Bangladesh University of Business & Technology

BUBT

Assignment
On
Business Law (Law - 201)
Topics: Partnership Firm.

Submitted To Submitted By
Shabnam Jahan Sumaiya Howladar
Lecturer ID: 18191101034
Dept. of Law & Justice, BUBT Intake: 47
Section: 04
Program: BBA

Date of Submission: 14thMay,2020

 Partnership Firm

 Definition of partnership:
According to Section 4 of the Partnership Act 1932, “Partnership is a relation
between persons who have agreed to share the profit of a business carried on by all or
any of them acting for all.”

 Features or Elements of Partnership:

1. Contract: The relationship between partners arises from contract and it does not
arise form status, operation of law or inheritance. If after the death of sole proprietor
of a firm, his heirs inherit firm they do not become partners, as there is no agreement
between them. Section 5 of the Partnership Act, 1932 says that “the relation of
partnership arises from contract and not from status.
2. Agreement: Partnership Agreement is what that will constitute each partner’s role
towards running the partnership firm. This agreement contains:
 The amount of capital contributed by each partner;
 Profit or loss sharing ratio; salary or commission payable to the partner; if any
duration of business, if any name and address of the partners and the firm; duties
and powers of each partner; nature and place of business; and any other terms and
conditions to run the business
3. Two or more persons: Partnership comes into existence by an agreement among
the partners willing to enter into a partnership. So there must be two or more persons.
4. No separate legal existence: Just like a sole proprietorship, partnership firm also
has no separate legal existence from that of it owners. Partnership firm is just a name
for the business as a whole. The firm means the partners and the partners collectively
mean the firm
5. Carrying on of business: The purpose of a partnership firm is to carry on a
business. The term “business” is used in its widest sense and includes every trade,
occupation, or profession. The business must be legal and continuous in nature.
Coming together for a single venture is not partnership.
6. Competence of Partners: Since individuals join hands to become the partners, it
is necessary that they must be competent to enter into a partnership contract. Thus,
minors, lunatics, and insolvent persons are not eligible to become the partners.
However, a minor can be admitted to the benefits of partnership i.e., he can have a
share in the profits only.
7. Sharing of profits: In a partnership business the main aim of a partners is to carry
on some business for the purpose of earning profits. The partners may agree to share
profits out of partnership business but not share the losses. Sharing of losses is not
necessary to constitute the partnership. The partners may agree to share the profits of
the business in any way they like.
8. Unlimited liability: Like proprietorship, each partner has unlimited liability in the
firm. This means that if the assets of the partnership firm fall short to meet the firm’s
obligations, the partners’ private assets will also be used for the purpose.
9. Principal-agent relationship: Each partner has the right to participate in the
proceedings of the business. The business can be carried by any one or more of them
or by all of them. Some partners may be sleeping, they are not actively involved in
the activities of the firm. Each partner is an agent as well as a principal. As an agent
he can bind all the other partners by his acts.
10. Restriction on transfer of interest: No partner can sell or transfer his interest to
anyone without the consent of other partners. For example - A, B, and C are three
partners. A wants to sell his share to D as his health does not permit him to work any
more. He can not do so until B and C both agree.
11. Voluntary registration: It is not compulsory that the one person register his
partnership firm. However, if he doesn’t get his firm registered, he will be deprived
of certain benefits, therefore it is desirable. The effects of non-registration are:
 The firm cannot take any action in a court of law against any other parties for
settlement of claims.
 In case there is any dispute among partners, it is not possible to settle the disputes
through a court of law.
 The firm cannot claim adjustments for the amount payable to or receivable from
any other parties.
12. No legal entity: Partnership firm is not a legal entity. It has limited identity for
purpose of tax law. Under partnership law, a partnership firm is not a legal entity, but
only consists of individual partners for the time being. It is not a distinct legal entity
apart from the partners constituting it.
 Distinction between partnership and company
Title Partnership
Definition According to Section 4. Of
the Partnership Act 1932,
“Partnership is a relation
between persons who have
agreed to share the profits
of a business carried on by
all or any of them acting for
all.”
Regulating Act A partnership firm is
regulated by the provisions
of the Partnership Act,
1932.
Entity A partnership firm has no
separate legal entity distinct
from the members
comprising it.
Numbers of The maximum number of
members members in the case of
partnership firm cannot
exceed 10 for banking
business and 20 for any
other business.
Liability In partnership, each partner
has unlimited liability and is
personally liable for all the
debts of the firm.
Legal person A partnership is not a legal
person.
Perpetual Partnership firm does not
succession have perpetual succession.
Authority of In partnership each partner
members has an implied authority to
bind his co-owners by acts
done within the ordinary
course of business.
Company
According to Lindly- A
company is a voluntary
association of many persons
who contribute money or
money’s worth to a common
stock or business and who
share the profits or losses
arising there from.
A company is regulated by
the provisions of the
Companies Act, 1994.
A company is a separate
legal entity different from its
members.
The maximum number of
members of a private
company, cannot exceed 50.
But there is no such
maximum limit fixed in the
case of a public company.
In a company, a shareholder
has limited liability.
A company is an artificial
legal person.
Company has perpetual
succession.
A company a shareholder has
no such authority, there being
no mutual agency between
various shareholders.
Management All partners can take part in
the management of a firm.
Transfer of A partner cannot transfer
interest his right and interest in the
firm without the consent of
all other partners.
Audit The audit of the accounts of
a partnership is not a legal
necessity.
Registration A partnership firm may or
may not be registered.
Winding up A partnership may be
dissolved by any partner at
anytime if it is at will.
Only the board of directors
elected by the shareholders
can take part in the
management of the company.
In case of a private company
also the transfer of shares
requires the prior permission
of the board of directors. But
in case of Public Company a
shareholder can transfer his
shares freely without
restriction.
The audit of the accounts of a
company is a legal necessity.
A company registration is
Compulsory.
A single member cannot
wind up a company. It
involves legal formalities.
 Dissolution of Partnership Firm

 Definition of dissolution:
According to Section 39 of the Partnership Act, “the dissolution of partnership
between all the partners of a firm is called the dissolution of firm.”

 Modes of dissolution:
A firm may be dissolved in any of the following modes-
a) By agreement (Section 40): A firm may be dissolved at anytime with the consent
of all the partners of the firm. Partnership is created by contract, it can also be
terminated by contract.
b) Compulsory Dissolution (Section 41): A firm is compulsorily dissolved under the
following circumstances-
 Insolvency of all partners or all except one.
 Business become unlawful.
c) On the happening of certain contingencies (Section 42): Subject to contract
between the partners, a firm is dissolved –
 If constituted for a fixed term, by the expiry of that term.
 By the death of a partner.
 By the adjudication of a partners as an insolvent.
d) By notice (Section 43): Section 43 says that –
 Where the partnership is at will the firm may be dissolved by any partner giving
notice in writing to all other partners of his intention to dissolve the firm.
 The firm is dissolved as from the date mentioned in the notice as the date of
dissolution or as from the date of the communication of the notice.
e) Dissolution by the court (Section 44): Dissolution of a firm by the court is a
discretionary power. Dissolution of a firm by the court is necessitated when there
is a difference of opinion between the partners regarding the matter of dissolution.