T.Y. B.

COM (SEM – VI) – BUSINESS LAW – II UNIT – II

THE INDIAN PARTNERSHIP ACT, 1932

Q.1. Define Partnership. Discuss the essential characteristics of Partnership.
(May-90, July-91,April-93, Nov-95, April-96, 97, 99)
A.1. As defined by Section-4 of the 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‖
The analysis of this definition provides us the following essential characteristics of
partnership

(1) Association of two or more persons:- To form partnership, there should

be at least two competent persons.
According to Section-4, a person does not include a firm (Duli Chand etc. V.
commissioner of Income-tax), because a firm is not a separate legal entity
(legal person). So two partnership firms cannot enter into a partnership.
However a company is a ‗person‘ within the meaning of sec.4 (M. M. Pulimood V.
Registrar of Firms). So, it can enter into a contract of partnership, if it is
authorized by its Memorandum of Association.
The maximum number of partners, as prescribed by the Companies Act, are 10
in case of Banking Business, & 20 in any other business. If the number of
partners exceeds this limit, the partnership becomes an illegal association.
Similarly, it ceases to be partnership, if the number of persons gets reduced to
one, by any reason.

(2) Agreement: To form a partnership, there must be an agreement between

the partners.
The agreement may be express (oral or written) or implied. Implied agreement
may be assumed from the course of dealings or from the conduct of the
parties. The agreement may be for a fixed period or for the execution of a
particular adventure (Like to sell 50 computers).
Thus, partnership arises from a contract and not from status.

(3) Business:- Partnership can be formed only for business & not for any other
purpose. So, there must be business in Partnership. Here, business includes any
trade, occupation & profession but it must be legal. (sport clubs, charitable
trusts and religious associations are not partnership because their object is not to
make profit).

(4) Sharing of Profit:- The object of partnership must be to make and to share
profit of business. Profit means net profit (i.e. excess of revenue over the cost).

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Profit must be distributed among al the partners in an agreed ratio. Similarly, if
there is loss in the business, partners are supposed to share losses also.

(5) Mutual Agency:- (In partnership, it is not necessary that business must be
carried on by all the partners.) The business may be carried on by all or any of
them. But, it is the fundamental principle that when any partner carry on
business activities, all other partners are responsible for such act.

This means, every partner is an agent of other partners. Similarly, every

partner is principal in the sense that he is bound by the act of other partners.
Thus, every partner is agent as well as principal of other partners. Thus, there is
an element of mutual agency.

 Partners, Firm and Firm Name:

Persons, who have entered into partnership with one another, are called
individually ‗Partners‘ and collectively a ‘firm’, and the name, under which
the business is carried on is called the firm name’ [Sec.4, para 2]. The partners
of a firm may carry on business under any name and style. But, this is subject to
the following two limitations:
(1) A firm name shall not contain any words expressing or implying the
sanction, approval or patronage of the Government.
(2) The law safeguards the trade names and goodwill of other persons, who
are already in existence. (The mere fact that a firm has already been doing
business under a certain name does not prevent a new firm from adopting
it. But if the name is used with a fraudulent intention, the law will intervene.)
The firm may be restrained from the adoption of such name by injunction.

Q.2. What is the test of Partnership? What test would you apply in determining
the existence of partnership. OR What is the characteristic of Partnership,
which distinguishes partnership from other association of persons? OR
What is the final evidence of partnership? (May-1990)
A.2. To determine the existence of partnership (between a group of persons), the
definition in Section-4, is used as a test. This means, for this purpose, we must
look to the agreement between them.

(1) If there is an agreement to share the profits of a business and if the

business is carried by all or any of them, acting for all, there is partnership.
Otherwise, there is no partnership.
(2) However, in absence of partnership agreement, we have to refer to
section-6. Section- 6 has given a general principle/rule, which was laid down in
the case of Cox V. Hickman.

According to this, principle / rule, we should take into account the real
relations between the parties. The real relations between the parties should be
determined by considering all the relevant facts such as
- the written or verbal agreement,
- surrounding circumstances at the time, when the contract was entered into,
- conduct of the parties, and
- other relevant facts such as books of accounts, correspondence, evidence of c
employees, etc.

These facts are taken into account to determine, whether there exist
partnership or not. [Sometime, the parties may expressly state in a document
that they are not partners, but, they may turn out to be partners in the eyes
of law, (when all other facts are taken into account)]
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Cases where there are no partnership relation
According to Section-6, partnership relation does not exist in following cases:
(A) Joint Owners sharing gross returns:- The Joint owners of some property are
sharing the profits or gross returns arising from the property, but even then
they do not become partners. (Govind Nair V. Maga).
Example: A and B jointly purchased a tea shop. Each of them contributed a half
of the expense incurred for the purchase of pottery and utensils. They then,
leased out the shop and shared the rent equally. Held, they were co-owners and
not partners.
(If, however, Co-owners start a business with a view to sharing the profits of the
business, they become partners.)

(B) Sharing of Profits:- The sharing of profits is, prima facie, a strong evidence of
partnership. But, even then it is not a test of partnership. It is possible that a
person may receive a fixed share in the profit of business, but even then he
may not be a partner. Such cases are as follow
(1) Lender of Money/Creditor:- A lender of money may receive a fixed share
in the profit of partnership (in addition to interest). But, he does not become a
partner.
(2) Servant or Agent: A servant or an agent of-a business may be receiving his
remuneration as a share of profit. But, even then he does not become a
partner.
(3) Widow or Child of Deceased Partner:- The widow or child of a deceased
partner may be getting a portion of the profits, as annuity. But, even then they
do not become partners
(4) Seller of Goodwill:- When a person has sold his business along with its
goodwill, he may also receive a portion of the profit (as consideration of the
sale of goodwill), but he is not a partner.
Thus sharing of profit is a strong evidence of partnership, but it is not a
conclusive test of partnership.

 The Real Test is Mutual Agency:- We can conclude that the true test of
partnership is not the sharing of profit, but it is element of mutual agency. In
every partnership, there is presence of an element of mutual agency. In
partnership, every partner is the agent as well as principal of other partners.
All are the agents as well as principal of each other. This element is present
only in partnership & not in any other association of persons. So, the element of
mutual agency is a true test of partnership.

Who are not partners: According to Section-5, following persons are not
partners:
(1) The members of a Hindu undivided family carrying on family business.
(2) A Burmese Buddhist husband and wife, carrying on a business.

Q.3. Write a short note on Registration of firm. What are the effects of Non -
registration of firm?
A.3. According to Indian Partnership Act, registration of partnership firm is not
compulsory. It is Voluntary. However, Law has imposed certain disabilities of
unregistered firm. So, it is desirable to obtain registration of firm. A firm can be
registered, at anytime, during its duration.
(A) PROCEDURE FOR REGISTRATION OF PARTNERSHIP FIRST (SECTION 58 &
59): For the purpose of registration, firm has to file an application in the form a
statement) with Registrar of Firms, along with prescribed fees.

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This application form must contain following information
(a) the name of the firm.
(b) the place or principal place of business of the firm.
(c) the names of 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 partners.
(f) Duration of firm.

The application (statement) must be signed by all the partners or their agents,
who are specially authorized to sign. It should be also verified by them in
prescribed manner.
When the registrar is satisfied in all respects, he shall enter the details of
statement in the register of firms and will file the statement. Then, he will
issue a certificate of registration.
Registration becomes effective from the date when the registrar files this
statement and makes entries in the register of firms (but not from the date of
presentation of the statement to him

Alterations:
If any alterations (chances) take place in unregistered firm, then Registrar of
Firms must be informed accordingly, so that he can incorporate (include) them in
Register of Firms.

(B) EFFECTS OF NON – REGISTRATION (SECTION-69):-

Following are the effect of non-registration of firm:-
(1) Suits between Partners and the Firm: A partner of an unregistered firm
cannot sue the firm or any of its partners, to enforce a right arising out of a
contract or right under partnership Act. [A partner can sue the firm or any of
its partner, only if:
- the firm is registered, and
- his name is shown in the register of the Firms, as a partner.

(2) Suits between firm and third parties:- An unregistered firm cannot sue
third arty, to enforce a right arising from a contract. Thus, if it is unregistered
firm, it cannot file a suit against the third party for the recovery of its debts.

(3) Claim of Set-off: - An unregistered firm or its partner cannot claim a set-
off, in a proceedings against the firm by a third party, to enforce a right arising
from a contract. However, this right of set-off is not affected, if the claim of set-
off does not exceed ` 100/- in value.
The registration of the firm can be affected at any time. Therefore, it is open for a
firm to get it self registered at any time.

The Non-Registration of the firm does not affect

(1) The right of a firms or its partners having no place of business in India.
(2) The right to any suit or claim of set-off not exceeding ` 100 in value.
(3) The right of a partner to sue for the dissolution of the firm or for the
accounts of the dissolved firm or for his share of the property of the
dissolved firm.
(4) The powers of an official Assignee or court to realize the property of an
insolvent partner of an unregistered firm.
(5) The right of third party to sue an unregistered firm or any of its partners.
(6) The right of an unregistered firm to sue to enforce a right arising
otherwise than out of a contract. (i.e. any right except a right arising under a
contract)

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Q.4. Explain the implied authority of a partner. Enumerate the acts which falls
within the implied authority and those acts which do not fall within the
implied authority of a partner. (Jan-92, May-92, April93, April-94, May-
95)
A.4. RELAT IONS OF PARTNERS TO THIRD PARTIES:
We know that every partner is the agent of the firm for the purposes of the
business of the firm. So, he can bind the firm by his acts, if the acts are usual
to the business and if the act is done in the name of the firm.

AUTHORITY OF PARTNER:
The authority of a partner means the capacity of a partner to bind the firm by
his act: The authority of a partner may be express or implied.
EXPRESS AUTHORITY
It is the authority of a partner, which is clearly mentioned by the partnership
agreement.
IMPLIED AUTHORITY:-
Where there is no partnership agreement or where the agreement is silent, a
partner can bind the firm by those acts, which are usual to the business of the
firm. This authority of a partner to bind the firm is known as implied
authority. Implied Authority is subject to following conditions:
(1) The act done by a partner must be relating to the normal business of the
firm. (e.g. A partner of a firm dealing in books can place order for books. But, if
he places order for certain quantity of wine, in the name of firm, the firm will not
be liable.)
(2) The act must have been done within the scope of the business of the firm.
(3) The act must be done in the name of the firm.

Acts within the implied authority of a partner: Every partner has an implied
authority to carry out those acts, which are ”Usual to the business”. Now,
which acts are usual to the business -it depends upon the nature of the
business.
e.g. in a trading firm, following acts can be included within the implied authority of
a partner :-
(1) To purchase the goods, on behalf of the firm,
(2) To sell the goods of the firm,
(3) To receive payment of debt and to give its receipt,
(4) To settle accounts with the persons dealing with the firms.
(5) To engage servants for business.
(6) To borrow money on the credit of the firm,
(7) To draw, accept, endorse bills and other negotiable instruments in the
name of the firm.
(8) To pledge the goods of the firm for the purpose of borrowing money.
(9) To employ a solicitor to defend the firm.
No Implied Authority (Acts which do not fall within the implied authority
of a Partner) [Section-19(2)]: - In absence of any usage or custom of trade to
the contrary, the implied authority does not include following acts
(1) To submit a dispute relating to the business of the firm to arbitration.
(2) To open a bank account on behalf of the firm in his own name.
(3) To compromise any claim (or a part of a claim) by the firm
(4) To withdraw a suit or proceeding filed on behalf of the firm.
(5) To admit any liability in a suit or proceeding against the firm.
(6) To acquire immovable property on behalf of the firm.

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(7) To transfer immovable property of the firm, or,
(8) To enter into partnership on behalf of the firm.
A partner can do any of the above acts, if he has express or specific authority
or if the custom of trade permits him.

Partner’s Authority in an Emergency:- In emergency, a partner has an

authority to do certain acts, provided :-
(a) They are done to protect the firm from loss, and
(b) The partner acts as a prudent (wise) person would act under similar
circumstances. All the partners are liable for such act of partner.

IMPLIED AUTHORITY AND THIRD PARTIES:-

(1) Extension and Restriction of a partner’s implied authority (Sec-20):-
The partners can extend or restrict the implied authority of any partner, by a
contract between them. The third party is not affected by a secret
restriction of the implied authority of a partner, if he is not aware of this.
(2) Effect of admissions by a partner (Sëc-23):-
Where a partner makes any admission or representation regarding the firm
and if it is made in the ordinary course of business (within his authority), the
firm remains liable for it.
(3) Effect of Notice to an acting partner (Sec-24):-
A notice to an acting partner (regarding any matter of the firm) is considered as
notice to the firm (except in case of fraud by that partner).
(4) Liability of a partner for acts of the firm (Sec-25):- Every partner is jointly
and severally liable for all the acts of the firm (done, when he is a partner).
(5) Liability of the firm for wrongful act of a partner (Sec-26):-
Where there is a loss or injury to third party, due to a wrongful act or
omission of a partner, the firm is liable for it.
(6) Liability of firm for mis application (Sec-27):-
Where the firm or its partner receives money or property from third party and
the same is misapplied by any partner, the firm is liable for it.

Q.5. Discuss the Types of Partners. (May-95, Apr-96, Nov-96, May-98, May-99)
A.5. Following are different types of partners
(1) Actual or Ostensible Partner:- Actual partner is a person, who becomes a
partner by an agreement. He is actively engaged in the conduct of business
of the firm. He is an agent of other partners in the ordinary course of business.
(This means, all the other partners are liable for all his acts, which are done by
him in the ordinary course of business and in the name of the firm.)

(2) Sleeping or Dormant Partner: A sleeping partner is that partner, who does not
take active part in the conduct of the business of the firm. Like other partners,
he invests capital and shares in the profits of business. He is equally liable,
along with other partners, for all the debts of the firm. (His existence is kept
secret from the outsiders dealing with the firm. While retiring from the
partnership, he need not give public notice of his retirement.)

(3) Nominal Partner: Nominal partner means a partner, who lends his name to the
firm, without having any real interest in it. He does not invest in the business
of the firm. He is known to the world as a partner in the firm, but he does not
share in the profit. But, like other partners, he is liable to outsiders for all the
debts of the firm.

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(4) Partner in profits only:- Sometime, all the partners may agree that a particular
partner will get a share in profit only but he will not be liable for the loss of
business. Such a partner is known as partner in profits only. He is entitled to get
an agreed share in profit, but he is not liable for the loss.

(5) Sub - partner:-When a partner agrees to share his profits from a firm, with a
third person, that third person is known as a sub-partner. A sub-partner has no
rights against the firm and he is not liable for the acts of the firm.

(6) Partner by estoppels or holding out:- Sometime, a person behaves in such a

way that third party gets an impression that he is the partner of the firm.
Though he is not a partner, he behaves like a partner. So, in certain
circumstances, he is made liable for the debts of the firm as if he were a
partner. Such person is known as a partner by holding out or partner by
estoppels.
Example: Mr. X is not a partner but many time he is working honorary in a firm
and he represents himself as a partner of the firm. Now, if any person has given
credit to the firm believing that he is its partner, then he will be liable for such
debts of the firm.
A person can be regarded as partner by holding out, if
(a) He has represented himself as a partner by spoken or written words or
by conduct.
(b) He represented himself as a partner to the other person.
(c) The other person must have acted in good faith and has given credit to
the firm.

Q.6. Discuss the legal position of minor (his rights and duties) under Indian
Partnership Act. (July-91, Jan-92, May-92, Nov-95, Nov-96)
A.6. We know that, a minor cannot become a partner in the firm. Minor is
incompetent to contract. So he cannot enter into a contract of partnership.
However, he can be admitted to the benefits of partnership, with the consent
of all the partners.
Now, the legal position of minor can be studied under following two heads:

Position before attaining majority:-

Rights
(1) He has a right to get an agreed share in the profit and property of the
firm
(2) He has a right
- to have access to
- to inspect &
- to copy
Any of the accounts but not books of the firm
(3) If he is not given his due share of profit & if he want to severe his
connection with the firm, he can sue the firm for his share of the property of
the firm.

Liabilities:—
(1) The liability of the minor partner is limited to the extent of his share in
the profits and property of the firm. But, in addition to this, he is neither
personally liable nor his estate liable for the debts of the firm. (Thus a minor
is not personally liable for the debts & obligations of the firm. However, his
share in the profit and property is liable for the same.)
(2) He cannot be declared insolvent. But, if the firm is declared insolvent, his
share in the firm vests in the official Receiver/Assignee.

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Position on Attaining Majority: On attaining majority, he has to decide,
within 6 months, whether he shall continue in the firm or leave it. [These six
months run from
- the date of his majority, or
- the date, on which he first comes to know that he had been admitted to the
benefits of partnership, whichever date is later.]
Within this period, he should give a public notice of his choice.
- to become, or
- not to become a partner in the firm
If he fails to give a public notice, he becomes a partner in the firm on the
expiry of six months.

(1) Where he elects to become a partner:

(a) He becomes personally liable to third parties for all the acts of the firm
(debts and obligations) done from the date of his admission to the benefits
of partnership.
(b) His share in the property and profit of the firm is the share, to which he
was entitled as a minor partner.

(2) Where he elects not to become a partner:

(a) His rights & liabilities as a minor continues till the date of his notice.
(b) His share is not liable for the acts of the firm done, after the date of
public notice.
(c) He can sue for his share in the profit & property of the firm.

Q.7. What do you mean by dissolution of partnership and dissolution of firm?

Discuss different methods of dissolution of firm.
A.7. There is a difference between ‗dissolution of partnership‘ and dissolution of firm.
DISSOLUTION OF FIRM:- Dissolution of firm means the dissolution of
partnership relations between all the partners of a firm. Dissolution of firm
means complete break-down (or end) of partnership relations between all
the partners of a firm.

DISSOLUTION OF PARTNERSHIP:- This means breaking-up of partnership

relations between few partners and not between all the partners. So,
dissolution of partnership involves only a change in the relation of the
partners. For example, if there is a partnership between A, B & C, and if C
retires, then the partnership between A, B & C comes to end and a partnership
between A & B comes into existence. The new firm with A & B is known as
―Reconstituted firm‖.
Thus, dissolution of partnership does not necessarily mean dissolution of firm, but
dissolution of firm definitely brings dissolution of partnership.

METHODS OR MODES OF DISSOLUTION OF FIRM:- There are mainly 2

methods of dissolution of firm.
(A) Dissolution without the order of court, & (B) Dissolution by court.

(A) DISSOLUTION WITHOUT THE ORDER OF COURT (OR VOLUNTARY

DISSOLUTION) :- It may take place in any one of the following ways
(1) Dissolution by Agreement (Section-40):- We know that partnership is
created by an agreement. Similarly, a firm can be dissolved by (mutual consent
of all the partners) or according to a contract between them. When all the
partners agree to dissolve the firm, the firm is dissolved. The agreement to
dissolve the firm may be express or implied.

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(2) Compulsory Dissolution (Section-41): A firm is compulsorily dissolved in
following cases:
(a) When all the partners or all the partners except one are declared
(adjudged) insolvent. When all the partners except one become insolvent, they
do not remain partners. So the firm cannot exist. This is because, for a firm, there
must be at least two competent partners.
(b) When business of the firm becomes unlawful (due to some event), the
firm is compulsorily dissolved.
Example: A and Bare partners. A is resident in India and B is resident in Pakistan.
Now, if war breaks out between India and Pakistan, then partnership will become
unlawful. So it will automatically get dissolved.
However, if partnership is unlawful from its very beginning, then such
partnership is void. So the question of its dissolution does not arise.

(3) Dissolution on happening certain contingencies (Section-42):- A firm is

dissolved on happening of certain contingencies. For instance – A firm is
dissolved by
(a) the expiry of the term, for which the firm was created,
(b) the completion or execution of a particular venture or adventure, for
which it was formed,
(c) by death of a partner, or
(d) by the adjudication of a partner as an insolvent.

(4) Dissolution by notice of partnership-at-will (Section-43):- A partnership

at will can be dissolved by any partner, by giving a written notice (of his
intention to dissolve the firm) to all the partners. In such case, the firm is
dissolved as from the date, which is mentioned in the notice of dissolution.
However, if no date is mentioned, the firm is dissolved from the date of the
communication of the notice.

(B) DISSOLUTION BY THE ORDER OF COURT (OCT-1997):

According to Section-44, in following cases, the court may, at the suit of a
partner, dissolve the
(1) Insanity:- Where a partner becomes of unsound mind, then court may
dissolve firm on petition by any one partner or by next friend of insane
partner.

(2) Permanent incapacity: - Where a partner, other than the suing becomes
permanently incapable of performing his duties as partner, then court may
dissolve firm. However, if there is temporary incapacity, then court will not
dissolve firm.

(3) Misconduct: When there is misconduct on the part of a partner and if it is

likely to be harmful to business, the court may dissolve firm. For instance, if a
partner does gambling on stock exchange or refuses or neglects to attend
the business or takes away books of partnership, etc., then it is misconduct on
the part of partner. In this case, at the suit of any other partners, court may
dissolve the firm.
Example: A & B are partners in a firm. A has adulterous relations with B‘s wife.
This is sufficient ground for compulsory dissolution because such behaviour may
destroy mutual confidence between A & B.

(4) Persistent (continuous) breach of agreement: - Where a partner (other

than the partner suing) intentionally and persistently commits a breach of the
partnership agreement or behaves in such a manner that it is not practically

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possible for the other partners to carry on business of the firm with him, then
at the instance (desire) of any other partners, courts may dissolve firm.
[Thus, if one of the partners keep false account and does not enter the
receipts in the accounts or continuously Quarrels with the other partners, the
mutual confidence is destroyed and court may order dissolution of the firm.]

(5) Transfer of Interest: If a partner transfers his entire interest (i.e. share)
in the firm to third party or if his share has been attached under decree (order
of court) or if it is sold for recovery of the arrears of land revenue, the court
may dissolve the firm at the instance of any other partner.

(6) Business working at loss: When a firm is continuously incurring losses

and when there is no hope of recovery, the court may dissolve firm, at the
suit of any partner.

(7) Any other ground (Just and equitable):

The court may dissolve the firm on any ground, which is just and equitable for
dissolution of firm.

Q.8. Discuss the rights and duties of a partner.

A.8. RIGHTS OF A PARTNER:- Following are the rights of partners:
(1) Right to take part in business:
- Every partners has a right to take part in the conduct of the business,
because partnership business is the common business of all the partners.
- If a partner neglects or refuses to perform his duties, and if other partners
perform his duties, they have a right to et compensation (Krishnamachariar V.
Sankara)
(2) Right to be Consulted:-
- Every partner has a right to be consulted, while taking any decision.
- When there is difference of opinion among the partners in the ordinary
matters, it should be decided by the majority of the partners. But, in case of
important matters of business, decision can be taken only after the consent of
all the partners. e.g. the nature or place of business can not be changed without
the consent of all the partners.
(3) Right to access to accounts:
- Every partner has a right to have access to, inspect and copy any of the
books of the firm.
- But, a minor can access and inspect any of the accounts of the firm, but not
books.
(4) Right to Share Profit: In absence of any agreement, every partner has a right
to share the profit equally. Similarly he is also liable to share the losses
equally.
(5) Right to interest on Capital :-
- If there is a provision regarding payment of interest on capital in the
agreement, every partner can claim interest on capital.
- But such interest is payable only out of profit of the firm.
(6) Right to interest on Advances:-
- When a partner has given advances to firm (in addition to capital), he has a
right to get interest on advances at the rate of 6% P.a.
- Such interest is payable out of the profit of business as well as from the
assets of firm also.
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(7) Right to be indemnified:-
- In emergency, a partner has authority to do all the acts, which are
necessary to protect the firm from loss.
- Now, while performing such acts, if a partner has incurred any liability or
made any payment, he has a right to be indemnified (to recover the amount of
loss from the firm)

(8) Right to the use of partnership Property :-

- Every partner has a right to use the partnership property only for the purpose
of the business of the firm & not for private (individual) purpose.
- If he uses the properly for his private purpose and earns profit, he must
surrender the profit to the firm.

(9) Right to Partner as agent of the firm:-

Every partner is an agent of the firm. So, he has a right to bind the firm by his
acts.

(10) No new partners to be introduced:

Every partner has a right to prevent entry of new partner (unless he consents
or there is express term in the contract permitting such entry). This is because,
partnership is based on mutual trust and confidence.

(11) No liability before joining:- When a person becomes a partner in the firm, he is
not liable for any act of the firm, before he became a partner.

(12) Right to Retire: A partner has a right to retire in any of the following manner:
- With the consent of all other partners, or
- in accordance with express agreement between the partners, or
- by giving notice of his intention to retire, to all other partners, in case of
partnership at will.

(13) Right not to be expelled: A partner can not be removed from the firm even
by majority of the partners.
(14) Right of Outgoing partner to share in the subsequent profit:
In case of death, or retirement, or expulsion or insolvency of a partner, the
surviving or continuing partner may continue the business, without making
final settlement of accounts. In this case, the outgoing partner has two
options:
(a) He can claim a share of profit, in the proportion of his share in the property
of the firm, or
(b) He can claim interest of 6% p.a. on the amount of his share in the
property of the firm.

 DUTIES OF A PARTNER:-
Partnership is a contract of uberrimae fidei‖. This means, the partners must
act with utmost good faith (honestly). This is because, mutual trust and
confidence are the basis of partnership.
Following are the duties of partners:
(1) To Carry on Business to the greatest Common Advantage: It is a duty of
every partner to carry on the business for the common advantage of the firm.
He should not take any personal advantage at the cost of the firm.

(2) To Observe Faith: Every partner must observe utmost good faith towards
other partners. This means, he should not obtain any private benefit at the
expense of the firm.
THE INDIAN PARTNERSHIP ACT, 1932 11
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(3) To Indemnify for Fraud: If there is any loss to the firm due to fraud by any
partner in the conduct of business, then it is a duty of the partner to indemnify (to
compensate) the firm.

(4) To Attend Diligently (To Atten Duties Honestly): It is the duty of every
partner.
- to attend his duties diligently in the conduct of the business, and
- to use his knowledge and skill for the common advantage of all the partners.

(5) Not to Claim Remuneration: Usually it is a duty of every partner not to claim
any remuneration for conducting the business of the firm. (however, remuneration
may given to the working partners if there is a specific agreement).

(6) To Share Losses: It is the duty of every partner to share the losses of the firm
in an agreed ratio.

(7) To Indemnify for willful Neglect: If there is any loss to the firm, due to the
willful neglect of the partner in the conduct of business of the firm, it is the
duty of the partner to indemnify (to compensate the loss) to the firm.

(8) To Hold and Use Property of the Firm exclusively for the Firm: It is the
duty of every partner to hold and use the property of the firm exclusive for the
purposes of the business of the firm.

(9) To Account for Personal Profits: If a partner receives any benefits or profit
from the partnership transactions, without the consent of the other partners,
he must pay the profit to the firm.

(10) To Account for Profit in Competing Business: A partner must not carry on
any business of the same nature (which is competing with the business of the
firm). If he does that and earns profit, he must pay this profit to the firm.

(11) To Act within Authority: It is the duty of every partner to act within his
authority. If he does any act beyond his authority and if the firm suffers
loss, he has to compensate the firm (for the loss of suffered).

(12) To be liable Jointly and Severally: Every partner is jointly and severally
liable for all the acts of the firm done while he is a partner.

(13) Not to Assign His Rights: A partner cannot assign his rights and interest in
the firm to an outsiders.


THE INDIAN PARTNERSHIP ACT, 1932 12