LAW OF

PARTNERSHIP
Essentials, Rights
and Duties of
Partners, Settlement
of Accounts

LAW OF PARTNERSHIP
Definition
A partnership

is a voluntary
association of two or more
persons, who contribute,
money, property, time, care
or skill, to carry on, as coowners, a lawful business for
profit and to share the
profits and losses of the
business.

ESSENTIALS OF PARTNERSHIP
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
illegal.

ESSENTIALS OF PARTNERSHIP
CONT - - 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.

ESSENTIALS OF PARTNERSHIP
CONT - - 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.

KIND OF PARTNERS
1.

2.

Active partner: a partner who

takes an active part in the
management of the firm is
called active partner.
Sleeping partner: one who
does not take an active part in
the management of the firm is
called sleeping.

3.

KIND OF PARTNERS
cont - -partner:
Nominal
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.

5.

KIND OF PARTNERS
cont -partner:
-Senior
a partner who has

made more investment in the firm

and receives more profit is called
a senior partner.
Junior partner: a junior partner is
the one who has a small
investment in the business and
receives a nominal share in the
profits.

KIND OF PARTNERS
cont - - 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.

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

RIGHTS OF PARTNERS
1.

2.
3.

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.
Right to inspect books.
Right to share profits.

RIGHTS OF PARTNERS
cont - - 4.
5.

Right to give consent.

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.

DUTIES OF PARTNERS
1.

2.

Duty to carry on Business: it is the duty of

every partner to carry on the business of
the firm for the common advantage.
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.

DUTIES OF PARTNERS
cont
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.

DISSOLUTION OF
PARTNERSHIP
1.
2.

3.

A firm may be dissolved with the

consent of the partners.
A firm is compulsorily dissolved if
all the partners except one,
become insolvent
If a firm is constituted for a certain
term, then it stands dissolved
after the expiry of the term.

DISSOLUTION OF
PARTNERSHIP
cont
4.

a.
b.
c.
d.

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 partner has become of
unsound mind.
A partner has become insolvent
A partner has committed breach
The firm is running on losses

DISSOLUTION OF
PARTNERSHIP
cont
5.

Where the partnership is at will,

any partner giving notice in
writing to all the other partners
may dissolve the firm.

SETTLEMENT OF
ACCOUNTS ON
DISSOLUTION
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 profits.

SETTLEMENT OF
ACCOUNTS ON
DISSOLUTION
2.
The assets of the cont
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.