Partnership

Definition
 According to Section 4 of the Indian Partnership Act, 1932, a
partnership is defined as a relationship between two persons who
mutually agreed to share the profits and losses in the business.
Therefore, persons who have entered into an agreement with one
another are individually known as “partners”.

 A partnership is an arrangement where parties, known as partners,

agree to cooperate to advance their mutual interests.

 A partnership firm is not a separate legal entity distinct from its

members. It is merely a collective name given to the individuals
composing it.

 The profit will be shared based on the agreement between the

partners.
 Characteristics
 Presence of business

 Agreement

 Sharing of profit

 Dual role of principal & agent

 Team spirit

 Minimum & maximum membership – minimum 2 & maximum 50.

 UN-Limited Liability (Except in LLP)

 No free transfer of share

 No legal status
 Benefits
 Less formal with fewer legal obligations

 Easy Formation

 Shared Financial Commitment

 Complementary Skills

 Employees Incentive

 More capital is available for the business.

 Greater borrowing capacity.

 Easy Dissolution
 Limitations
 Joint and Individual Liability

 Possibility of disagreement among the partners

 Discord among partners on shared profit

 Instability

 Lack of Public Faith

 Higher tax
 Types of partners
 Active/Managing Partner/Ostensible

 Nominal Partner

 Partner by Estoppel

 Partner in Profits only

 Minor Partner

 Secret Partner

 Outgoing partner

 Limited partner

 Sub-Partner

https://blog.ipleaders.in/types-partners-partnership-act/
Question

 A was a minor admitted to the benefits of a partnership. After

attaining majority he decided not to continue as a partner. He
did not give any public notice of the same. Is he liable for the
acts of other partners after his retirement?

 Answer???
 Types of partnership
 According to objectives  According to legality
 Partnership at will  Legal Partnership
 Particular Partnership  Illegal Partnership
 According to tenure  On the basis of Registration
 Partnership for Fixed  Registered Partnership
Term  Un-Registered

 Flexible Partnership Partnership

 According to nature
 General Partnership
 LLP
 Registration of Partnership
 Partnership deed is an agreement between the partners in which rights,
duties, profits shares and other obligations of each partner is mentioned.

 General Details:

 Name and address of the firm and all the partners

 Nature of business

 Date of starting of business

 Capital to be contributed by each partner

 Profit/loss sharing ratio among the partners

Registration of Partnership
 Specific Details:

 Interest on capital invested, drawings by partners or any loans provided by

partners to firm

 Salaries, commissions or any other amount to be payable to partners

 Rights of each partner, including additional rights to be enjoyed by the active

partners

 Duties and obligations of all partners

 Adjustments or processes to be followed on account of retirement or death of

a partner or dissolution of firm.

 Other clauses as partners may decide by mutual discussion

 Registration of Partnership
 An application form along with fees is to be submitted to Registrar of
Firms of the State in which firm is situated.

 The application must be signed by all partners or their agents.

 Documents to be submitted to Registrar are

 Application for registration of partnership (Form 1)

 Specimen of Affidavit

 Certified original copy of Partnership Deed

 Proof of principal place of business (ownership documents or rental/lease

agreement)
Famous law cases

 Bentley v. Craven [ii] (Secret Profits)

In this case, there has a partnership in a sugar refining
company. One of the partners specializes in buying
and selling sugar. Therefore, he was entrusted with
the task of buying and selling sugar. However, the
partner sold the sugar from his own stock and thereby
made a profit. When the partners discovered this fact,
they took action to recoup the profits the partner had
earned. The court held that the partner could not
make any secret profits and company is entitled to
recover the secret profits earned by that partner.
Famous law cases

 Pullin Bihari Roy v. Mahendra Chandra Ghosal [vii]

(Duty not to compete)
In this case, there is a partnership for buying and
selling salt. One of the partners, when buying salt in
the company, made a profit by buying some salt for
himself and then selling it in his personal account. He
is accountable to his associates for the profits he
makes.