Partnership

Partnership
• A voluntary association of two or more persons
who contribute financial resources, time and skills
to carry out business activities for profit and also
share losses of the business.

• Partnership of the relationship between persons

who have agreed to share the profits of a business
carried on by all or any one of them acting for all
(Partnership Act, 1932)
 Characteristics of an Ideal Partnership
• No separate legal entity
• Share of capital
• Agreement between
• Utmost faith/ good
persons (Written)
intentions
• Common purpose
• Management of
• Mutual understanding business
• No of partners – 02 to • No free transfer of
20 ownership
• Shared profits • Duration of business
• Mutual agency • Registration of
• Unlimited liability partnership (preferred)
 Advantages of Partnership
• Easy formation • Quick decision making
• Large capital • Risk sharing
• Better management than • Possibilities for
proprietorship business expansion
• High credit standings • Secrecy
• More talent and skilled • Personal supervision
employees • Easy dissolution
• Less legal requirements
• Interest of each partner
is protected by law
 Disadvantages of Partnership
• Unlimited liability • No transfer of shares/
• Uncertain life of ownership
business • Lack of public
• Possibility of confidence
disagreements • Possibility of fraud
• Limited resources
compared to company
 Requirements of partnership
• There must be an agreement among the persons
• The agreement must be to do some business
• The agreement must be to share the profits of the
business
• There must be a relationship of principal and
agent among the partners
• There must be an agreement to carry on the
business by all of any of them acting for all
 Types of partners
• Active partner
• Sleeping partner
• Nominal partner – who lends his/ her name and repute not
capital
• Senior partner
• Junior partner
• Partner in profits only
• Secret partner
• Partner by Estoppel – not partner but just for impression
• Minor partner
 Assignment
Difference between
partnership and co-ownership
Formation of Partnership
 Partnership Formation
• Points to consider carefully:
– Partners must be selected with care
– Objectives of the partnership must be lawful
– Rights and duties of all the partners must be
mentioned in detail
– Registration is not compulsory but have many
benefits thus preferred
 Partnership Deed
• Name of the firm
• Names and addresses of the
partners
• Nature of the business
• Place of business operations
• Capital invested by each
partner
• Duration of partnership
• Profits and losses ratios
• Rate of interest on capital (if
any)
• Rate of interest on loans (if
given by any partner)
• Amount a partner can withdraw
from business
• Amount of salary/ commission
paid to any partner
• Circumstances under which firm
shall dissolve
• Rights, duties and liabilities of all
partners
• Method of valuation of goodwill
• Accounting year
• Rules relating retirement, death
and admission of new partner
• Methods of solving disputes and
arbitrator
 Partnership Deed
• Rules regarding determining
the amount to be paid to
retired/ deceased partner and
method of payment
• Rules of expulsion of partner
from firm
• Recordkeeping and
preparations of accounts
 Types of Partnership
• Partnership at Will
– No provision regarding
duration of partnership.
– any partner can terminate
by giving notice.
– Partnership dissolved
from the date mentioned
on the notice.
– If no date is mentioned the
partnerships ends from the
date notice is
communicated.
• Particular Partnership
– Partnership made to do a
particular business or
undertaking.
– Partnership dissolved as
soon as the objective is
achieved.
– Becomes partnership at
will if it is continued.
 Firm’s name
• The name under which the firm operates.
• The partners may choose any name following
these rules: [Section 58]
– Name must not be identical or similar to any existing firm.
– Should not include words like JINNAH,
QUAID-E-AZAM or words showing approval or patronage
of the Federal or Provincial governments without their
consent
 Firm’s name
• The partners may choose any name following
these rules: [Section 58]
– Should not contain the name UNITED NATIONS (UN) or
the its subsidiary body without the approval of Secretary
General UN
– Should not contain the name of World Health
Organization (WHO) or its abbreviation without the
approval of Director General WHO.
– Must not contain any words declared as undesirable by
provincial government.
 Registration of Partnership Firm
• Submission of application to the Registrar of
firms
– Signed by all partners
• Certification of registration issued by the
Registrar
• Change of Particulars
– Registrar must be informed in such case
• False Information
– Shall be punishable with imprisonment (upto 03
months), or fine, or both
 Advantages of Registration
• Advantages to Firm
– Firm can sue any partner
– Can sue third party
– Increases goodwill of the firm
– Can claim adjustment from third party
– Enjoys some concessions in income tax
 Advantages of Registration
• Advantages to Partners
– Partners can sue to settle the disputes
– Partners can sue the firm for their claims
– Encourages new person to become partner
– After retirement, a partner shall not be held liable
for firm debts
Relations of Partners
 Rights of Partners
• Right to take part in • Right to act in
business emergency
• Right to express opinion • Right to give consent
• Right to inspect • Right to retire
business books • Right not to be expelled
• Right to share profits
• Right to interest on
advances/ loans
 Duties of Partners
• To carry on the business • Liable individually and
• To be just/ fair and jointly
faithful • Not to transfer rights
• To render accounts
• To provide information
• To indemnify
• To attend business
matters carefully
• Share profits of same
personal business
 Liability of Partners
• Liability of partners for
the acts of firms
• Liability of firm for
wrongful act
• Liability for
misapplication
(inappropriate use of
firm’s resources)
• Liability of retiring
partner
Dissolution of Firm
 Dissolution of Firm
• By agreement
• Compulsory dissolution
– Partners declared insolvent
– Business of the firm becomes unlawful
• Contingent Dissolution
– Expiry of decided partnership time
– On completion of the project
– On death of a partner
– Insolvency of any partner
 Dissolution of Firm
• Dissolution by notice
• Dissolution by court
• Insanity
• Permanent incapability
• Misconduct
• Breach of agreement
• Continuous losses
• Just/ fair and equitable
 Settlement of Accounts
• Sharing of deficiency/ liabilities
– Use firm assets
– All partners shall share liability in profit sharing
ratio
• Application of assets
– First pay debts of the firm
– Pay back partners’ loans/ advances
– Remaining will be shared among partners
according the profit sharing ratio
 Settlement of Accounts
• Payment of debts
– Firm property shall be used to pay the debts
– Private property of the partners will be sold for
paying the debt
• Sale of goodwill