CHAPTER 7

LAW OF PARTNERSHIP
Main Points
1. Essentials
2. Rights and Duties of Partners,
3. Settlement of Accounts
Definition
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.
Definition
Agreement: Partnership can only
arise out of agreement –
express/implied written/oral or may be
inferred from the conduct of the
parties.
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.
ESSENTIALS OF PARTNERSHIP
2. Number of partners: according to
section 14 of company’s law, 1984 a
partnership consisting of more than 20
persons for carrying on any business is
illegal.
ESSENTIALS OF PARTNERSHIP
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
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. 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.
KIND OF PARTNERS
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.
KIND OF PARTNERS
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.
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. 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.
RIGHTS OF PARTNERS
4. Right to give consent. Right to say
yes or no, permission for something to
happen or agreement to do something.
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.
DUTIES OF PARTNERS
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 firm’s accounts.
DUTIES OF PARTNERS
3. Duty to indemnify(Compensate):
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. 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.
DISSOLUTION OF PARTNERSHIP
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
DISSOLUTION OF PARTNERSHIP
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 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.
THANKS
For your attention