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Kumar Shekhar Azad Abhishek Verma Ankur Jaiswal Shailesh Kumar Yadav Vishal Prakash
(MBA 4th Sem 2008-10)
DEFINITION AND NATURE OF PARTNERSHIP
Section 4 of the Indian Partnership Act, 1932 defines Partnership as the relation between persons who have agreed to share the profits of a business carried on by all or anyone of them acting for all.” The persons who enter into such relationship are called „PARTNERS‟
Implied or Express (Oral or Written) Must carry on some business Trade. limit : 10 for banking. 20 for other business Result of an agreement Partnership relation based on Contract. Occupation or Profession Share profits of the business Business is carried on by all or any one of them acting for all (mutual agency) .ESSENTIAL ELEMENTS OF PARTNERSHIP Association of two or more persons Max.
” Thus all incidents of relations of the partnership are to be examined as shown in written agreement. regard shall be had to the real relation between the parties. verbal agreement or conduct. as shown by all relevant facts taken together. . EExample AA & B jointly buy a mine and lease it out. They make a partnership agreement that they will divide the lease rent in a ratio of 50:50 between themselves. In this case A&B are having understanding that they are partners but in the eyes of law it is not partnership.TEST OF PARTNERSHIP SSec 6 of the Act provides that “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.
FIRM AND FIRM NAME The persons who enter into such relationship are called „PARTNERS‟ Name under which the business is carried on Any name Should not be a name already adopted by a reputed firm. approval or patronage of Government . Emperor. Empire.PARTNERS. King. to mislead public Should not contain words : Crown. Imperial or words expressing or implying the sanction. Queen. Royal.
FORMATION OF PARTNERSHIP .
MODE OF CREATING PARTNERSHIP Based on agreement Agreement may be express or implied In Writing : helpful in times of adversity Written agreement : “Partnership Deed” Essence of Partnership : Trust & Confidence Drafted with care and signed by all partners Stamped in accordance with Indian Stamp Act Firm should be registered and copy of the Deed to be filed with the Registrar .
In case of dispute which course of action shall be followed e. . their salary. 7. Method and arrangement of keeping accounts 8. Rules as to interest on loans and capital. The partnership deed must contain the following clauses:1. etc. 11. Division of task and obligation of partners 9.PARTNERSHIP DEED A partnership agreement put to writing is termed as the „Partnership deed‟. 2. Whether a partner is allowed to carry competing business. Name and address of the firm and nature of business to be carried on. The ratio to share profit and losses amongst the partners. 5. The capital and any other contribution made by partners.g. Name and address of the partners 3. Court. 6. commission. retirement or death of a partner. arbitrations etc. The circumstances under which the partnership will stand dissolved. Date of commencement and duration of partnership 4. 12. Rules to be followed in case of admission. 10.
TYPES OF PARTNERSHIPS Partnership at Will No provision in contract between the partners for Duration of Partnership Determination of Partnership If any partner gives notice of dissolution in writing. the partnership is dissolved .
On completion of such a venture. Partnership for a Fixed Term Duration is fixed Partnership comes to an end when the term expires. Particular Partnership A person may become a partner with another person in particular adventures or undertakings. it becomes partnership at will. the partnership comes to an end. If Partners continue the business after the fixed period. .
Not required to give notice in case of retirement .CLASSES OF PARTNERS Actual or Active Partner Engaged in actual conduct of the business His acts binds the firm and other partners Notice to be given in case of retirement Sleeping or Dormant Partner Does not take part in the conduct of business Contributes his share of capital and enjoys profits and losses Not known to outside world Not liable to third parties for the acts of the firm.
Lends his name only No share in profits but liable to third parties for all acts of the firm Partner in Profits only Shares the profits but not losses No interest in the management of the firm Liability for the acts of the firm is unlimited . Does not contribute any capital. Nominal Partners No real interest in business.
he is also liable to third parties Deceased partner is an exception to this rule. . If a partner does not give public notice and his name is still used in the business. Sub -Partner Partner by Estoppel or Holding Out Represents himself as a Partner. by words spoken or written or by conduct Liable as a partner if credit is given to the firm based on his representation. He cannot deny.
ceases to be a partner from date on which order was passed by court .POSITIONS Lunatic : cannot become a partner Alien Enemy : cannot become a partner Alien Friend : can enter into contract Woman : Married or Unmarried can be a partner Insolvent : Cannot become a partner.
POSITION OF MINOR AS A PARTNER It is said that minor is not capable of entering into a contract so an agreement by or with a minor is said to be void.“with the consent of all the partners for the time being .a minor may be admitted to the benefits of partnership.a minor cannot enter into a partnership agreement. As per section30 of the Indian partnership act 1932.” . On the basis of general rule that minor cannot be a promisor but can be a promisee or a beneficiary. Since partnership is formed by an agreement .
a minor has a right to share of the property and of the profits of the firm.a minor has a right to elect to become a partner on attaining majority. To Elect To Become A Partner . To Sue . 4. 2. 3. To Share Profit.a minor partner may have access to and inspect and copy any of the accounts of the firm. .RIGHTS OF A MINOR 1. To Have Access To Accounts .minor has a right to sue the partners of the firm for payment of his share of the property or profit of the firms.
8000 paid by him. To secure a loan of Rs. It is well explained by the following case : A minor mortgaged his house in favor of a moneylender. The privy council held that a minor‟s agreement was void hence the question of refunding money wont arise.MOHRI BIBI VS DHARMODAS GHOSH An agreement with a minor is void. the moneylender advanced a part of the amount Rs. Where else the moneylender pleaded for refund of the sum of Rs. the minor sued for cancellation of the mortgage on the plea that he was a minor when he executed the contract. Subsequently.8000 to the minor. . 20000. It does not create any legal rights and obligation .
REGISTRATION OF FIRMS .
REGISTRATION OF FIRMS Time of registration Procedure of registration .
and shall file the statement. he shall record an entry of the statement in a register called the Register of Firms.REGISTRA TION OF PARTNERSHIPFIRMS U/S . .59A When the Registrar is satisfied that the provisions of section 58 have been duly complied with.
STEPS OF REGISTRATION
1. Obtain a statement in the prescribed form
2. Fill in the form with requested details
3. Verification and signed by partners
4. File the statement with prescribed fees with registrar of firms 5. Obtain certificate from registrar
EFFECT OF NON-REGISTRATION (SEC 69)
No suit in civil court by a partner against the firm or other copartner. No suit in a civil court by firm against third parties. The firm or its partners can not make a claim of set-off or other proceeding based upon a contract.
PROPERTY OF THE FIRM
Joint property of all the partners as opposed to their personal property Property includes
Originally brought into firm by partners Acquired by the firm Acquired by one or more partners for the purpose of business Goodwill of the firm
To be held and used by all partners for the purpose of business (not for private use)
2008 came into effect from 31st March 2009. . LLP: A corporate business vehicle that enables professional expertise and entrepreneurial initiative to combine and operate in flexible. providing benefits of limited liability while allowing its members the flexibility for organizing their internal structure as a partnership.LIMITED LIABILITY PARTNERSHIP Limited Liability Partnership Act. innovative and efficient manner.
LLP has separate Legal Entity Liability of the partners limited to their agreed contribution Not liable for the independent or un-authorized actions of other partners Perpetual succession Indian Partnership Act. 1932 not applicable No maximum limit of members.register and control LLPs. one partner should be Indian Registrar of Companies . .
RIGHTS AND DUTIES OF PARTNERS .
DUTIES OF PARTNERS-----------1. 3. .Duty to indemnity for loss caused by fraud(section 10) Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm.General duties of Partners(section 9)Partners are bounda) To carry on the business of the firm to the greatest common advantage.To indemnify the firm for his willful neglect(section(13f)) It is the duty of partner of firm that he shall indemnify the firm for any loss caused to it by his willfull neglect in the conduct of the business of the firm. 2.Agreement to restraint of trade(section 11(2)) If restrained by an agreement with other partners . 4. c) And to render true accounts and full information of all things affecting the firm to any partner or his legal representative. b) To be just and faithful to each other.a partner has a duty not to carry on any business other than that of the firm while he is a partner.
Attend diligently to his duty (section 12b) Every partner is bound to attend diligently to his duties in the conduct of the business. 8..CONTINUED. 6. he shall account for any pay to firmall profits made by him in that business. . 5.Duties without any remuneration(sec.16a) Every partner of the firm is under a duty to use the property of the firm only for the purpose of business of the firm.13a) It is the duty of partners to attend diligently to his duties in the conduct of the firm‟s business without any remuneration. 7..Duty not to compete(sec.16b) It is the duty of the partners not to carry on business similar to or in competition with the business of the firm and if any partner does any such business .Firm’s property proper use(sec.
under similar circumstances. 3. . 2.Right to indemnify(sec13e) The firm shall indemnify a partner in respect of payment made and liabilities incurred by him--a) In the ordinary and proper conduct of the business and b) In doing such act in an emergency for the purpose of protecting the firm loss as would be done by a person of ordinary prudence.Right to take in business(sec12a) Every partner has a right to take part in the conduct of the business.Access to Books(sec.in his own case.RIGHTS OF PARTNERS-----------1.12b) Every partner has a right to have access to and to inspact and copy any of the books of the firm.12c) Every partner has a right to express his opinion on any matter but in case of any difference arising as to ordinary matters related to the business he is bound by majority decision. 4.Majority Rights(sec.
13a) When a partner has advanced some money beyond the amount of capital that he agreed to subscribe for promoting the business of firm ..13a) Agreement of partnershipmay provide remuneration to working partner.Right to profits(sec. 6. he is entitled to claim intrestat the rate of 6%per annum.Right to remuneration(sec.Right to interest (sec.. .13b &c) If there is no otherwise agreement every partners is entitled to share equally in the profit earned by the firm. 7.CONTINUED. 5.
the mutual rights and duties will remain the same . 2.rights and duties of the partner remains the same. the mutual rights and duties will remain the same where a firm carried out other adventures or undertaking which was previously constituted for one or more adventures.Change in the constitution of the firm. Where a firm constituted for a fixed term but continues to carryon business after the expiry of the term . 3.Where additional undertakings are carried out.After expiry of term. but only in so far as they are consistent with a partnership at will.RIGHTS AND DUTIES OF PARTNERS AFTER THE EXPIRY OF PARTNERSHIP 1. . Where a change occur in the constitution of the firm.
RIGHTS AND DUTIES OF MINORS a)The minor has the right to receive his agreed share of the property and of the profits of the firm. c)He is not personally liable for any act of the firm during his minority. b)He may have access to and inspect and copy any of the account of the firm. . d)On attaining majority it is depend upon him to decide that he shall remain in the firm or leave it within the period of six months.
INCOMING AND OUTGOING PARTNERS .
• • (1) Subject to contract between the partners and to the provisions of section 30. no person shall be introduced as a partner into a firm without the consent of all the existing partners. . a person who is introduced as a partner into a firm does not thereby become liable for any act of the firm done before he became a partner. (2) Subject to the provisions of section 80.SECTION31 INTRODUCTION OF A PARTNER.
or (c) where the partnership is at will. (b) in accordance with an express agreement by the partners. by giving notice in writing to all the other partners of his intention to retire.SECTION32 RETIREMENT OF A PARTNER. . (1) A partner may retire – (a) with the consent of all the otter partners.
. and such agreement may be implied by a course of dealing between such third party and the reconstituted firm after he had knowledge of the retirement.SECTION32 RETIREMENT OF A PARTNER (CONT…) (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 with such third party and the partners of the reconstituted firm.
(4) Notices under sub-section (3) may be given by the retired partner or by any partner of the reconstituted firm. . he and the partners continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement.SECTION32 RETIREMENT OF A PARTNER (CONT…) • • (3) Notwithstanding the retirement of a partner from a firm. until public notice is given of the retirement Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a party.
.SECTION33 EXPULSION OF A PARTNER. (2) The provisions of sub-sections (2). (1) A partner may not be expelled from a firm by any majority of the partners. save in the exercise in good faith or powers conferred by contract between the partners. (3) and (4) of section 32 shall apply to an expelled partner as if he were a retired partner.
(2) Where under a contract between the partners the firm is not dissolved by the adjudication of a partner as an insolvent. he ceases to be a partner on the date on which the order of adjudication is made.SECTION34 INSOLVENCY OF A PARTNER. done after the date on which the order of adjudication is made. • • (1) Where a partner in a firm is adjudicated an insolvent. . whether or not the firm is thereby dissolved. the estate of a partner so adjudicated is not liable for any act of the firm and the firm is not liable for any act of the insolvent.
Where under a contract between the partners the firm is not dissolved by the death of a partner. . the estate of a deceased partner is not liable for any act of the firm done after his death.SECTION35 LIABILITY OF ESTATE OF DECEASED PARTNER.
(1) An outgoing partner may carry on a business competing with that of the firm and he may advertise such business. . or (c) solicit the custom of persons who were dealing with the firm before he ceased to be a partner. (b) represent himself as carrying on the business of the firm. to contract to the contrary. he may not – – – (a) use the firm-name. but subject.SECTION36 RIGHTS OF OUTGOING PARTNER TO CARRY ON COMPETING BUSINESS.
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 .SECTION36 (CONT…) (2) AGREEMENT IN RESTRAINT OF TRADE. notwithstanding anything contained in section 27 of the Indian Contract Act. and. 1872.
SECTION37 RIGHT OF OUTGOING PARTNER IN CERTAIN CASES TO SHARE SUBSEQUENT PROFITS. in the absence of a contract to the contrary. then. Where any member of a firm has died or otherwise ceased to be a partner. per annum on the amount of his share in the property of the firm : . and the surviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate. the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profits made since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent.
but if any partner assuming to act in exercise of the option does not in all material respects comply with the terms thereof. or the outgoing partner of his estate. .Provided that where by contract between the partners an option is given to surviving or continuing partners to purchase the interest of a deceased or outgoing partner. is not entitled to any further or other share of profits.……. as the case may be. the estate of the deceased partner. and that option is duly exercised. he is liable to account under the foregoing provisions of this section.
SECTION38 REVOCATION OF CONTINUING GUARANTEE BY CHANGE IN FIRM. . A continuing guarantee given to a firm. revoked as to future transactions from the date of any change in the constitution of the firm. or to a third party in respect of the transactions of a firm. is in the absence of agreement to the contrary.
Example: X. 1932. The partnership between X. Thus this new partnership is called ‘reconstituted firm.Y & Z comes to an end and new partnership between Y & Z comes into existence. Under the Indian Partnership Act. Dissolution of a Partnership: Dissolution of partnership refers to the change in the existing relations of the partners. The firm continues its business after being reconstituted. the dissolution may be either of Partnership or of a Firm.MEANING OF DISSOLUTION The term ‘dissolution’ stands for discontinuation.Y & Z are partners in a firm. X retires.’ .
DISSOLUTION OF A FIRM This means the dissolution of partnership between all the partners of a firm. Does not continues under the firm’s name. In such a condition the business of a firm is discontinued. Realization a/c is prepared. Dissolution of Partnership Old Partnership ends & new Partnership starts. Revaluation Vs Realization . Revaluation a/c is prepared. Dissolution of firm Old partnership ends but no new partnership starts. Basis of Distinction Termination of old Partnership Name of the firm The business continues under the firm’s name.
By Agreement (Sec 40). Dissolution by consent applies to all cases whether the firm is for a fix period or at will. 2.A firm may be dissolved in accordance with a contract between the partners. The consent of all the partners may be expressed or it may be inferred from the conduct of other circumstances. Thus if the agreement provides the right then a partner or partners can dissolve the firm in certain events.MODES OF DISSOLUTION 1.A firm may at any time be dissolve with the consent of all the partners. The contract providing for dissolution may be contained in the partnership deed itself or in a separate agreement. By Consent (Sec 40). .
b) If the firm is constituted to carry out one or more adventures or undertakings. Because there must be at least two partners competent to carry on the business. Contingent Dissolution(Sec 42). on the expiry of that term. . Compulsory Dissolution(Sec 41)a) Insolvency of partners. then a firm may be dissolved on the happening of any of following contingencies— a) If the firm is constituted for a fixed term.3.When some event has happened which makes it unlawful for the business to be carried on in partnership. b) Business becomes unlawful.If all or all but one of the partners are adjudicated as insolvent. when they are complete.When there is no contract to the country. 4.
5) By Notice(Sec 43) 6) Dissolution By Court(Sec 44) a. Transfer of Interest f. Wilful & Persistent breach of agreement e.c) By the death of a partner. Just and Equitable . When business cannot be carried on save at a loss g. Permanent Incapability c. d) By the adjudication of a partner as an insolvent. Partner unsound mind b. Misconduct affecting the Business d.
To have the surplus distributed amongst the partners. Right of Partners to have business wind up after Dissolution (Sec 46) Sec 46 says that every partner or his representative has a right against the other partner i. . the partners will continue to be liable to third party for their acts.CONSEQUENCES OF DISSOLUTION Public Notice and Liability for acts done after Dissolution (Sec45) Despite the dissolution of the form. if done before its dissolution until public notice is given that the firm is dissolved. and ii. To have the property of firm applied in payments of the debts and liabilities.
. First. Losses. as to payments losses.MODE OF SETTLEMENT OF A/C (SEC 48) Sec 48 lays down two fundamental principles relating to the mode of settlement of a/c. next out of capital. by the partners individually in the proportion in which they were entitled to share profit. shall be paid first out of profits. and Second. and lastly. as to application of assets. including deficiencies of capital. if necessary.
of the firm. The separate property of any partner shall be applied first in the payment of his separate debts. the property of the firm shall be applied in the first instance in payment of the debts of the firm. and if there is any surplus. and the surplus (if any) in the payments of the debts. then the share of each partner shall be applied in payments of his separate debts or paid to him.PAYMENT OF PARTNERSHIP DEBT (SEC 49) Where there are joint debts due from. the firm and also separate debts due from any partner. .
But where a partner or his representative has bought the goodwill of the. name or business connections. . Liability to share personal profits(Sec 50)If a partner. he will not be bound to share profits earned by use of the firm’s name. he must share it with the other partners and the legal representative of the deceased partners under the principal of sec 16(a). earns any profit from any transaction connected with the firm or from any use by him of the firm's property. after dissolution and before the affairs of the partnership are wound up.
REFUND OF PREMIUM (51 & 52) Where some one is admitted in to an established firm for a fixed term as a partner and paid a some of money to the old as a premium for admission. The dissolution is due to death of partner. It is a kind of compensation to the old partners for the goodwill they have created and of which the new partner will enjoy the benefit. or To his own misconduct. new partner shall be entitled to repayment of the premium or of such part there of as may be reasonable unless. or The dissolution is in pursuance of an agreement containing no provision for the return of the premium or any part of it. . If after the premium is paid the firm is dissolved before the expiration of that term.
. nothing in this section shall affect his right to use the firm name.RIGHT TO RESTRAIN FROM USE OF FIRM NAME OR FIRM PROPERTY (SEC 53) After a firm is dissolved. Provided that where any partner or his representative has brought the goodwill of the firm. until the affairs of the firm have been wound up. every partner or his representative may in the absence of a contract between the partners to the contrary restrain any other partner or his representative from carrying on a similar business in the firm name or from using any of the property of the firm for his own benefit.
. upon or in anticipation of the dissolution of the firm.AGREEMENT IN RESTRAINT OF TRADE(SEC 54) i. and The restriction imposed is reasonable This constitutes an necessary exception to the general rule contained in sec 27 of the contract Act which renders agreements in restraint of trade void. The agreement shall be validIf it specifies the period or local limits of restraint. ii. make an agreement that some or all of them will not carry on a business similar to that of the firm. Partner may.
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