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Unit Iv Partnership Act (Contract Act Ii)
Unit Iv Partnership Act (Contract Act Ii)
Introduction
Eligibility
Individual
Firm
Trustees
Number of partners
ESSENTIALS OF PARTNERSHIP
(5) The business must be carried on by all or any of them acting for
all (i.e., there must be mutual agency).
1. Contract:
3. Carrying on of business:
But if a number of articles are purchased at one time and the sales
are to go on, profits are to be realised and are to be divided amongst
a number of persons, there is a carrying on of business.
4. Sharing of profits:
The Act, therefore, does not seek to make agreement to share losses
a test of the existence of partnership. Section 13(6), however,
provides that the partners are entitled to share equally in the profits
earned, and shall contribute equally to the losses sustained by the
firm, unless otherwise agreed.
It must be noted that even though a partner may not share in the
losses of the business, yet his liability vis-a-vis outsiders shall be
unlimited because there cannot be ‘limited partnerships’ in our
country under the Partnership Act.
5. Mutual agency:
Thus every partner is both an agent and principal for himself and
other partners, i.e. he can bind by his acts the other partners and
can be bound by the acts of other partners in the ordinary course of
business.
The importance of the element of mutual agency lies in the fact that
it enables every partner to carry on the business on behalf of others.
Partners may agree among themselves that some one of them shall
not enter into any contracts on behalf of the firm, but by virtue of
the principle of mutual agency, such partner can bind the firm vis-a-
vis third parties without notice in contracts made according to the
ordinary usage of trade.
Every partner in trade is, for the ordinary purposes of the trade, the
agent of his co-partners; all are therefore liable for the ordinary
trade contract of the other. The public have a right to assume that
every partner has authority from his co-partners to bind the whole
firm in contracts made according to the ordinary usage of trade.”
2 – Discuss different kinds of partnerships and partners.
Kinds of Partnership:
1. General Partnership:
Under General Partnership, every partner has the right to take part
in the management of the business of the firm. In India all the
partnership firms are formed in this form.
General Partnership can be further divided into two types i.e. (i)
Partnership at Will, and (ii) Particular Partnership. These are
explained as under:
2. Limited Partnership:
Such types of partnerships are not permissible in India, but they are
quite common in U.S.A. and England. The partners having limited
liability in the firm is known as special partner and others having
unlimited liability is called general partner.
Active Partner:
Partner who takes an active part in the management of the business
is called active partner. He may also be called 'actual' or 'ostensible'
partner. He is an agent of the other partners in the ordinary course
of business of the firm and considered a full fledged partner in the
real sense of the term.
A sleeping or dormant partner is one who does not take any active
part in the management of the business. He contributes capital and
shares the profits which are usually less than that of the active
partners. He is liable for all the debts of the firm but his relationship
with the firm is not disclosed to the general public.
Nominal Partner:
A partner who simply lends his name to the firm is called nominal
partner. He neither contributes any capital nor shares in the profits
or take part the management of the business. But he is liable to
third parties like other partners. A nominal partner must be
distinguished from the sleeping partner. While the nominal partner
is known to the outsiders and does not share in the profits, the
sleeping partner shares in the profit and his relationship is kept
secret.
Partner in Profits:
A partner who shares in the profits only without being liable of the
losses is known as partner in profits. He does not take part in the
management of the business but he is liable to third parties for all
the debts of the firm.
Sub-partner:
When stranger shares the profits derived from the firm by a partner
he is regarded as a sub-partner. A sub-partner is in no way
connected with the firm or he is not a partner of the firm. He is
simply a partners' partner. Therefore, he has no rights again the firm
nor he is liable for the debts of the firm. He only shares profits from
a partner.
Merits of Partnership
1. Ease of formation:
The skill and experience of all the partners are pooled together.
Combined judgment of several persons helps reduce errors of
judgment.
4. Direct motivation:
5. Close supervision:
6. Flexibility of operations:
7. Secrecy:
9. Cooperation:
Demerits of Partnership
1. Unlimited liability:
Every partner is jointly and severally liable for the entire debts of the
firm. He has to suffer not only for his own mistakes but also for the
lapses and dishonesty of other partners.
2. Limited resources:
4. Lack of harmony:
5. Lack of continuity:
Rights of a Minor
A person who is a minor according to the law to which he is subject
may not be a partner in a firm, but, with the consent of all the
partners for the time being, he may be admitted to the benefits of
partnership.
Such minor has a right to such share of the property and of the
profits of the firm as may be agreed upon, and he may have access
to and inspect accounts of the firm.
Such minor's share is liable for the acts of the firm, but the minor is
not personally liable for any such act.
Such minor may not sue the partners for an account or payment of
his share of the property or profits of the firm.
his share shall not be liable for any acts of the firm done after the
date of the notice, and
He shall be entitled to sue the partners for his share of the property
and profits.
1. Number of members:
2. Agreement:
3. Registration:
4. Capital:
5. Management:
6. Secrecy:
7. Risk:
8. Continuity:
9. Sharing of profits:
Restriction as to Name
(iii) Names of other places where the firm's business is carried on.
(i) The right of a partner to sue for the dissolution of the firm or for
the accounts of a dissolved firm or to enforce any right or power to
realize the property of a dissolved firm.
(iv) Any suit or set off in which the claim does not exceed rupees one
hundred.
(v) The right of a third party to sue the unregistered firm or its
partners.
Dissolution of a firm
When the relation between all the partners of the firm comes to an
end, this is called dissolution of the firm. Section 39 of the Indian
Partnership Act, provides that “the dissolution of the partnership
between all the partners of a firm is called the dissolution of a firm.”
It implies the complete breakdown of the relation of partnership
between all the partners.
Dissolution by Court
Dissolution by agreement
Dissolution by operation of law
Dissolution on the happening of certain contingencies
Dissolution by notice
DISSOLUTION BY COURT
The court may dissolve a firm at the suit of any partners on any of
the following grounds namely:
Loss: that the business of the firm cannot be carried on save at a loss
DISSOLUTION BY AGREEMENT
Insolvency of partners
By the happening of any event which makes it unlawful for the
business of the firm to be carried on.
DISSOLUTION BY NOTICE
In such a case, the dissolution takes place with effect from the date
mentioned in the notice. If no date is mentioned, the firm would be
dissolved with effect from the date of receipt of the notice by other
partners.
In case the assets of the firm are more than sufficient to meet the
liabilities in full, then the surplus may be utilized to pay off the loans
and capitals contributed by the partners.
(a) First, in paying off the debts of the firm due to third parties;
(b) Then in paying to each partner ratably any advances or loans
given by him in addition to or apart from his capital contribution;
(c) If any surplus is available after discharging the above liabilities,
the capital contributed by the partners may be returned, if possible,
in full or otherwise ratably;
(d) The surplus, if any, shall be divided among the partners in their
profit-sharing ratios.