Chapter-3

Nature of Partnership
 Concept & Definition

The Law of Partnership contained in the Partnership Act,

1932. Which came into force on October 1 st 1932. Extends to
whole of Pakistan (Section 3).

‘Partnership is the relation between persons who have

agreed to share the profits of a business carried on by all or
any one of them acting for all’ (Section 4).
 Characteristics

1. Legal Entity
2. Agreement
3. Number of Partners (Companies Act 2017).
4. Purpose of Partnership
5. Share of Profits
6. Mutual Agency
7. Unlimited liability
8. Capital
9. Utmost Faith
10. Management
11. Transfer of Ownership
12. Duration
 Advantages

1. Easy to Form
2. Large Capital
3. Better Management
4. High Credit Standing
5. Skilled Employees
6. Flexibility
7. Protection of Partner
8. Quick Decision Making
9. Risk Sharing
10. Possibility of Expansion
11. Secrecy
12. Spirit of Cooperation
13. Personal Supervision
14. Easy Dissolution
 Disadvantages

1. Unlimited Liability
2. Risk of Dissolution
3. Possibility of Disagreement
4. Limited Resources
5. No Transfer of Shares
6. Lack of Public Confidence
7. Lack of Harmony
8. Possibility of Fraud
 Test of Partnership

1. There must be agreement of persons

2. The agreement must be to do business
3. The agreement must be to share the profits of the
business
4. There must be a relationship of a principal and agent
among the partners
5. There must be an agreement to carry on the business by
all or any of them acting on all.
 Ideal Partnership

1. Mutual Understanding
2. Common Purpose
3. Good Faith
4. Sufficient Capital
5. Long Duration
6. Number of Partners
7. Written Agreement
8. Registration
 Kind/Types of Partnership
1. Active Partnership (Working Partner)
2. Sleeping Partnership (Dormant Partner)
3. Nominal Partnership
4. Senior Partnership
5. Junior Partnership
6. Partner in profits only
7. Secret Partnership
8. Partner by Estoppel
9. Minor Partner
 Minor Partner (Section 30)

a. Position During Minority: Rights & Liabilities

i. Right to receive agreed share of property and profit.
ii. Right to inspect and take copies of accounts but not the books
as they may contain business secrets.
iii. Not personally liable for debts. Liability is limited to the
agreed share in property and profit of the firm.
iv. Cannot take part in management.
v. Right to sue for P&P if he breaks from firm.
vi. Cannot be declared insolvent.
 b. Position After Majority

i. Minor must decide within 6 months to continue or leave.

ii. These 6 months start on attaining majority or on

knowing that he was admitted to the benefits of
partnership…which ever comes later.

iii. Must give public notice or shall be considered major

partner.
 c. Decision To Become Partner

i. Rights and liabilities similar to major partner.

ii. Becomes personally liable to third party.
iii. Share in P&P remains the same.

D. Decision Not To Become A Partner:

iv. Rights & Liabilities continue to be of a minor till he gives public
notice.
v. Not liable for acts of the firm done after the date of his public notice.
vi. Right to sue his partners for his share in P&P.
 Difference Between Partners & Co-owners
Partner Co-owner
i. Agreement: Result of an agreement i. Not necessarily result of an
agreement and may arise by
operation of law.

ii. Agency: Partner is an agent of the

firm and may bind other partners ii. Vice Versa
for his act.
iii. Lien: Partner has lien on property iii. Vice Versa
of partnership for expense incurred
by him.
 Difference Between Partners & Co-owners
Partner Co-owner
iv. Transfer of shares: Partner cannot iv. Vise Versa
transfer shares without consent of other
partners.
v. Vise Versa
v. Common interest
vi. No Limit
vi. Number of members
vii. Accordingly
vii. Status of partners
viii. May or may not
viii. Business intensions
ix. Can sue
ix. Division of property: Partner cannot
sue
 Difference Between Partners & Co-owners
Partner Co-owner
x. Refund: personal money of partner x. Non-Refundable.
spend is refundable.
xi. Sharing of profit xi. May or may not.
xii. Regulations: Regulated by the xii. No separate act.
Partnership Act, 1932.
Any Questions