her interest in the firm
Rights of an outgoing partner:
Right to carry on competing business
Right to share subsequent profits in certain cases
Revocation of continuing guarantee by change in firm
PARTNERSHIP PROPERTY AND LIMITED LIABILITY PARTNERSHIP
A partnership property includes all property and rights, and interest in property that the partnership firm
purchases
Partnership property comprises of the following items
property that the partners purchase in the common stock as their contribution to the common business.
property that the firm purchases either for the firm or for the purpose and in course of the business of the firm.
Goodwill of the business.
A typical partnership form of the business suffers from the problem of unlimited liability which is resolved by
Limited Liability Partnership(LLP)
An LLP has all basic features of a regular partnership firm, except that of same legal entity status and unlimited
liability of partners
Features
Separate legal entity
Limited liability of partners
Sharing of profits
Partners of LLPs
LEGAL CONSEQUENCES OF ADMISSION OR RETIREMENT OF PARTNER
Admission of a new partner or retirement of a partner, or expulsion or insolvency of a partner, etc. results in partnership
reconstitution
Admission or Introduction of a Partner (Section 31)
the consent of all the existing partners is necessary before introducing a new partner into a partnership firm
the new partner has no liability for any actions of the firm done before his admission.
The retirement of a Partner (Section 32)
In a partnership, a partner may retire:
With the consent of all the partners,
In accordance with an express agreement by the partners, or
The partnership is at will, by giving notice in writing to all the other partners of his intention to retire
Expulsion of a Partner (Section 33)
A partnership firm can expel a partner provided:
The power of expulsion exists in the contract between the partners
Majority of the partners exercise the power
The power is used in good faith
Insolvency of a Partner (Section 34)
When a partner of a firm is adjudicated as insolvent –
He ceases to be a partner of the firm from the date of the adjudication
His estate, which vests in the official assignee, ceases to be liable for any act of the firm from the said date
The firm ceases to be liable for any act of such a partner.
Liability of Estate of a Deceased Partner (Section 35)
if the partner’s contract to not dissolve the partnership post the death of any partner, then the surviving
partner continues the business of the firm
it is not necessary for the firm to give a public notice or inform the persons dealing with the firm about the
death of the partner.
Exception: Partnership consisting of only two partners where death of a partner results in the dissolution of
the partnership.
MINORS ADMITTED TO BENEFITS OF A PARTNERSHIP
Liabilities of a Minor Partner Rights of a Minor Partner
Minor cannot be held for the A minor partner will share the
losses of the firm profits of the firm, but his
In the case of dissolution of assets cannot be liquidated to
firm, minors share is protected cover for the losses.
with the official reservoir
He can inspect the books of
A minor would become partner
accounts of the firm
if he doesn’t make necessary
announcements. He can also sue other
He would be liable, if he partners if necessary.
chooses to become a partner 6 months before attaining
If he becomes a full-time majority, the minor can decide
partner he will be treated as a to exercise his right to
normal partner and have all the become a partner of the firm.
liabilities of one.
DISSOLUTION OF A FIRM
Voluntary Dissolution By court Holding more cash than
allowed
By Agreement Insanity or unsound mind
Perpetual losses
With consent of partners Permanent Incapacity
Based on a contract Misconduct
Just and equitable ground
Compulsory Dissolution Any guilty activity by any
of the partners Deadlock in management
Any unlawful activity in the
event of business Transfer of Interest Partners not being in
talking terms with each
On the happening of certain To a third party
other
contingencies Allow court to change or
Loss of substratum
On the expiry of the fixed sell his share
term for the firms Gambling by a partner on
Persistent breach of the
the stock exchange.
When the undertakings are agreement
completed Embezzlement
Insolvent partner Faulty accounts
Death of a partner
By notice of partnership at
will
Will of a partner to dissolve by
POST – DISSOLUTION PROCEDURES
To wind up business
To settle the debts of the firm out of its property
Any losses or deficiencies of capital will be paid out of profits or out of the capital and finally, if necessary, by the partners.
The assets of the firm, which includes the sums contributed by the partners to make up for the deficiency in the capital, is applied in the
following order:
Repaying the debts of the firm to third parties
Paying each partner rateably what is due to him from the capital
Paying each partner rateably what is due to him on account of capital
If any amount is left, then dividing it among the partners in proportions in which they receive their share in profits
To have personal profits
To receive return of premium on premature dissolution, if it was paid at the entry into the firm
Except in cases where the partnership is dissolved:
Due to the death of a partner
Due to the misconduct of the partner paying the premium
Post an agreement which has no provisions for the return of premium
To restrain partners from using firm name or goodwill
Once the goodwill of the firm is sold after dissolution, he may not:
Use the name of the firm
Represent himself as carrying on the business of the firm
Solicit the customs of persons dealing with the firm before the dissolution
Contract rescinded for fraud or misinterpretation
Contract rescinded for fraud or misinterpretation
CASE: APPELLANT: DULICHAND LAKSHMINARAYAN VS RESPONDENT: INCOME TAX COMMISSIONER,
NAGPUR
Five parties decided to be partners of the firm. Out of the 5, three were separate firms constituted under separate
deeds of partnership. The three persons who signed the deed on behalf of those three firms, respectively, were
partners in their respective firms. The fourth party was the name of a business carried by an undivided Hindu Family
business. The fifth party was an individual
The application was made under Section 26-A before the Income Tax Officer for registration as a firm constituted
under Deed of Partnership on 17th February 1947. The Income Tax Officer rejected the application on the ground that
a firm or a Hindu undivided family business cannot enter into a partnership with other firms or individuals
On appeal, the Appellate Assistant Commissioner held that when a firm entered into a partnership with another firm,
the result was that all the partners of the smaller firms become partners of the bigger firm, and therefore there was
no legal flaw in the constitution of the bigger firm
He, however considered the application invalid as it had not been personally signed by all the partners of the smaller
firms as required by the Section 26 – A of the act and consequently it cannot be registered. The assessee appealed to
Income Tax Appellate Tribunal who agreed with Assistant Commissioner but reversed the decision on the ground that
as all the five executants of the deed had signed the application, the requirements of the law have been satisfied
When the judgement was given in supreme court, the appeal was dismissed saying that a firm is not entitled to
a partnership with another firm, HUF or an individual.
MALABAR FISHERIES CO, CALCUTTA VS COMMISSIONER OF INCOME TAX
Article 34(3)(b) was not applicable to a dissolution of a firm if the assets were given to a
partner.
The case demonstrates the following:
There is no transfer of assets during the dissolution of the firm
The firm has no separate rights of its on in the partnership assets but it is the partners
who own jointly in common the assets.
BODA NARAYANA MURTHY AND SONS VS VALLURI VENKATA SUGUNA
AND ORS
There were five people who purchased a land jointly and subsequently constructed a
cinema hall with the joint money.
Then all the five persons entered into a partnership to form firm to exhibit the film there.
It was held by the Andhra Pradesh High Court that the land and the hall was not the
property of the firm but subject to co-ownership.
There was no intention could be inferred to convert the property into the firm’s property.
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