The Indian Partnership Act, 1932

Definition

Section 4 of the Indian Partnership Act, 1932 defines Partnership as the relation between persons who have agreed to share the profits of a business carried on by all or anyone of them acting for all. The persons who enter into such relationship are called PARTNERS

Essential Elements of Partnership

Association of two or more persons

Max. limit : 10 for banking; 20 for other business Partnership relation based on Contract. Implied or Express (Oral or Written) Trade, Occupation or Profession

Result of an agreement

Must carry on some business

Share profits of the business Business is carried on by all or any one of them acting for all (mutual agency)

Mode of Creating Partnership

Based on agreement Agreement may be express or implied

In Writing : helpful in times of adversity Written agreement : Partnership Deed

Essence of Partnership : Trust & Confidence Drafted with care and signed by all partners Stamped in accordance with Indian Stamp Act Firm should be registered and copy of the Deed to be filed with the Registrar

Partnership Deed

Prepared for resolving mutual differences Usual Contents :

Date of Agreement Name and Address of the Firm Name and Address of the Partners Nature of Business Duration of Partnership Capital invested by each partner Ratio to divide profits and loss

Partnership Deed

Usual Contents Contd. :

Appointment of Auditor and remuneration Drawing by partners and interest Interest on Capital and Advances Salary and Commission payable to partners Duties, Functions and Powers of Partners Rules regarding admission, retirement and death Dissolution Arbitration Method of valuation of Goodwill

Firm Name

Name under which the business is carried on Any name Should not be a name already adopted by a reputed firm, to mislead public Should not contain words : Crown, Emperor, King, Queen, Royal, Empire, Imperial or words expressing or implying the sanction, approval or patronage of Government

Property of the Firm

Joint property of all the partners as opposed to their personal property Property includes

Originally brought into firm by partners Acquired by the firm Acquired by one or more partners for the purpose of business Goodwill of the firm

To be held and used by all partners for the purpose of business (not for private use)

Positions

Lunatic : cannot become a partner Alien Enemy : cannot become a partner Alien Friend : can enter into contract Woman : Married or Unmarried can be a partner Insolvent : Cannot become a partner; ceases to be a partner from date on which order was passed by court

Position of Minor

Sec 30(1), A person who is a minor according to law to which he is subject may not be a partner in a firm, but with the consent of all the partners for the time being, he may be admitted to the benefits of partnership. A minor can only be admitted to the benefits of an already existing partnership

Position of Minor

During his Minority Rights

Right to receive agreed share of profits and property Have access to and inspect and copy the accounts of the firm If share in profits is not given, can sue (can do if he wants to sever his connection) Only to the extent of share in profits and properties (not personally liable)

Liabilities

Position of Minor

On Attaining Majority

Within six months should give notice whether he is joining the partnership or not. If notice not given he shall become a partner

Position of Minor

When a Minor elects to become a partner Rights

Share remains the same Rights and Liabilities as that of a full fledged partner Rights will be the same till the date on which he becomes a partner
Liabilities will be the same till the date on which he becomes a partner Personally liable to third parties for all acts of the firm from the date of becoming a partner

Liabilities

Position of Minor

When a Minor elects not to become a partner Rights

Rights will be the same till the date of notice Entitled to sue for his share of property and profits Liabilities will be the same till the date of notice His share of property and profits will not be liable for any acts of the firm after the date of notice

Liabilities

Types of Partnerships

Partnership at Will

No provision in contract between the partners for

Duration of Partnership Determination of Partnership

If any partner gives notice of dissolution in writing, the partnership is dissolved.

Types of Partnerships

Particular Partnership

A person may become a partner with another person in particular adventures or undertakings. On completion of such a venture, the partnership comes to an end.

Types of Partnerships

Partnership for a Fixed Term

Duration is fixed Partnership comes to an end when the term expires. If Partners continue the business after the fixed period, it becomes partnership at will.

Classes of Partners

Actual or Active Partner

Engaged in actual conduct of the business His acts binds the firm and other partners Notice to be given in case of retirement Does not take part in the conduct of business Contributes his share of capital and enjoys profits and losses Not known to outside world Not liable to third parties for the acts of the firm. Not required to give notice in case of retirement

Sleeping or Dormant Partner

Classes of Partners

Nominal Partners

No real interest in business, Does not contribute any capital, Lends his name only No share in profits but liable to third parties for all acts of the firm
Shares the profits but not losses No interest in the management of the firm Liability for the acts of the firm is unlimited

Partner in Profits only

Classes of Partners

Partner by Estoppel or Holding Out

Represents himself as a Partner, by words spoken or written or by conduct Liable as a partner if credit is given to the firm based on his representation. He cannot deny. If a partner does not give public notice and his name is still used in the business, he is also liable to third parties Deceased partner is an exception to this rule.

Limited Liability Partnership

Limited Liability Partnership Act, 2008 came into effect from 31st March 2009. LLP: A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible, innovative and efficient manner, providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership. http://llp.gov.in/

Limited Liability Partnership

LLP has separate Legal Entity Liability of the partners limited to their agreed contribution Not liable for the independent or un-authorized actions of other partners Perpetual succession Indian Partnership Act, 1932 not applicable No maximum limit of members; one partner should be Indian Registrar of Companies - register and control LLPs.