PARTNERSHIP ACT

Presented By: Chinky Mittal Hunish Singla Pankaj Agrawal Pooja Singh Samidha Agrawal Swati Singh

Partnership
Partnership is the relation between two or more person who have agreed to share the profits of a business carried on by all or any of them acting for all. (Section 4)

Elements of Partnership
Two or more persons Agreement Business Sharing of Profits Mutual Agency (Section 11) (Section 5) (Section2b) (Section 6) (Section 18)

Nature of the Partnership Firm Partnership and Co-ownership Partnership and Company

Duration of Partnership
On the basis of duration, the partnership can be of two types: Partnership at Will Particular Partnership (Section 7) (Section 8)

Types of Partnership
General Partnership Limited Partnership Limited Liability Partnership

Types of Partner
Active Partner Sleeping Partner Nominal Partner Partner in Profits Only Sub-Partner

PARTNERSHIP DEED
The document in which the respective rights and obligation of the partners are set forth is called a partnership deed .It should be signed by all the partners and must be stamped in accordance with the Indian stamp act.

CONTENTS OF PARTNERSHIP DEED
DESCRIPTION OF THE PARTNERS DESCRIPTION OF THE FIRM PRINCIPAL PLACE OF THE BUSINESS NATURE OF THE BUSINESS COMMENCEMENT OF THE PARTNERSHIP CAPITAL CONTRIBUTION INTEREST ON CAPITAL INTEREST ON DRAWING

PROFIT SHARING RATIO INTEREST ON LOAN SALARY VALUATION OF ASSETS SETTLEMENT OF ACCOUNT ACCOUNTING PERIOD RIGHTS AND DUTIES OF PARTNERS DURATION OF PARTNERSHIP BANK OPERATION SETTLEMENT OF DISPUTES

REGISTRATION OF THE PARTNERSHIP
TIME OF REGISTRATION:It may take place at any time during the continuance of the partnership firm. PROCEDURE OF REGISTRATION (SEC-58):An application in the prescribed form along with the prescribed fees has to be submitted to the registrar of firms of the state in which any place of business of the firm is situated or proposed to be situated.

EFFECTS OF NON REGISTRATION
NO SUIT IN A CIVIL COURT BY A PARTNER AGAINST THE FIRM OR OTHER COPARTNERS NO SUIT IN A CIVIL COURT BY FIRM AGAINST THIRD PARTIES THE FIRM OR ITS PARTNER CAN NOT MAKE A CLAIM OF SET-OFF OR OTHER PROCEEDING BASED UPON A CONTRACT

DUTIES OF PARTNERS

There are certain duties of compulsory nature, which cannot be altered by an agreement to the contrary.

But partners can settle their duties by their own contract, by the consent of all partners, such consent can be expressed/implied by a course of dealing.

Duties :
Duty of absolute good faith [Section 9] Duty not to compete [Section 16(b)] Duty of due diligence [Section 12(b) and 13(f)] Duty to indemnify for fraud [Section 10] Duty to render true accounts [Section 9] Proper use of property [Section 15 and Section 16(a)] Duty to account for personal profits [Section 16]

Duty of Good Faith
Section 9 gives statutory recognition to this principle by providing that partners are bound to be just and faithful to each other This duty cannot be excluded by any agreement to the contrary. Partners are bound: to carry on the business of the firm to the greatest common advantage. to be just and faithful to each other. to render true accounts and full information of all things affecting the firm to any partner or his legal representative. Case: Helmore v Smith 

 

Duty not to compete
According to Section 16(b), partners are bound not to carry on any business similar to or in competition with the business of the firm and, if a partner does this, he shall account for and pay to the firm all profits made by him in the business. A partner is not allowed in transacting the partnership affairs to carry on for his own sole benefit in any separate trade or business. Case: Pulin v Mahendra

Duty of Due Diligence
Section 12(b) declares that every partner is bound to attend diligently to his duties in the conduct of the business. In order to supplement this provision Section 13(f) provides a partner shall indemnify the firm for any loss caused to it by willful neglect in the conduct of the business of the firm. Case: Cragg v Ford

Duty to Indemnify for Fraud
Section 10 provides every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm. Case: Campbell v Campbell

Duty to render True Accounts
Section 9 makes it a duty of the partners to render true accounts to every other partner. According to this section partners are bound to render true accounts and full information of all things affecting the firm to any partner or his legal representative. Case: Law v Law

Proper use of Property
This duty is emphasized by Section 15 which says: Subject to contract between the partners, the property of the firm shall be held and used by the partners exclusively for the purposes of the business. No partner should, therefore, use the assets of the firm for any of his personal purposes. Any such exploitation will render the partner accountable to the firm for any private advantage obtained by him and he shall be responsible to indemnify the firm for damage, if any. Case: Velji Raghavji v State of Maharastra.

Duty to account for Personal Profit
Section 16 is subject to Personal profits earned by the partners. It states: If a partner derives any profit for himself from any transaction of the firm, or from the use of the property or business connection of the firm or the firm-name, he shall account for the profit and pay it to the firm. If a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and pay to the firm all profits made by him in that business. Case: Gardner v McCutcheon.

RIGHTS OF PARTNERSHIP
1) Right to take part in Business [Sec 12(a)] Every partner has the right to take part in conduct of the business for promoting the interest of the firm and not for the damaging of the firm. 2) Right to express Opinion [Sec 12(c)] Every partner has this right before the matter is decided. All matters except the change in nature of business without any consent of all the partners. 3) Right to have access to books [Sec 12(d)] Every partner has a right to have access to and to inspect and copy any of the books of the firm. It could be done by partner himself or by an Agent.

4) Right to Remuneration [Sec 13(a)] A partner is not entitled to receive remuneration for taking part in the conduct of business. However, the remuneration is provided to working partners. The remuneration paid is in reality a distribution of profits.
5) Right to Profits [Sec 13(b)] Partners are entitled to share equally in the profits earned by the firm.

6) Right to Interest [Sec 13(c) and (d)] If a partner making any payment or advance beyond the amount of a capital he has agreed to subscribe, is entitled to interest thereon at the rate of interest of 6% per annum. That interest should be paid only out of profits.

7) Right to prevent the introduction of a New Partner [Sec 31] Every partner has the right to stop the introduction of new partner without the consent of other partners. 8) Right to Retire [Sec 32] Every partner has the right to retire with the consent of other partners and in the case of partnership at will, by giving the notice to that effect in writing to other partners. 9) Right not to be Expelled [Sec 33] Not to be expelled by majority of partners.

10)Right to Carry on Competing Business [Sec 36(1)] Every outgoing partner has a right to carry on a competing business and to advertise such business. 

 

But he cannot : Use the firm name Representing himself as carrying on the business of the firm Solicit the firm's customers

11) Right to dissolve the Partnership [Sec 37]

MINOR AS A PARTNER
A minor is a person acc to law which cannot be a partner but with the consent of all the partners he may be admitted to the benefits of the partnership. Such minor has a right to share the profit and the property of the firm as may agreed upon, and he also have a access to inspect and copy the 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.

Where any person been admitted as a minor to the benefit of the partnership in the firm has a burden to prove that person has no knowledge of such admission until a particular date of expiry of 6 months of attaining his majority lies on the person asserting the fact.

NOTE: There cannot be partnership consisting of all the minors or of one major and all minors ( mohiri bibee v dharamdas ghosh)

RIGHTS OF MINOR
He has a right to share property & profits of the firm in according to the agreement. [Sec 30(2)] He has a right to inspect & copy the accounts of the firm, but he does not enjoy such rights in respect of the books other than accounts. [Sec 30(2)] He has a right to sue for the share of his profit or the property in the firm when he is not given his due share. But need to end up his existence in the firm. [Sec30(4)]

Liabilities of a Minor

He is liable to the extent of his share in the profit & the property of the firm. He is not liable to the third party. [Sec 30(3)] He cannot be declared insolvent on the decleration of the firm's insolvency, his share lies under official assignee. [Sec 30(3)]

Rights & Liabilities of a Minor (On Attaining Majority)
When he chooses to be a partner He becomes liable to third parties for all the acts of the firm, since he was admitted to all the benefits of partnership. [Sec 30(7)(a)] His share in profit and property in the firm is same as he was entitled to be as minor. [Sec 30(7)(b)]

When he Elects not to be a Partner
His rights and liabilities continues to be those of the minor upto the date of giving public notice. [Sec 30(8)(a)]. He is entitled to sue the partners for the share of the property & profits in the firm. [Sec30(8)(c)]

³DISSOLUTION OF A PARTNERSHIP FIRM

Dissolution i.e the discontinuation
Under the Indian Partnership Act,1932- 2 types of dissolution exist: Dissolution of the partnership: It is termination of the old partnership agreement and reconstitution of the firm due to admission, retirement, insolvency of the partner & death of a partner. Dissolution of the firm: Here the firm closes its business & comes to an end.

The points of difference between the two:

termination of old partnership & formation of new partnership. continuation of business under the firm's name. revaluation v realisation Hence, we can say that the dissolution of firm leads to the dissolution of the partnership but the converse is not true.

DISSOLUTION OF A FIRM

WITHOUT THE ORDER OF COURT [SEC-40 TO 43]

BY THE ORDER OF COURT [SEC-44]

BY MUTUAL AGREEMENT SEC-40

UNDER COMPULSORY CERTAIN DISSOLUTION CONTINGENCIES SEC-41 SEC-42

BY NOTICE SEC-43

INSANITY

MISCONDUCT PERMANENT INCAPACITY

TRANSFER OF INTEREST PERSISTENT BREACH OF AGREEMENT

JUST & EQUITABLE GROUND

PERPETUAL LOSS

Dissolution without order of court (sec 40 to 43)
Dissolution by mutual agreement: it is with the consent of all the partners. NB: a firm can be dissoluted even for a fixed duration by mutual agreement. Compulsory dissolution: in case of insolvency of all or all except 1 partner. when the business becomes illegal. in case of death or retirement of a partner. 

  

 

Dissolution under certain contingencies: On expiry of the term for which the firm was constituted. On completion of the ventures or the undertakings. On the death or the insolvency of a partner. Dissolution by notice: In case of a partnership at will, the firm may be dissolved if any one of the partner gives a notice in writing to the other partners.

Dissolution by the order of the court ± [Sec-40]
On receiving the petition from a partner the dissolution can be passed under the grounds below: Insanity(sec-44a) : In case of a partner becomes of unsound mind. NB: temporary sickness & insanity of the dormant partner will be no ground. Misconduct (sec-44b) : valid even in case of misconducts not related to the business of the firm.

Persistent breach of agreement(sec-44d): valid in case of wilful and frequent breach of agreement with respect to the business. Transfer of interest(sec-44e) : when a partner has transferred the whole of his interest to the 3rd party or has allowed his share to be sold to recover the arrears of the land revenue.  

Perpetual loss (Sec-44f) : when the business of the firm can be carried on only at loss, the court may order for dissolution. Any other just and equitable ground (Sec-44g): valid in the cases of continued quarrelling between the partners refusal to meet on the matter of the business lack of communication on terms of business lack of confidence & good faith between the partners. 

  

Exclusion for right to apply for dissolution

The right of a partner to file a suit for dissolution, made under any of the above 7 grounds can not be excluded by any agreement.

THANK YOU

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