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Essentials, Rights and Duties

of Partners, Settlement of
Partnership is the most common form of
organization . Law relating to partnership is
governed by the Indian Partnership Act, 1932
(the Act). it extends to the whole of India except
to the state of Jammu and Kashmir
A partnership is a voluntary association of two or
more persons, who contribute, money, property,
time, care or skill, to carry on, as co-owners, a
lawful business for profit and to share the profits
and losses of the business.
Meaning of Partner, 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 their
business is carried on is called the firm name.

1. Agreement: a partnership is the result of an
agreement between persons who want to form a
partnership. An agreement may be written or oral.
2. Number of partners: according to section 14 of
companys ordinance, 1984 a partnership consisting of
more than 20 persons for carrying on any business is
3. Existence of business: the partners must agree to
carry on a business. If the purpose is to carry on some
charitable work, it will not be a partnership.
4. Sharing of profits: the agreement between the parties
must be to share the profits of a business. The profit
will be distributed among the partners according to
their agreement.
5. Duration: the partnership continues at the will of the
partners. It comes to an end if any of the partners
retires, dies or becomes insolvent. However, if the
remaining partners agree to continue the business, the
firm will not dissolve.

Registration of Firms
According to the Act, it is not compulsory to get a firm
registered with the Registrar of Firms.(Appointed by the
State Government). It is, thus, an optional affair. The Act,
however, puts an unregistered firm to certain disabilities
thereby making registration of firms desirable. A firm
may get registered anytime, i.e. at the time of formation
or anytime thereafter.

Suits between partners and firm
Suits between firm and third parties:
Claim of set-off:


1. Active partner: a partner who takes an active part in
the management of the firm is called active partner.
2. Sleeping partner: one who does not take an active
part in the management of the firm is called sleeping.
3. Nominal partner: one who lends his name and
reputation to the firm is called nominal partner. He
does not invest in business. He does not get share in
profits. But, he is regarded as partner in the eye of law.
He is liable to the outsiders for the debts of the firm.
4. Senior partner: a partner who has made more
investment in the firm and receives more profit is
called a senior partner.
5. Junior partner: a junior partner is the one who has a
small investment in the business and receives a
nominal share in the profits.

6. Partner in profits only: he is a partner who shares the
profits of the firm but is not liable for the losses. But he
is equally liable as other partners to the outsiders.

1. Partnership at will: where no provision is
made in the contract regarding the duration of
2. Particular partnership: where partnership is
formed to do a particular business. Such
partnership is dissolved immediately after the
completion of that business.

1. Right to take part in business: it is not essential for
every partner to take part in business but the right of
participation should be available to every partner.
2. Right to inspect books.
3. Right to share profits.
4. Right to give consent.
5. Right to retire: a partner can retire with the consent of
other partners or according to the agreement or by
giving notice to all the partners
6. Right not to expelled.
7. Right to use of partnership property
8. Right to indemnified.

1. Duty to carry on Business: it is the duty of every
partner to carry on the business of the firm for the
common advantage.
2. Duty to be just and faithful: the partners should be
faithful and just towards the firm and towards other
partners in their actions specifically in maintaining the
firms accounts.
3. Duty to indemnify: every partner is bound to
indemnify the firm for any loss caused to it by his
conduct like fraud or misrepresentation.
4. Duty not to transfer his shares without the consent
of other partners.
5. Not to claim remuneration.
6. To share losses

Reconstitution of Firm

A firm is reconstituted when there is a change in the
composition of its partners without affecting the continuity of
the firm. Such a reconstitution may take place due to:

a) Introduction of a new partner
b) Retirement of a partner
c) Expulsion of a partner
d) Insolvency of a partner
e) Death of a partner, or
f) Transfer of a partners share

1. A firm may be dissolved with the consent of
the partners.
2. A firm is compulsorily dissolved if all the
partners except one, become insolvent
3. If a firm is constituted for a certain term, then it
stands dissolved after the expiry of the term.
4. A firm may be dissolved by the order of the
court if any of the partners files a suit for the
same on any of the following grounds:

a. A partner has become of unsound mind.
b. A partner has become insolvent
c. A partner has committed breach
d. The firm is running on losses
5. Where the partnership is at will, any partner
giving notice in writing to all the other partners
may dissolve the firm.

1. The partners shall pay losses, first from their
profits, next out of capital and lastly if
necessary by the partners individually
according to the proportion of their expected
2. The assets of the firm shall be applied to pay
the debts of third parties, to pay each partner
what is due to him, the rest if any to be divided
among the partners according to the proportion
in which they were to receive profits.

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