Final project report

“law and taxation”

Topic : partnership act 1932

Group members :
Mustafa abbasi 1911183
Ahamed abbasi 1911234
Lavangeen khan 1911163
 Partnership act 1932, 8th April
The Partnership Act was enacted in 1932 has been used in Pakistan since Pakistan’s inception in 1947.
The act has been updated and amended from time to time but has essentially been the same since the time
of its creation. The Partnership Act 1932 is applicable to the whole of Pakistan

Partnership is a relationship among specific persons who have agreed to share the profit
of business carried on by all or any one of them acting for all.

Regulated By: Provinces through Registrar of Firms / Industry Department

Registration: Optional registration is required with registrar of firms.

Charter document: Partnership Deed

Management – every partner can take part in the management of the partnership

Liability: Unlimited liability of Partners

Legal Status: Partners are collectively known as firm, so there is no separate legal entity.

Minimum and Maximum partners: 2 to 20 partners

Property: Cannot be held in the name of firm

Audit of accounts: Not mandatory

Perpetual succession: Partnership can be dissolved on death or retirement

Management: every partner can take part in the management of the partnership

Sharing of profit: can be done in any manner as the partner’s agreement

 Nature of partnership :-

 Partnership is not created by status. The relation of partnership arises from

contract
 In determining whether a group of persons is or is not a firm or whether a person
is or is not a partner in a firm regard shall be had to the real relation between the
parties as shown by all relevant facts taken together
 The sharing of profits or of gross returns arising from property by persons holding
a joint or common interest in that property does not of itself make such persons
partners.
 The receipt by a person of a share of the profits of a business or of a payment
contingent upon the earning of profits or varying with the profits earned by a
business does not of itself make him a partner with the persons carrying on the
business
And in particular the receipt of such share of payment by a lender of money to persons
engaged or about to engage in any business, by a servant or agent as remuneration, by the
widow or child of a deceased partner as annuity or by a previous owner or part owner of
the business as consideration for the sale of the goodwill or share thereof, does not of
itself make the receiver a partner with the persons carrying on the business.
Partnership at will- Where no provision is made by contract between the partners for the
duration of their partnership or for the determination of their partnership the partnership
is “partnership at will”. Particular partnership – A person may become a partner with
another person in particular adventures or undertakings.

Types of partners

1. ActivePartner:
This is the first type of partner in partnership business. The partner who provides
capital and takes the active part in the conduct of business is known as a general or
 active partner. He is also known as working partner who gives special assistance to
the firm. He may or may not be renewed by him. It depends upon the agreement
between the partners.

2. Inactive,Partner:
The partner who provides capital to the business and shares in the profit or loss of
the firm but does not participate in the management is known as an inactive,
dormant or sleeping partner.

3. NominalPartner:
A nominal partner is one who lends his name to the firm as a partner. Such partner
does not invest any capital nor he participates in management. However, his
liability towards third parties is just like the other general partners.

4. Partner in Profit Only: A person may become a partner for sharing profits only
but he does not get a share in its loss. He provides capital and is also responsible to
third parties like other partners. Such a partner is generally inactive but associated
with his money and goodwill.

5. Limited Partner: A limited partner is a partner whose liability is limited to his

invested capital only. Such partner cannot take part in the management of the
business but he can inspect the accounts and receive profit from the business.
Moreover, a partnership cannot be established only with limited partners.

RELATIONS OF PARTNERS TO ONE

ANOTHER

 General duties of partners – Partners are bound to carry on the business of the firm
to the greatest common advantage, to be just and faithful to each other, and to
 render true accounts and full information of all things affecting the firm to any
partner or his legal representative.
 . Duty to indemnify for loss caused by fraud – Every partner shall indemnify the
firm for any loss caused to it by his fraud in the conduct of the business of the
firm.
 Determination of rights and duties of partners by contract between the partners
 Agreements in restraint of trade – a partner shall not carry on any business other
than that of the firm while he is a partner
 every partner has a right to take part in the conduct of the business. Every partner
is bound to attend diligently to his duties in the conduct of the business. Any
difference arising as to ordinary matters connected with the business may be
decided by a majority of the partners, and every partner shall have the right to
express his opinion before the matter is decided, but no change may be made in
the nature of the business without the consent of all the partners and every partner
has a right to have access to and to inspect and copy any of the books of the firm.

Mutual rights and liabilities:

1. Prohibition of remuneration: Partners have to attend business diligently. If the

contrary is not provided, partner cannot draw any salary, remuneration, commission, or
otherwise from the business.
2. Equal profit and loss: Partner shall share equally profit and loss if the contrary is not
provided in contract. In the absence of contract presumption is adjudged on the basis of
equality.
3. Interest on capital: Interest on capital is payable according to the share which
partner contributes. Such interest becomes payable after business earns profits. Interest
cannot be paid from capital because it shall constitute reduction in capital, which is not
allowed under law.
4. Interest on other subscriptions: When partner subscribes any sum other than capital
for the purpose of business, he is entitled to get interest on fixed rate of interest @ 6% p.
a. This is fixed for any sum contributed other than capital regardless more or less.
5. Indemnification of partner: Firm is liable to indemnify a partner when he incurs
sum to conduct of business. This conduct should be ordinary and proper. Firm is also
liable for indemnification when any act is committed in emergency for the protection of
business, as would be done by a person of ordinary prudence, in his own case, under the
similar circumstances.
6. Indemnification of firm: Any partner, who causes to firm any loss or damage by
willful neglect, shall indemnify the firm. Neglect does not render all partners liable but
only person who commits it.
.

How to register
The registration of a firm may be effected at any time by sending by post or delivering to the
Registrar of the area in which any place of business of the firm is situated or proposed to be
situated, a statement in the prescribed form and accompanied by the prescribed fee, stating the
firm name, the place or principal place of business of the firm, (c) the names of any other places
where the firm carries on business, (d) the date when each partner joined the firm, (e) the names
in full and permanent addresses of the partners, and (f) the duration of the firm.
The statement shall be signed by all the partners, or by their agents specially authorized in this
behalf. Each person signing the statement shall also verify it in the manner prescribed. 1 [(3) A
firm name shall not contain any of the following words; namely: - “Government” “Jinnah”,
“Quaid-i-Azam”, or words expressing or implying the sanction, approval or patronage of the
Federal Government or any Provincial Government of the Quaid-i-Azam, except when the
Provincial Government signifies its consent to the use of such words as part of the firm name by
order in writing.]
(3A) A firm name shall not contain the name of the “United Nations” or its abbreviations
through the use of its initial letters or of any subsidiary body set up by that body unless it has
obtained the previous authorization of the Secretary-General of the United Nations in writing.
(3B) A firm name shall not contain the name of the “World Health Organization” or its
abbreviations through the use of its initial letters unless it has obtained the previous authorization
of the Director-General in writing.
2 [(3C) A firm name shall not contain any word which may be declared by the Provincial
Government, by notification in the official Gazette, to be undesirable: Provided that firm which
has as part of its name any word declared by the provincial Government to be undesirable shall,
within one month of such declaration, alter its name and send a statement to this effect to the
Registrar.
When the Registrar is satisfied that the provisions of section 58 have been duly complied with,
he shall record an entry of the statement in a register called the Register of Firms, and shall file
the statement.
 DISSOLUTION OF A FIRM
The dissolution of partnership between all the partners of a firm is called the “dissolution of the
firm”. A firm may be dissolved with the consent of all the partners or in accordance with a
contract between the partners. A firm is dissolved__
(a) by the adjudication of all the partners or of all the partners but one as insolvent, or
(b) by the happening of any event which makes it unlawful for the business of the firm to be
carried on or for the partners to carry it on in partnership: Provided that, where more than one
separate adventure or undertaking is carried on by the firm, the illegality of one or more shall not
of itself cause the dissolution of the firm in respect of its lawful adventures and undertakings
. Dissolution by notice of partnership at will.
(1) Where the partnership is 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.
(2) The firm is dissolved as from the date mentioned in the notice as the date of dissolution or, if
no date is so mentioned, as from the date of the communication of the notice.