LAW-Indian Partnership Act

FACULTY : CA RACHNA PARAKH DUBEY
APT EDUCATING INDIA

CA-FOUNDATION
INDIAN PARTNERSHIP ACT,1932
Unit 1 : General Nature of A Partnership
 Came into effect on 1st October 1932, except Section 69, which came into effect on 1st Oct 1933.
 Extends to the whole of India. Was initially a part of ICA,1872 (Chapter XI)
1. DEFINATION :
As per section 4 of Indian partnership act 1932,

‘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.
PARTNERSHIP IS THE
RELATION
BETWEEN PERSONS
WHO HAVE
AGREED
TO SHARE PROFITS CARRIED ON BY ALL, ANY OF THEM,

OF A BUSINESS OR ACTING FOR ALL
True Test of Partnership - Mode of determining existence of partnership (section 6) : In determining whether a group of
persons is a firm or not, whether a person is partner in a firm or not, regard shall be made to real relation b/w the
parties, as shown by all relevant facts taken together.
For determining the existence of partnership:

1. There was an agreement between all persons concerned
2. The agreement was to share the profits of business
3. The business was carried on by all or any of them acting for all
2. Essentials of Partnership:-
ESSENTIALS
1. ASSOCIATION 2. 'BUSINESS' 3. 'AGREEMENT' 4. SHARING OF 5. MUTUAL

OF 2 > PERSONS MUST MUST PROFITS AGENCY
1. Partnership is an association of minimum 2 or more persons :

 The partnership act is silent about maximum no. of partners but section 464 of companies act, 2013 restricts the
limit to maximum 50 partners in a firm. Beyond this number, the association is termed 'Illegal'
 The persons can be natural OR artificial (e.g. company). Therefore permissible combinations:
Partnership b/w:
COMPANY VS COMPANY YES
PF VS PF NO
INDVL VS COMPANY YES
INDVL VS PF NO
 A married woman can be partner of her husband, except if they are Buddhist Burmese couple.
 Minor cannot be partner in a firm but with consent of all the partners, may be admitted to benefits of
partnership
2. Business is must
Business u/s 2(b) includes any trade, profession or occupation. Hence any activity, not carried on with business
motive like sports clubs, charitable institutions, religious, social purposes are not covered under partnerships.
Also, if two people share income of a joint property, it is not Partnership, they are called CO-OWNERS. Business
must be a series of transactions, done with motive of earning profit.
3. Agreement is must
AGREEMENT MAY ORAL or IMPLIED or
BE WRITTEN EXPRESS
 Sec 5: Partnership comes in existence from contract, not from status.

 Partnership must be result of an agreement b/w two or more persons.
 The agreement must be voluntary, must have all essentials of a valid Contract u/s 10 of ICA,1872.
4. Sharing of profits is essential :

 The sharing of profit is an essential feature of partnership, generally profits are shared in PSR: profit sharing
ratio. In the absence of PSR, they are shared equally.
 The partners may not share losses, but sharing of profits is essential.
 However, this is only prima facie evidence of partnership
 Mere sharing of profits, however, does not make someone , a partner :
E.g. Sharing of profits by a deceased partner's wife.
E.g. Co-owners who share rent derived from a piece of land are not partners, because there does not exist any
business.
E.g. Share of goodwill given to a previous owner.
E.g. Sharing of profits of joint property: GOVIND NAIR vs MAGA
5. Mutual agency :
 Sec 18: This is the conclusive evidence of partnership. It is called acid test, cardinal principal of partnership
 Mutual Agency means the business must be carried on by all the partners or by anyone of partners acting for all.
 Every partner carrying on the business is a principal as well as agent for all the other partners, He is agent so far
as he can bind other partners by his acts and he is principal to extent that he is bound by the act of other
partners.
 If element of mutual agency is absent, there will be no partnership.
Some Important Points:

* HOW IS THE PARTNERSHIP RELATIONSHIP SEEN: - Through the written agreement i.e. Partnership deed or if No
written Agreement, the real relation b/w partners, as shown by all relevant facts taken together.
* few illustrative examples: -

1. Co-owners of a house given on rent- Not partners
2.A&B buy 100 bales of cotton to be sold on joint a/c- Partners
3.A gives Gold to a goldsmith, and asks him to make ornaments and sell them, it is partnership
* No consideration is required at the time of formation of partnership, but sharing of profits is MUST.
3. Differences between partnership and other Business Forms
BASIS PARTNERSHIP HUF

Mode of It is formed necessarily by agreement The right in HUF is formed by birth in the family
Creation
In case of partnership number of Members of HUF who carry on business can be
No. of
members should not exceed 50 unlimited in number
Members
Registration not essential, but better ,for
Registration court purposes Not required
All partners are equally entitled to take The right of management and decision making in
part in the partnership business HUF is generally of Karta
Management
Karta's liability unlimited, Other coparcener's -

limited to extent of their share in profits of family
Liability All partner's liability is unlimited B/s
Governing Law Governed by IPA,1932 Governed by Hindu Law
Partnership usually gets dissolved on IN HUF, Perpetual succession exists, doesn't gets
Dissolution death of partner dissolved by death of an individual member
Each partner has a defined share by virtue In HUF, no coparceners has definite share, his
Share in of agreement between partners interest is fluctuating one by no. of births/death in
Business family
Two schools of thought- Mitakshra (Rest of India)
- Dayabagh(west Bengal)
Note: the amendment in Hindu Succession Act,2005 allows all adult members (Hindu Males and Females both) to
become coparceners in HUF.
BASIS PARTNERSHIP COMPANY/ JOINT STOCK COMPANY

Legal status A partnership is not a legal entity A company is separate legal entity distinct from
its members
No. of Acc to sec 464 of companies act, 2013 the no. of In Case of Private Co's (Max - 200 members and
Members partners in any association shall not exceed 100 Min - 2 members)
However, according to companies rules, 2014 In case of Public Co's ( Max- Unlimited and Min -
the present limit is restricted to 50 members 7 members) and In Case of OPC - Only 1 member
Registration Registration not essential, but better for court A company cannot come into existence unless it
purposes is registered under Companies Act.2013
Management All partners are equally entitled to take part in Management in Companies is in hand of Board
the partnership business of Directors(BOD), members of company are not
entitled to take part in the management
Governing Law Governed by IPA,1932 Governed by companies Act,2013
Duration of Partnership usually gets dissolved on death of A company enjoys perpetual succession
Existence partner
Liability Liabilities of each partner is unlimited Liabilities of members is limited to the extent of
shares bought or guarantee given
Audit Audit of Partnership firm is not compulsory Audit of a company is compulsory
Governance Partnership deed governs the powers MOA governs the powers. Acts beyond MOA
called ultra vires acts, hence VOID
Transfer of Shares not freely transferable, without the Shares are freely transferable in case of
Interest consent of all the partners companies
Distribution of The profits must be distributed among the There is no compulsion to distribute the profits
profits partners according to terms of partnership deed among its members, some portion of the profits
is distributable to shareholders only when
dividends are declared
Agency Mutual Agency among partners, every partner No Mutual Agency among members, any member
is agent of other partner is not the agent of other members, his actions do
not bind others
BASIS PARTNERSHIP CO-OWNERSHIP

Formation Partnership always arises out of contract, Co- ownership arise either through agreement or
express or implied by operation of law
Profit sharing Profit and losses must be shared Profits or losses may/ may not be shared
Implied Agency A partner is the agent of the other partners A co-owner is not the agent of other co-owners
Lien Partner has LIEN on partnership Co-owner has no such lien
Transfer of Transfer of interest with consent of others Transfer of interest 'without' consent of other
Interest partners only co-owners
Basis PARTNERSHIP CLUB

Definition it is an association of persons formed for A club is an association of persons formed with
earning profits from a business carried on by objective of promoting some beneficial purposes
all or any one of them acting for all but not for earning profit
Relationship Persons forming partnership are called Persons forming a club are called members
partners
Interest in Partner has interest in the property of firm A member of club has no interest in property of the
property club
Dissolution A change in the partners of firm affect its A change in the membership of a club does not
existence affect its existence
Basis PARTNERSHIP Association

Definition it is an association of persons formed for Association generally evolve out of social cause
earning profits from a business carried on by without any motive to earn and shares profits
all or any one of them acting for all
Examples Partnership to run a business and earn profit Members of Charitable society or religious
thereon association
4. TYPES OF PARTNERS :
1. ACTUAL / OSTENSIBLE/ACTIVE partner:

 One who takes actively participates in conduct of business is known as " Actual Partner"
 Actual partner has joint and several liability and is responsible to third parties for firms debts.
 Should give public notice of retirement, else continues to remain liable to third parties
 He acts as agent of other partners for all acts done in ordinary course of business
2. SLEEPING/DORMANT PARTNER:
 One who DOES NOT take actively participates in business but has joint and several liability and is responsible to
third parties is known as " Sleeping Partner".
 He does not bind other partners by his acts, but is bound by their acts.
 He need not give public notice of retirement.
3. NOMINAL PARTNER:
 One who only gives name to the firm, without having any real interest in firm is known as " Nominal Partner"
 He does not take part in conduct of the business
 Has joint and several liability, is responsible to third parties
 He neither contributes to the capital of the firm nor shares any profit
 He should give public notice of retirement, else continues to remain liable to third parties.
4. PARTNER BY HOLDING OUT/ESTOPPEL :

 One who is actually not a partner, but by his words, or conduct have induced others to believe that he is a
partner or he may have allowed others to represent him as a partner in front of third person is known as
"Partner by Holding out"
 The person is liable to those third parties who suffered a loss due to his representation/ given credit
 He need not give public notice of retirement, because he was never a partner
 Sec 28: The Partner by estoppel is liable to only that person, to whom representation was being made
He, who kept faith and acted upon that representation, and had no knowledge of the facts and gave credit to firm
can only file a suit against partner by estoppel.
EXCEPTIONS TO HOLDING OUT:

- If the holding out partner DIES, legal representatives, not liable for acts, after his death.
- If the holding out partner becomes INSOLVENT
-The other party had knowledge that Holding out partner was, not actually partner.
Not applicable on TORTS done by other partners.

 A retiring partner becomes partner by holding out, when he does not give public notice.
5. SUB- PARTNER :
 A partner of a partner, is called Sub- Partner not counted for seeing maximum number of partners
 He has no right to interfere in firm's business.
 He cannot bind the firm through his acts neither he is agent of all other partners.
6. INCOMING PARTNER :
 A person who is admitted as a partner into an already existing firm with consent of all existing partners is called
as "incoming partner"
 Such a partner is not liable for any act of the firm done before his admission as a partner.
7. OUTGOING- PARTNER :
 A partner who leaves a firm in which the rest of partners continue to carry on business is called a retiring/
outgoing partner
 such a partner remains liable to third parties for all acts of firm until public notice is given of his retirement.
8. PARTNER IN PROFIT ONLY:

 One who only shares profits, without being liable for the losses
 He is liable to third parties for all acts of the profits only.
5. TYPES OF PARTNERSHIPS :-
Kinds of Partnership
With regard to With regard to

duration extent of business
(a)Partnership at
(a)Particular Partnership
will
(b)General partnership
(b)Partnership for a
fixed period
1. Section 7: Partnership at will is a partnership when:

(i) No Fixed period has been agreed upon for the duration of partnership
(ii) There is no provision made as to the determination of the partnership
Where a partnership entered into for a fixed term is continued after the expiry of such term, it is to be treated as
partnership at will. A partnership at will may be dissolved by any partner by giving notice in writing to all other partners
of his intention to dissolve the same.
2. Partnership for a fixed period - where a provision is made by a contact for the duration of the partnership, the
partnership is called "partnership for a fixed period" .It is a partnership created for a particular period of time, such a
partnership comes to an end on the expiry of fixed period.
3.Section 8 - Particular Partnership: when a person becomes a partner with another person in any particular event or
undertaking, the partnership is called "particular partnership". Such partnership is dissolved by the completion of the
event or undertaking.
4. General partnership: when a partnership is constituted with respect to the business in general, it is called a general
partnership. In case of particular partnership the liability of partners extends only to that particular event but it is not so
in case of general partnership.
Partnership Deed - The document in writing containing various terms and conditions as to relationship of partners to
each other is called the "partnership deed"
It should be stamped in accordance with Stamp Act, 1899
where the partnership comprises immovable property, the instrument of partnership must be in writing, stamped and
registered under the registration act
Partnership deed may contain the following information:

1. Name of the partnership firm
2. Name of all the partners
3. Duration of partnership firm
4. Nature and place of business of firm
5. Capital contribution of each partner
6. PSR among partners
7. Rate of Interest on capital, drawings and loans
8.Provisions for salaries or commissions, payable to partners
QUESTION BANK
Multiple Choice Questions
1. The term ‘Partnership’ has been defined under of the Partnership Act, 1932:
(a) Section 3 (b) Section 4
(c) Section 5 (d) Section 6
2. A partnership for which no period or duration is fixed under the Indian Partnership Act is known as:
(a) Unlimited partnership (b) Co-ownership
(c) Particular partnership (d) Partnership at will
3. The most important elements in partnership is:

(a) Business (b) Sharing of profits
(c) Agreement (d) Business to be carried on by all or any
of them acting for all.
4. A firm is the name of:
(a) The partners (b) The minors in the firm
(c) The business under which the firm carries on business
(d) The collective name under which it carries on business
5. A partnership formed for the purpose of carrying on particular venture or undertaking is known as:
(a) Limited partnership (b) Special partnership
(c) Joint venture (d) Particular partnership
6. In the absence of agreement to the contrary all partners are:
(a) Not entitled to share profits (b) Entitled to share in capital ratio
(c) Entitled to share in proportion to their ages (d) Entitled to share profits equally
7. A partnership at will is one:
(a) Which does not have any deed (b) Which does not have any partner
(c) Which does not provide for how long the business will continue
(d) Which cannot be dissolved.
8. What among the following is not an essential element of partnership:
(a) There must be an agreement entered into by all the persons concerned
(b) The agreement must be to share the profits of a business
(c) The business must start within six months from the date of agreement
(d) The business must be carried on by all or any one of them acting for all.
Answers to MCQs
1 (b) 2 (d) 3 (d) 4 (d) 5 (d) 6 (d) 7 (c) 8 (c)
DESCRIPTIVE QUESTIONS
Q 1. Explain the provisions of IPA, 1932 relating to creation of Partnership by holding out? (Module)
Hint - Types of Partners - Partner by Holding Out
Q 2. What is the True test of partnership? (Module)
Refer notes
Q 3. Enumerate the differences between Partnership and Joint stock company? (Module)
Refer notes
Q 4. Distinguish between Partnership VS HUF? (MTP Nov 19, RTP May 20)
Refer notes
Q 5. What is a Partnership Deed? What are the particulars that the partnership deed must contain? (RTP may 18)
Refer notes
Q 6. X and Y are partners in a partnership firm, X introduced A, a manager as his partner to Z. A remained silent, Z a
trader believing A as partner supplied 100 TV sets to firm on credit. After expiry of credit period, Z did not get amount of
TV sets sold to the partnership firm. Z filed a suit against X and A for the recovery of price. Advice Z whether he can
recover the amount from X and A under IPA,1932? (Rtp may 19)
(Hint- X and A both are liable as A becomes partner by holding out)
Q7. What is the provision related to the effect of notice to an acting partner of the firm as per IPA, 1932?
(MAY 19 Attempt)
(Hint - Types of partner - Active Partner, Module Pg:3.27)
Q 8. "Whether a group of persons is or is not a firm, or whether a person is or not a partner in a firm" Explain the mode
of determining existence of partnership as per IPA,1932? (MAY 19 Attempt)
(Hint- True test of partnership explained in notes)
Q 9. What is the conclusive evidence of partnership? State circumstances when partnership is not considered b/w two or
more parties? (MTP Nov 19) (Hint- Mutual Agency, Module Pg:3.5)
Q 10. Mr. .M, Mr. N and Mr. P were partners in a firm which was dealing in refrigerators. On 1st october,2018 Mr. P
retired from partnership but failed to give public notice of his retirement. After his retirement, all three of them visited
trade fair and enquired about some refrigerators with latest techniques. Mr. X who was exhibiting his refrigerators with
new techniques was impressed with interactions of Mr. P and requested for visiting card of the firm. The visiting card
also included name of Mr. P as partner even though he had already retired. Mr. X supplied some refrigerators to firm
and could not recover his dues from firm. Now Mr. X wants to recover dues not only from firm, but also from Mr. P.
Analyze the above case in terms of IPA,1932 and decide whether Mr. is liable in this situation or not? (Nov 18 Attempt)
(Hint - Mr. P is liable to Mr. X as (i) he hasn't given public notice of his retirement (ii) He himself acted as an active
partner of firm upon the faith of which Mr. X gave credit to the firm)
UNIT - 2
Relations of Partners
SECTION :- 9 GENERAL DUTIES OF PARTNERS
Partners are bound to -
(i) Carry on the business of the firm
(ii) Be truthful to each other
(iii) Render true accounts and complete information of all things affecting the firm to any other partner or his legal
representative.
Section :- 10 DUTY TO INDEMNIFY FOR LOSS CAUSED BY FRAUD
It is the duty of every partner to indemnify for any loss caused to the firm by his fraud in the conduct of business.
Section :- 11 DETERMINATION OF RIGHTS AND DUTIES OF PARTNERS BY CONTRACT

BETWEEN THE PARTNERS
1. The mutual rights and duties of partners of firm may be determined by the contract between the partners which can
either be express or implied by a course of dealing.
2. Agreements in restraint of trade – a partner shall not carry on any business other than that of the firm in which he is a
partner
SECTION : 12 THE CONDUCT OF THE BUSINESS

Subject to contract between the partners, every partner has -
(a) Right to take part in the conduct of the Business.
(b) Right to have access to inspect and copy of books of firm
(c) Right to express his opinion before any matter related to business is decided, but no change can be made in nature of
business without consent of all the partners
(d) Duty to attend diligently to his duties in the conduct of business.
SECTION : 13 MUTUAL RIGHTS AND LIABILITIES

(a) Right to remuneration – No partner is entitled to receive any remuneration in addition to his share in profits but this
rule can always be varied by an express agreement among partners.
(b) Right to share profits – the partners are entitled to share equally the profits earned and shall contribute equally to
the losses sustained by the firm
(c) Interest on Capital – when any partner is entitled to interest on the capital subscribed by him, it should have an
express agreement to that effect and should only be paid out of profits only
(d) Interest on Advances – when a partner makes an advance to firm in addition to amount of capital contributed by
him, the partner is entitled to claim interest thereon 6% p.a.
(e) Right to be indemnified – the firm shall indemnify a partner in respect of payments made and liabilities incurred by
him (i) in ordinary conduct of business (ii) in emergency for the purpose of protecting firm from a loss as would be done
by person of ordinary prudence
(f) Right to be indemnify the firm – A Partner must indemnify firm for any loss caused to it by willful neglect in the
conduct of business of the firm
SECTION : 14 PARTNERSHIP PROPERTY

It is also known as ‘property of the firm', ‘partnership assets’, ‘joint stock’, ‘common stock’ or ‘joint estate’.
Subject to contract between the partners, the property of the firm includes:
(1) All property and rights and interest in property
- Originally brought into the stock of the firm, or

- Acquired, by purchase or otherwise, by or for the firm or for the purposes of the business of the firm.
(2) It also includes the goodwill of the business.
SECTION: 15 APPLICATION OF THE PROPERTY OF THE FIRM

The property of the firm shall be held and used by the partners exclusively for the purposes of the business.
SECTION : 16 PERSONAL PROFIT EARNED BY PARTNERS

a. When a partner earns any profit for himself from any transaction or from the use of the property or business
connection, he shall account for that profit and pay it back to the firm.
b. If a partner carries on any business of the same nature and competing with that of firm, he shall be accountable
for that and pay to firm all profits made by him in that business.
eg :- A, B, C commenced a business in partnership for importing salt and selling at Chittagong. A struck certain
transactions in salt on his own account, which were to be of the same nature as the business carried on by the
partnership. Therefore, A was held liable to pay profits to the firm made by him.
SECTION : 17 RIGHTS AND DUTIES OF PARTNERS AFTER A CHANGE IN THE FIRM

A change may take place in the constitution of the firm in case of -
(1) Admission of a partner

(2) Retirement or death of a partner.
(3) Expulsion of a partner.
(4) Insolvency of a partner.
(5) When partnership business is carried on even after expiry of fixed term.
(6) Transfer of a partner’s interest
(7) partnership firm carries on business other than business for which it was originally formed.
SECTION : 18 PARTNER TO BE AGENT OF THE FIRM

A partner is the agent of the firm for the purposes of the business of the firm.
A partner is the agent of the firm for the purpose of the business of the firm cannot be applied to all transactions and
dealings between the partners themselves. It is only applicable to act done by partners for the purpose of business of
firm.
The principal distinction between partner and a mere agent is that he has an interest in the whole property and business
and liabilities of partnership whereas an agent has no such interest.
SECTION : 19 IMPLIED AUTHORITY OF PARTNER AS AGENT OF THE FIRM

The act of partner which is done in the usual way to carry on the business binds the firm provided that the act is done in
firm name or any manner implying an intention to bind the firm. The authority of a partner to bind the firm is called
Implied Authority.
The act done must relate to usual business of firm i.e. within scope of his authority and related normal
conduct of business of firm
In absence of any usage of trade, the implied authority of a partner does not empower him to-
(a) Submit a dispute relating to the firm to arbitration

(b) open a bank account on behalf of the firm in his own name
(c) compromise or relinquish any claim or portion of a claim by the firm
(d) withdraw a suit or proceedings held on behalf of the firm
(e) admit any liability in a suit or proceedings against the firm
(f) acquire immovable property on behalf of the firm
(g) transfer immovable property belonging to the firm
(h) enter into partnership on behalf of firm.
SECTION : 20 EXTENSION AND RESTRICTION OF PARTNERS’ IMPLIED AUTHORITY

The partners in a firm may, by a contract among the partners, extend or restrict implied authority of any partner.
The restrictions imposed on the implied authority of a partner by agreement shall be effective against a third party only
if the third party only when: -
- the third party knows about the restrictions

- the third party does not know that he is dealing with a partner in a firm.
SECTION : 21 PARTNER’S AUTHORITY IN AN EMERGENCY
A partner has the authority to commit all such acts at the time of emergency, with the intention of protecting the firm
from the loss as would be done by any person of ordinary prudence, under similar circumstances and such acts binds the
firm.
SECTION : 22 MODE OF DOING ACT TO BIND FIRM

An act done or executed by a partner or other person on behalf of the firm shall be executed in the firm name, or in any
other manner expressing or implying with an intention to bind the firm
The act done must be -
- within the scope of his authority

- related to the normal business of the firm
- in the name of the firm
SECTION : 23 EFFECT OF ADMISSIONS BY A PARTNER

An admission or representation made by a partner concerning affairs of firm is evidence against the firm if it is made in the ordinary
course of business
An admission or representation by a partner will not however, bind the firm if his authority on the point is limited and other party
knows of restriction.
They will affect the firm when tendered by third parties. They may not have the same affect in case of disputes between the
partners themselves.
example: Sohan and Keshav are partners in a firm dealing in spare parts of different brands of motorcycle bikes. Sonali purchases a
spare part for her scooty after being told by sohan that the spare part is suitable for her car. Keshav is ignorant about this
transaction. The spare part proves to be unsuitable and it is damaged. sohan and Keshav both are responsible to Sonali for her loss.
SECTION : 24 EFFECT OF NOTICE TO ACTING PARTNER

The notice to a partner who act in the business of firm relating to affairs of firm operates as notice to the firm except in the case of
the fraud on the firm committed by or with the consent of that partner
The notice to active partner is equivalent to the notice to the rest of the partners of the firm just as a notice to an agent is notice to
his principal
The notice must be actual and not constructive, it must be received by a working partner not a sleeping partner.
The notice must be related to the firm's business.
Example: P, Q, and R are partners in a business for purchase and sale of second hand goods. R purchases a secondhand car on
behalf of the firm from S. In the course of dealings with S, he comes to know that the car is a stolen one and it belongs to X. P and Q
are ignorant about it. All the partners are liable to X, the real owner.
SECTION : 25 LIABILITY OF A PARTNER FOR ACTS OF THE FIRM

The partners are jointly and severally responsible to third parties for all acts which come under the scope of their express or implied
authority. This is because that all the acts done within the scope of authority are the acts done towards the business of the firm.
SECTION : 26 LIABILITY OF THE FIRM FOR WRONGFUL ACTS OF A PARTNER

The firm is liable to the same extent as the partner for any loss or injury caused to a third party by the wrongful acts of a partner, if
they are done by the partner while acting in the ordinary course of the business of the firm ,with the authority of the partners.
SECTION : 27 LIABILITY OF FIRM FOR MISAPPLICATION BY PARTNERS

The firm would be liable in both the cases -
(a) where a partner acts within his authority receives money or property belonging to a third party and misapplies that
money or property.
(b) when such money or property has come into the custody of the firm and it is misapplied by any of the partner, the
firm is liable to make good the loss incurred.
Example: A, B, and C are partners of a place for car parking. P stands his car in the parking place, but A sold out the car to a stranger.
For this liability, the firm is liable for the acts of A.
SECTION : 29 RIGHTS OF TRANSFEREE OF A PARTNER’S INTEREST

A share in a partnership is transferable but in partnership the transferee cannot have the same rights & privileges as the original
partner.
The rights of such a transferee are as follows:
(1) During the continuance of partnership, such transferee is not entitled -

(a) to interfere with the conduct of the business,
(b) to require accounts, or
(c) To inspect books of the firm. He is only entitled to receive the share of the profits of the transferring partner.
(2) At the time of dissolution of firm & the retirement of transferring partner, such transferee is entitled -
(a) to receive the share of the assets of the firm to which the transferring partner was entitled, and
(b) for the purpose of ascertaining the share, he is entitled to an account as from the date of the dissolution.
SECTION : 30 MINORS ADMITTED TO THE BENEFITS OF PARTNERSHIP
Rights:
(i) A minor partner has a right to his agreed share of the profits and of the firm.
(ii) He can have access to, inspect and copy the accounts of the firm.
(iii) He can sue the partners for accounts or for payment of his share but only when severing his connection with the fi-
rm, and not otherwise.
(iv) On attaining majority, he may within 6 months elect to become a partner or not to become a partner. If he elects to
become a partner, then he is entitled to the share to which he was entitled as a minor. If he does not, then his share is
not liable for any acts of the firm after the date of the public notice served.
(2) Liabilities:
(i) Before attaining majority:
(a) The liability of the minor is confined only to the extent of his share in the profits and the property of the firm.
(b) No personal liability for the debts of the firm incurred during his minority.
(c) Minor cannot be declared insolvent, but if the firm is declared insolvent his share in the firm vests in the Official
Receiver/Assignee.
(ii) After attaining majority:

Within 6 months of his attaining majority or on his obtaining knowledge that he had been admitted to the benefits of
partnership, whichever date is later, the minor partner has to decide whether he shall remain a partner or leave the -
firm.
When the MINOR elects not to become a partner:

(i) His rights and liabilities continue to be those of a minor up to the date of giving public notice.
(ii) His share shall not be liable for any acts of the firm done after the date of the notice.
(iii) He shall be entitled to sue the partners for his share of the property and profits
When the MINOR becomes a partner:

If the minor becomes a partner on his own willingness or by his failure to give the public notice within specified time, his
rights and liabilities as given in Section 30(7) are as follows:
(i) He becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of
partnership.
(ii) His share in the property and the profits of the firm remains the same to which he was entitled as a minor.
SECTION: 31 INTRODUCTION OF A PARTNER
(1) No person shall be introduced as a partner into a firm without the consent of all the existing partners.
(2) A person who is introduced as a partner into a firm does not become liable for any acts of the firm done before he
became a partner.
The liability of an incoming partner is as under:
1. An incoming partner is not liable for the acts of the firm done before his admission into the firm. Thus, he is not liable
for the past debts of the firm.
2. An incoming partner starts from the date of his admission into the firm. Thus, he is liable for all the acts of the firm done
after he became a partner in the firm.
3. If the incoming partner agrees to bear the past liabilities, then for past liabilities he shall not be liable to third parties
as he is a stranger to contract but he shall be liable to other partners.
SECTION: 32 RETIREMENT OF A PARTNER
1) A partner may retire:
(a) with the consent of all the other partners;

(b) with an express agreement by the partners; or
(c) where the partnership is at will, by giving a notice in writing to all the other partners of his intention to retire.
2) A retiring partner may be discharged from any liability to any third party for acts of the firm done before his retirement by an
agreement made by him.
3) A retired partner is not liable to any third party who deals with the firm without knowing that he was a partner.
SECTION: 33 EXPULSION OF A PARTNER

A partner cannot be ordinarily expelled from the firm. However, in certain exceptional cases, he can be expelled by following
prescribed procedure. He can be expelled only if the following conditions are satisfied:
(a) The power of expulsion should be given to the partners by an express contract between them.
(b) The power of expulsion should be exercised by majority of partners.
(c) The power of expulsion should be exercised in absolute good faith.
The test of good faith includes three things:

(1) That the expulsion must be in the interest of the partnership
(2) That the partner to be expelled is given a notice to that effect
(3) That he was given an opportunity of being heard.

* If these conditions are not fulfilled the expulsion is null and void.
* An expelled partner continues to be liable to third parties for the acts of the firm done even after his retirement until a public
notice of his retirement is given.
* The public notice can be given either by the expelled partner himself or by the firm.
SECTION: 34 INSOLVENCY OF A PARTNER

(1) The partner declared as insolvent, ceases to be a partner on the date on which the order of adjudication is made.
(2) The firm is dissolved on the date of the order of insolvency unless there is a contract to the contrary.
(3) The estate of the insolvent is not liable for any act of the firm after the date of the order of insolvency.
(4) The firm cannot be held liable for any acts of the insolvent partner after the date of the order of insolvency.
SECTION: 35 LIABILITIES OF ESTATE OF DECEASED PARTNER

(1) The firm is automatically dissolved on the death of a partner. However, the partners may specifically provide in their agreement
that the firm shall not be dissolved, and the remaining partners shall continue the firm’s business.
(2) Where the firm is not dissolved by the death of a partner, the estate of a deceased partner is not liable for any acts of the firm
which are done after his death.
SECTION: 36 RIGHTS OF OUTGOING PARTNER TO CARRY ON COMPETING BUSINESS

1) To carry on competing business: An outgoing partner may carry on a business, but it can be restricted by an agreement. However
he cannot:
(a) Use the firm name.

(b) Represent himself as carrying on the business of the firm, or
(c) Solicit the customers of the old firm.
2) Restraint of trade agreement: A partner may make an agreement with his partners that on ceasing to be a partner he will not
carry on any business similar to that of the firm within a specified period or within specified local limits, such agreement shall be
valid if the restrictions imposed are reasonable (Section 27 of the Indian Contract Act, 1872).
SECTION: 37 RIGHT OF OUTGOING PARTNER IN CERTAIN CASES TO SHARE SUBSEQUENT

PROFITS
1) Where a partner dies and the surviving partners continue carrying the business of the firm without settling the accounts of the
deceased partner, his legal representative has a right to the subsequent profits.
2) Deceased partner’s or his legal representative’s share in subsequent profits of the firm is the amount that is
attributable to the use of his share of the property of the firm. Alternatively, he may also opt to receive interest
@6% p.a.
3) If the surviving or the continuing partners have an option to purchase the interest of the deceased partner and they
duly exercise it, then the legal representative of the deceased has no right to subsequent profits.
Eg:- A, B and C are partners. C retires after selling his share in the partnership firm. A and B fail to pay the value of the
share to C as agreed to. The value of the share of C on the date of his retirement from the firm would be pure debt from
the date on which he ceased to be a partner as per the agreement entered between the parties. C is entitled to recover
the same with interest.
SECTION 38: REVOCATION OF CONTINUING GUARANTEE BY CHANGE IN FIRM

A continuing guarantee given to a firm, or to a third party in respect of the transaction of a firm, is in the absence of agreement to
the contrary, revoked as to future transactions from the date of any change in the constitution of the firm.
Questions :
Multiple Choice Questions
1. A partner can be expelled if:
(a) Such expulsion is in good faith
(b) The majority of the partner does not agree on such expulsion
(c) The expelled partner is given an opportunity to start a business competing with that of the firm
(d) Compensation is paid
2. Which of the following is not the right of partner i.e., which he cannot claim as a matter of right?
(a) Right to take part in business
(b) Right to have access to books of accounts
(c) Right to share profits
(d) Right to receive remuneration.
3. Which of the following acts are not included in the implied authority of a partner?
(a) To buy or sell goods on accounts of partners
(b) To borrow money for the purpose of firm
(c) To enter into partnership on behalf of firm.
(d) To engage a lawyer to defend actions against firm.
4. The reconstitution of the firm takes place in case
(a) Admission of a partner (b) Retirement of a partner
(c) Expulsion or death of a partner (d) All of the above
5. A new partner can be admitted in the firm with the consent of
(a) All the partners (b) Simple majority of partners
(c) Special majority of partners (d) New partner only.
6. A partner may be expelled from the firm on the fulfillment of the conditions that the
expulsion power is exercised.
(a) As given by express contract (b) By majority of partners
(c) In absolute good faith (d) All of the above
7. A minor is:
(a) A partner of a firm (b) Representative of the firm
(c) Entitled to carry on the business of the firm (d) Entitled to the benefits of the firm
8. If a partner commits fraud in the conduct of the business of the firm:
(a) He shall indemnify the firm for any loss caused to it by his fraud
(b) He is not liable to the firm.
(c) He is liable to the partners
(d) He is liable to the third parties

9. Partners are bound to carry on the business of the firm-
(a) To the greatest common advantage (b) For the welfare of the society
(c) For the advantage of the family member (d) For earning personal profits
10. The liability of a minor partner is limited to the extent of:
(a) His share in the firm (b) His personal assets
(c) His share in the firm as well as his personal assets
(d) He is not liable
11. The authority of a partner to bind the firm for his acts as contained in section 19 of the
Partnership Act is known as:
(a) Express authority (b) Legal authority
(c) Implied authority (d) Managerial authority
Answers to MCQs
1 (a) 2 (d) 3 (c) 4 (d) 5 (a) 6 (d) 7 (d) 8 (a) 9 (a) 10 (a) 11 (c)
DESCRIPTIVE QUESTIONS
1.“Partner indeed virtually embraces the character of both a principal and an agent”. Describe the said statement
keeping in view of the provisions of the Indian Partnership Act, 1932.
RTP MAY 20 (HINT :- Partner to be the agent of the firm)
2. A, B and C are partners in a firm. As per terms of the partnership deed, A is entitled to 20 percent of the partnership
property and profits. A retires from the firm and dies after 15 days. B and C continue business of the firm without
settling accounts. What are the rights of A’s legal representatives against the firm under the Indian Partnership Act,
1932? RTP MAY 20, MAY 18
(HINT: - Explain the rights of legal representative of dead partner. A’s

legal representatives will be entitled to 20% shares of profits and
Interest @ 6% p.a. on the amount of A’s share in the property )
3. State the legal consequences of the following as per the provisions of the Indian Partnership Act, 1932:
(i) Retirement of a partner

(ii) Insolvency of a partner RTP NOV 19
4. X and Y are partners in a partnership firm. X introduced A, a manager, as his partner to Z. A remained silent. Z, a
trader believing A as partner supplied 100 T.V sets to the firm on credit. After expiry of credit period, Z did not get
amount of T.V sets sold to the partnership firm. Z filed a suit against X and A for the recovery of price. Advice Z whether
he can recover the amount from X and A under the Indian Partnership Act, 1932. RTP NOV 19
(HINT: - A is liable for the price because he becomes the partner by holding out)
5. Ram, Mohan and Gopal were partners in a firm. During the course of partnership, the firm ordered Sunrise Ltd. to
supply a machine to the firm. Before the machine was delivered, Ram expired. The machine, however, was later
delivered to the firm. Thereafter, the remaining partners became insolvent and the firm failed to pay the price of
machine to Sunrise Ltd. Explain with reasons:
(i) Whether Ram’s private estate is liable for the price of the machine purchased by the firm?
(ii) Against whom can the creditor obtain a decree for the recovery of the price? RTP MAY 19
(HINT: - Firm is not dissolved after the death of a partner, the liability of continuing partners remains. )
6. What do you mean by “implied authority” of the partners in a firm? Point out the extent of partner’s implied authority
in case of emergency, referring to the provisions of the Indian Partnership Act, 1932. RTP MAY 19
(Hint: - Explain the cases where partner binds the firm)
7. Ram & Co., a firm consists of three partners A, B and C having one third share each in the firm. According to A and B,
the activities of C are not in the interest of the partnership and thus want to expel C from the firm. Advise A and B
whether they can do so quoting the relevant provisions of the Indian Partnership Act, 1932. RTP NOV 18 (HINT :- A
partner cannot be ordinarily expelled from the firm, explain the exceptional cases where he can be expelled)
8. State the modes by which a partner may transfer his interest in the firm in favor of another person under the Indian
Partnership Act, 1932. What are the rights of such a transferee? RTP NOV 18 (Hint: - Rights of Transferee )
9. Whether a minor may be admitted in the business of a partnership firm? Explain the rights of a minor in the
partnership firm. RTP MAY 18
10. X, Y and Z are partners in a Partnership Firm. They were carrying their business successfully for the past several
years. Spouses of X and Y fought in ladies club on their personal issue and X's wife was hurt badly. X got angry on the
incident and he convinced Z to expel Y from their partnership firm. Y was expelled from partnership without any notice
from X and Z. Considering the provisions of the Indian Partnership Act, 1932, state whether they can expel a partner
from the firm. What are the criteria for test of good faith in such circumstances? QP MAY 18
(HINT: - A partner cannot be ordinarily expelled from the firm, explain the exceptional cases where he can be
expelled)
11. Though a minor cannot be a partner in a firm, he can nonetheless be admitted to the benefits of partnership."
(I) Referring to the provisions of the Indian Partnership Act, 1932, state the rights which can be enjoyed by a minor
partner.
(II) State the liabilities of a minor partner both:
(i) Before attaining majority and
(ii) After attaining majority. QP NOV 18
12. State the legal position of a minor partner after attaining majority:
(i) When he opts to become a partner of the same firm.

(ii) When he decide not to become a partner QP NOV 18
13. Discuss the provisions regarding personal profits earned by a partner under the Indian Partnership Act, 1932?
QP MAY 19
14. When the continuing guarantee can be revoked under Indian Partnership Act, 1932? QP NOV 19
15.What do you mean by “implied authority” of the partners in a firm? (module) [Hint: refer notes]
UNIT-3
REGISTRATION AND DISSOLUTION OF A FIRM
1. Registration of Firms
The registration of a firm may be effected at any time by sending a statement in prescribed form along with the
prescribed fee to Registrar of concerned business place/area of firm either by post or delivering it physically, the
statement must be signed by all the partners or by their agents specially authorized on their behalf.
The statement must contain:
a) The firm’s name

b) The principal place of business of firm
c) The duration of firm
d) Names in full and permanent address of the partners
A firm name shall not contain any of the following words, namely ‘Crown, Emperor, Empire, King, Queen or words
expressing or implying sanction approval of government
When the registrar is satisfied that provisions of section 58 of IPA,1932 have been duly complied with, they shall record
the same in the register called registrar of firms and shall file this statement.
The registrar shall issues a certificate of registration, however registration is deemed to be completed as soon as
application for registration in prescribed form along with prescribed fee is delivered to registrar. Subsequent alteration
in the name, place etc. of firm that may occur during its continuance should also be registered.
Late Registration on Payment of Penalty – if the statement for registration is not sent to registrar within specified
time mentioned in subsection 1A of section 58, then the firm would be liable to pay penalty 100/- per year of delay or
part thereof in order to get registered.
2. Consequences of Non- Registration (section 69)

The IPA,1932 does not make registration of firms compulsory, but non-registration of partnership gives rise to a number
of disabilities which have a persuasive pressure for getting the firm registered
1. The firm or other co-partners can’t file suit against third party for breach of contract entered by the firm unless
the firm is registered with Registrar.
2. If any action is bought against the firm by a third party, then neither the firm nor the partner can claim set-off of
more than Rs 100
3. In case of unregistered firm, any aggrieved partner cannot file legal action against other partners or the firm, but
such a person may sue at dissolution of firm for his share in the firm’s property
4. Even if a partnership firm is unregistered, third party can still file suit against the firm although the concerned
firm cannot sue without getting registered.
Exceptions:
i. The right of third parties to sue firm or any partner

ii. The right of partners to sue for the dissolution of firm or for settlement of accounts of a dissolved firm
iii. The power of an official assignees, receiver of court to release property of insolvent partner and to bring an action
iv. The right to sue or claim a set off if the value of suit does not exceed Rs.100 in value
Example – A & Co. is registered as a partnership firm in 2015 with A, B and C partners. In 2016, A dies. In 2017 B and C
sue X in name and on behalf of A & Co., without fresh registration. Whether suit is maintainable or not?
Ans. In the given case the suit filed by B and C against X is maintainable even though the firm had not notified the
registrar with the changes in the partnership firm because:
i. The suit was filed by a firm which is registered

ii. The person suing had been shown as partner in the register of firms.
3. Dissolution of Firm
Basis Dissolution of Firm Dissolution of Partnership
Continuation It involves discontinuation of business in It does not affect continuation of
of business partnership business
Settlement It involves realization of assets and It involves revaluation of assets and
of accounts settlement of liabilities liabilities of firm
Order of A firm may be dissolved by the order of the It is not ordered by the court
Court court
Scope It necessarily involves dissolution of It may or may not involve dissolution of
partnership firm
Final closure It involves final closure of books of firm It does not involves final closure of the
of books books
4. Modes of Dissolution of Firm
I. Dissolution without the order of court or voluntary dissolution

1) Dissolution by agreement (Section 40) – A firm may be dissolved with consent of all the partners or in
accordance with contract between partners
2) Compulsory Dissolution (Section 41)- A firm is compulsorily dissolved by happening of any event which is
unlawful for the business of the firm, however if more than one type of business carried on by the firm, the
illegality of one shall not cause dissolution of the other lawful business
3) Dissolution on Happening of certain contingencies (section 42)- A firm may be dissolved on Happening of
certain events
a) By the death of partner
b) By the insolvency of a partner
c) On the completion of the event for which firm was constituted
d) On the expiry of term when firm was constituted for a fixed term
4) Dissolution by notice of partnership at will (Section 43) – In case of partnership at will, the firm may be
dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the
firm
II. Dissolution by the Court (Section 44) – the court may dissolve the firm on any of the following ground:
a) Insanity/unsound mind- when a partner has become of unsound mind, the court may dissolve the firm
on suit of other partners. Temporary sickness is no ground for dissolution of firm
b) Permanent Incapacity- when a partner become permanently incapable of performing his duties as
partner, then the court may dissolve the firm. Such permanent incapacity may result from physical
disability or illness etc.
c) Misconduct – when a partner is guilty of conduct which is likely to affect the carrying on of business, the
court may order the dissolution of firm. In each case nature of business will decide whether act is
misconduct or not.
d) Persistent breach of agreement- when a partner willfully commits breach of agreements relating to
management of affairs of firm that It is not reasonably practicable for other partners to carry on
business in partnership with him, the court may dissolve the firm at instance of any of other partners
ex – embezzlement, keeping erroneous accounts, holding more than cash allowed etc.
e) Transfer of Interest – when a partner has transferred whole of his interest to a third party or his share
sold by the court in recovery of arrears of land revenue, the court may dissolve the firm at instance of
any other partners
f) Perpetual losses- when business of firm cannot be carried on except at a loss in future also, the court
may order for its dissolution
g) Just and equitable grounds- when court considers any other grounds to be just and equitable for the
dissolution of the firm, it may dissolve the firm
for example – deadlock in mgmt., loss of substratum, gambling by partner on stock exchange
5. Consequences of Dissolution
1) Liability for acts of partners done after dissolution (Section 45) – the partners continue to be liable as such to
third parties for any act done by them before dissolution until public notice of dissolution is given
The section also seeks to protect partners of dissolved firm from liability towards third parties, any partner who
retires, becomes insolvent, dies shall not be liable for acts done after the date on which he ceases to be a
partner
2) Right of partners to have business wound up after dissolution (section 46) – every partner has right as against
all other partners to have the property of firm applied in payment of debts and liabilities of firm and to have the
surplus distributed among the partners or their representatives according to their rights.
3) Continuing authority of partners for purposes of winding up (section 47) – even after the dissolution of the
firm, the authority of each partner to bind firm and other mutual rights and obligations did not become void as
far as it is necessary for wind up affairs of the firm
4) Settlement of partnership accounts (Section 48) – in settling accounts of firm after dissolution, the following
rules shall be observed-
a) Losses, including deficiencies of capital shall be paid first out of profits, next out of capital and lastly by
the partners individually in proportions of their PSR
b) The assets of the firm including sums contributed by partners must be applied in following manner and
order:
i. In paying debts of firm to third parties
ii. Payment to each partner what is due to him from capital
iii. Payment to each partner what is due to him on account of capital
iv. The remaining amount (if any) shall be divided among partners in PSR.
5) Payment of Firms debts and of separate debts (section 49)- the property of firm shall be applied in the first
instance in payment of debts of the firm and if there is any surplus then the share of each partner shall be
applied to payment of his separate debts
The separate property of any partner shall be applied first in payment of his separate debts and surplus, if any in
the payments of debts of the firm
Questions-
1. Registration of a firm is:

(a) Compulsory (b)Optional
(c) Occasional (d)None of the above
2. An unregistered firm cannot claim:
(a)Set on (b)Set off
(c) Set on and set off (d)None of the above
3. As per the accepted view, the registration of the firm is considered complete when
(a) Complete application for registration is filed with the Registrar.
(b) Registrar files the statement and makes entries in the Register of Firms.
(c) Registrar gives notice of registration to all partners.
(d) Court records the statement and certifies the entries in Register of Firms.
4. A partnership firm is compulsorily dissolved where
(a) All partners have become insolvent
(b) Firm’s business has become unlawful
(c) The fixed term has expired
(d) In cases (a) and (b) only
5. On which of the following grounds, a partner may apply to the court for dissolution of the firm?
(a) Insanity of a partner (b) Misconduct of a partner
(c) Perpetual losses in business (d) All of the above
6. Which of the following do not constitute a ground for dissolution by Court?
(a) Misconduct by partner (b) Transfer of interest by partner
(c) Just and equitable grounds (d) Insolvency of a partner
7. Upon dissolution of firm, losses, including deficiencies of capital, shall be paid first-
(a) Out of Profits (b) Out of apital
(c) By the partners in their profit-sharing ratio (d) By the partners equally
8. Public notice in case of a firm is not required in case of:
(a) Admission of a partner (b) Retirement of a partner
(c) Expulsion of a partner (d) Dissolution of the firm.
9. Which of the following do not constitute ground for dissolution by Court?
(a) Insanity of the partner (b) Business carried on at a loss
(c) Willful misconduct of a partner (d) Expulsion of a partner
10. Dissolution of partnership between all the partners of a firm is called-
(a) Dissolution of partnership (b) Dissolution of partners
(c) Dissolution of the firm (d) Reconstitution of firm
Answer to MCQs
1(b), 2(b), 3(b), 4(d), 5(d), 6(d), 7(a), 8(a), 9(d), 10(c)
Q 1. A & Co. is registered as a partnership firm in 2015 with A, B and C partners. In 2016, A dies. In 2017.B and C sue X in
the name and on behalf of A & co. without fresh registration. Decide whether suit is maintainable. Whether your answer
would be same if in 2017 B and C had taken a new partner D and then filed a suit against X without fresh registration?
(RTP May 20)
(Hint – Case 1 (A’s Death) -Yes, the suit is maintainable as the suit was filed by a firm which is registered, and the
person suing had been shown as partner in the register of firms.
Case 2 (D’s admission)-No, The suit filed by A & Co. would be void as the new partner’ admission is to be notified to
the registrar who shall record new partner’s admission relating to firm in the Register of firms)
Q 2. State the grounds on which a firm may be dissolved by the court under the IPA, 1932?
(RTP Nov 19, RTP May 18, Nov 18 Attempt)
Q 3. A & Co. is registered as a partnership firm in 2015 with P, X, Y and Z partners. In 2016, X dies and P retied. In 2017 Y
and Z sue W in the name and on behalf of A & co. without notifying to registrar of firms about changes in constitution of
firm, Is the suit maintainable? (RTP Nov 18)
(Hint – Yes, the suit is maintainable as the suit was filed by a firm which is registered and the person suing had
been shown as partner in the register of firms.)
Q 4. What is procedure of registration of partnership firm under IPA,1932? (RTP Nov 18)
Q5. When does dissolution of partnership firm take place under of IPA,1932? (RTP May 19)
Q 6. “Dissolution of a firm is different from dissolution of Partnership” Discuss. (Nov 19, May 18 attempt)
Q 7. Discuss the various disabilities or disadvantages that a non-registered partnership firm can face in brief? (May 19,
May 18 Attempt, MTP Nov 19)
Q8. What is the procedure of registration of a partnership firm under the Indian Partnership Act, 1932? What are the
consequences of non-registration? (module)
[Hint: Refer notes]
Q9. When does dissolution of a partnership firm take place under the provisions of the Indian Partnership Act, 1932?
Explain. (module)
[Hint : Refer notes]

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FACULTY : CA RACHNA PARAKH DUBEY

APT EDUCATING INDIA

As per section 4 of Indian partnership act 1932,

TO SHARE PROFITS CARRIED ON BY ALL, ANY OF THEM,

For determining the existence of partnership:

1. ASSOCIATION 2. 'BUSINESS' 3. 'AGREEMENT' 4. SHARING OF 5. MUTUAL

1. Partnership is an association of minimum 2 or more persons :

 Sec 5: Partnership comes in existence from contract, not from status.

4. Sharing of profits is essential :

Some Important Points:

* few illustrative examples: -

3. Differences between partnership and other Business Forms

BASIS PARTNERSHIP HUF

Karta's liability unlimited, Other coparcener's -

BASIS PARTNERSHIP COMPANY/ JOINT STOCK COMPANY

BASIS PARTNERSHIP CO-OWNERSHIP

Basis PARTNERSHIP CLUB

Basis PARTNERSHIP Association

1. ACTUAL / OSTENSIBLE/ACTIVE partner:

4. PARTNER BY HOLDING OUT/ESTOPPEL :

EXCEPTIONS TO HOLDING OUT:

Not applicable on TORTS done by other partners.

8. PARTNER IN PROFIT ONLY:

With regard to With regard to

1. Section 7: Partnership at will is a partnership when:

Partnership deed may contain the following information:

Multiple Choice Questions

3. The most important elements in partnership is:

1 (b) 2 (d) 3 (d) 4 (d) 5 (d) 6 (d) 7 (c) 8 (c)

(i) Carry on the business of the firm

(ii) Be truthful to each other

Section :- 10 DUTY TO INDEMNIFY FOR LOSS CAUSED BY FRAUD

Section :- 11 DETERMINATION OF RIGHTS AND DUTIES OF PARTNERS BY CONTRACT

SECTION : 12 THE CONDUCT OF THE BUSINESS

Subject to contract between the partners, every partner has -

(a) Right to take part in the conduct of the Business.

(b) Right to have access to inspect and copy of books of firm

(d) Duty to attend diligently to his duties in the conduct of business.

SECTION : 13 MUTUAL RIGHTS AND LIABILITIES

SECTION : 14 PARTNERSHIP PROPERTY

(1) All property and rights and interest in property

- Originally brought into the stock of the firm, or

(2) It also includes the goodwill of the business.

SECTION: 15 APPLICATION OF THE PROPERTY OF THE FIRM

SECTION : 16 PERSONAL PROFIT EARNED BY PARTNERS

SECTION : 17 RIGHTS AND DUTIES OF PARTNERS AFTER A CHANGE IN THE FIRM

(1) Admission of a partner

SECTION : 18 PARTNER TO BE AGENT OF THE FIRM

SECTION : 19 IMPLIED AUTHORITY OF PARTNER AS AGENT OF THE FIRM

(a) Submit a dispute relating to the firm to arbitration

SECTION : 20 EXTENSION AND RESTRICTION OF PARTNERS’ IMPLIED AUTHORITY

- the third party knows about the restrictions

SECTION : 22 MODE OF DOING ACT TO BIND FIRM

The act done must be -

- within the scope of his authority

SECTION : 23 EFFECT OF ADMISSIONS BY A PARTNER

SECTION : 24 EFFECT OF NOTICE TO ACTING PARTNER

The notice must be related to the firm's business.

SECTION : 25 LIABILITY OF A PARTNER FOR ACTS OF THE FIRM

SECTION : 26 LIABILITY OF THE FIRM FOR WRONGFUL ACTS OF A PARTNER

SECTION : 27 LIABILITY OF FIRM FOR MISAPPLICATION BY PARTNERS

SECTION : 29 RIGHTS OF TRANSFEREE OF A PARTNER’S INTEREST

The rights of such a transferee are as follows:

(1) During the continuance of partnership, such transferee is not entitled -