1 PARTNERSHIP ACT, 1932

1.1 Laws Regulating Partnership in Pakistan

Apart from the Partnership Act of 1932, there are other laws and regulations in Pakistan that
impact partnerships. Some of these laws include:

1.1.1 Contract Act, 1872: This act governs contracts in Pakistan, including
partnership contracts. It sets out the requirements for contract formation,
the rights and obligations of the parties to a contract, and the remedies
available for breach of contract.
1.1.2 Income Tax Ordinance, 2001: This ordinance regulates the taxation of
partnerships in Pakistan. It sets out the rules for calculating partnership
income, the tax rates applicable to partnerships, and the filing and reporting
requirements for partnerships.
1.1.3 Securities and Exchange Commission of Pakistan Act, 1997: This act
establishes the Securities and Exchange Commission of Pakistan, which
regulates securities and financial markets in Pakistan. Partnerships that
issue securities or engage in other regulated activities may be subject to the
rules and regulations of the commission.
1.1.4 Labor laws: There are various laws in Pakistan that govern employment
relationships, including the Industrial Relations Act, 2012 and the
Minimum Wages for Unskilled Workers Ordinance, 1969. Partnerships that
employ workers in Pakistan must comply with these laws.

1.2 History
The Contract Act gave birth to the Partnership Act. Initially the law of Partnership was a part of
Contract Act. It was contained in its chapter XI. As part of the Contract Act, rules on partnership
were spread over 28 sections (239 to 266). Later on when Partnership was enacted as a separate
law, it was expanded to contain 74 sections. The law governing the Partnerships is closely linked
with the law on Contracts. The words and expressions of partnership Act borrowed from the
Contract Act. Section 2 of the Partnership Act deals with definitions. After defining two words
and two expressions this section refers to the Contract Act for the definition of remaining words
and expressions used in the Partnership Act. The Special law prevails over the General Law so
the Partnership Act is a special law dealing with particular subject of partnership contracts,
whereas Contract Law is the general law.

1.3 Scope
The scope of the Partnership Act.in Pakistan is broad and covers all aspects of partnerships, from
their formation to their dissolution. It provide a comprehensive legal framework that governs the
formation, operation, and dissolution of partnerships in Pakistan. It outlines the rights, duties,
and liabilities of partners, as well as the procedures for resolving disputes and winding up
partnerships. The act applies to all types of partnerships, including general and limited
partnerships, and provides a clear legal structure that business owners can use to ensure that their
partnerships are in compliance with the law. The scope of partnership Act, 1932 cover following
areas,
 1.3.1 Formation of Partnerships: The act provides guidelines for the formation
of partnerships, including the requirements for registration and the
obligations of partners.
1.3.2 Rights and Duties of Partners: The act outlines the rights and duties of
partners, including their obligations to each other and to the partnership.
1.3.3 Management of Partnerships: The act specifies the rules for the
management of partnerships, including the authority of partners, the
conduct of meetings, and the keeping of accounts.
1.3.4 Dissolution of Partnerships: The act sets out the rules for the dissolution of
partnerships, including the procedures for winding up the partnership and
distributing its assets.
1.3.5 Legal Liability: The act defines the legal liability of partners, including
their joint and several liabilities for the debts and obligations of the
partnership.
1.3.6 Registration of Partnerships: The act requires partnerships to be registered
with the Registrar of Firms to ensure compliance with the law.
1.4 Development
 The Partnership Act was first introduced in British India in 1932 as a means of governing
partnerships in the region. At the time, Pakistan was still part of British India. After the
partition of India in 1947, Pakistan became an independent country with its own legal
system. The Partnership Act was adapted to apply to Pakistan and was renamed the
Partnership Act, 1932 (Pakistan).
 Over the years, the Partnership Act was amended several times to keep pace with the
changing business environment in Pakistan. These amendments were made through
legislative changes by the government. In 2008, the government of Pakistan decided to
undertake a comprehensive review of the Partnership Act to see if it needed to be updated
or revised. This review was conducted by a committee of legal experts, business owners,
and other stakeholders. Based on the recommendations of the committee, several changes
were made to the Partnership Act in 2017. These changes were approved by the National
Assembly of Pakistan and came into effect on June 1, 2018.
 The updated Partnership Act introduced several new provisions, including the
requirement for partners to disclose their National Tax Number (NTN), the introduction
of new provisions related to the registration of partnerships, and the clarification of the
rights, duties, and liabilities of partners. The Partnership Act continues to be the primary
law governing partnerships in Pakistan and is regularly reviewed and updated to reflect
the changing needs of the business community.
 1.5 Necessity
The Partnership Act in Pakistan was introduced to provide a legal framework that
governs the formation and operation of partnerships in the country. The following are
some of the reasons why there was a need for this act,
1.5.1 Promoting transparency and accountability: The Partnership Act promotes
transparency and accountability in the conduct of partnerships by setting
out clear rules and regulations that partners must follow.
1.5.2 Defining the rights and obligations of partners: The act outlines the rights
and duties of partners, including their obligations to each other and to the
partnership. This helps to ensure that all partners are aware of their
responsibilities and that there is clear communication within the
partnership.
1.5.3 Ensuring protection of partner's interests: The act provides legal
protections for the interests of partners, including their right to share in the
profits of the partnership, their right to be involved in the management of
the partnership, and their right to be kept informed about the partnership's
activities.
1.5.4 Facilitating dispute resolution: The Partnership Act provides a framework
for resolving disputes between partners and for the dissolution of
partnerships. This helps to ensure that disputes are resolved in a fair and
equitable manner and that partners have a clear understanding of the
process for dissolving a partnership.
1.6 Advantages and disadvantages
The Partnership Act in Pakistan has several advantages and disadvantages. Here are some of
them:

1.6.1 Advantages:
 Clarity: The Partnership Act provides a clear legal framework for the formation and
operation of partnerships in Pakistan. This helps to ensure that partners are aware of their
rights and obligations, and that there is clear communication within the partnership.
 Protection: The act provides legal protections for partners, including their right to share in
the profits of the partnership, their right to be involved in the management of the
partnership, and their right to be kept informed about the partnership's activities. This
helps to ensure that partners are treated fairly and that their interests are protected.

 Dispute Resolution: The Partnership Act provides a framework for resolving disputes
between partners and for the dissolution of partnerships. This helps to ensure that
disputes are resolved in a fair and equitable manner and that partners have a clear
understanding of the process for dissolving a partnership.

 Business Stability: The Partnership Act helps to promote a stable and predictable
business environment by providing a clear legal framework for the operation of
partnerships. This can help to encourage investment and growth in the business
community.

1.6.2 Disadvantages:
 Lack of Flexibility: The Partnership Act provides a rigid legal framework that may not be
suitable for all partnerships. Partners may find that the act does not allow for the
flexibility they need to operate their partnership in the way they see fit.

 Legal Obligations: The Partnership Act imposes legal obligations on partners that they
may not be aware of or fully understand. This can lead to legal issues and disputes
between partners.

 Registration Requirements: The Partnership Act requires partnerships to be registered

with the Registrar of Firms. This can be a process of time-consuming and costly for
partners.

 Liability: Partners in a partnership are jointly and severally liable for the debts and
obligations of the partnership. This means that partners may be personally liable for the
actions of other partners, which can be a significant risk