Partnership Act

1932
 Section 1
 (1) This Act may be called the Indian
Partnership Act, 1932.
 (2) It extends to the whole of India except
the State of Jammu and Kashmir.
 (3) It shall come into force on the 1st day
of October, 1932.
 Partnership
 Section 4 of the Indian Partnership Act,1932
defines Partnership as –
 "Partnership" is the relation between persons who
have agreed to share the profits of a business
carried on by all or any of them acting for all.
 Persons who have entered into partnership with
one another are called individually, "partners" and
collectively "a firm", and the name under which
their business is carried on is called the "firm-
name".
 Essentials of partnership(sec-4)
Number of persons-There must be atleast
two persons. All the persons must be
competent to enter into a contract. A
minor cannot become a partner of the
firm. A person of unsound mind cannot
become a partner in the firm.
e.g-A, minor and B major agree to carry on
a cloth business in partnership. It is not a
valid partnership. Since A is a minor, not
Capable to entering into a contract.
2.Maximum No of persons-Section
persons- 464 of the
Companies Act, 2013 empowers the Center Government
to prescribe maximum number of partners in a firm but
the number of partners so prescribed cannot be more
than 100.The Central Government has prescribed
maximum number of partners in a firm to be 50 vide
Rule 10 of the Companies (Miscellaneous)
Rules,2014.Thus, in effect, a partnership firm cannot
have more than 50 members".
3.Business-The partnership can be formed to carry
on business and not for social welfare or
charitable activity. The business includes every
lawful trade, occupation
and profession. If no business is carried on,
there is no partnership. The word carry on
business implies to the presence of a
series of business transactions.
3. Sharing of profits-There must be sharing
of profits. The requirements of the sharing
of profits does not require that all the
partners must share the profits equally. It
is possible for the partners to agree to
share the profits in such a ratio as they
may mutually agree. However in the
absence of an agreement between the
partners, all the partners shall share the
profit equally. The sharing of profit also
includes sharing of losses.
4. Mutual agency-There must be a mutual
agency. The mutual agency means the
principle –agent relation. It means any
one partner can act for the others and
bind them as well as to the firm by his act.
The partner of a firm is not an employee or
officers of the firm.
 E.g-A and B are partners. A purchased the
raw material for the business of a firm in
the ordinary course of business. Here B is
bound by the act of A as well as the firm
is also liable for the purchase made by A.
 Cases where no partnership exists-
 1.The joint owners of a property sharing
the profits or gross returns arising from
the property, do not become partners.
Mere owing a joint property does not
mean that some business is carried on.
 Also there is no mutual agency, i.e one
joint owner cannot make the other joint
owner liable for the acts done by him.
 E.g-X and Y are the co-owners of a house,
let out to a tenant. X and y divide the net
rents between themselves. It is not a
partnership.
 2.The lender of a firm who receives a
share in the profit.
e.g-The bank ha provided the loan to the
firm and the firm has agreed to pay 4%
of its profits as interest. Here the bank does
not become a partner, just for the reason
that it is getting percentage of profit.
3.The servant or employee engaged in
business receives his remuneration as a
share of the profit. The mere fact that an
employee gets a share of profits does not
make him a partner.
4.The widow or the child of a deceased
partner receives a portion of the profits. In
such a case the legal representatives
does not become the partner even though
he is paid a certain share of the profits.
5.Where a person has sold his business
along with its good will and receives a
portion of the profits in consideration of
the sale. In this case although the old
partners receive the profits, they cannot
be called as the partners of the new firm.
6.The members of the HUF carrying the
family business are not partners and HUF
is not a partnership firm.
 Types of partnership
 Section7 PARTNERSHIP-AT-WILL
Where no provision is made by contract
between the partners for the duration of
their partnership, and when and how will
the partnership firm come to an end. Thus
a Partnership at will can be dissolved at
any time, if any of the partners of the firm
will give notice, expressing his willingness
to windup the firm.
 Section 8- PARTICULAR
PARTNERSHIP
when a partnership is formed for a specific
venture or for a particular period. It is
usually automatically dissolved on
completion of the specified project or job.
E.g-A team of two or more auditors, engaged
in the audit of the accounts of a a particular
company, may be regarded as partners in
that particular audit as held in the case of
Robinson VS Anderson and once this
particular audit is over and the
Final audit report is duly submitted to the
management of the company, this
partnership will automatically get
dissolved.
 Provision for a partnership firm
(sec 11)
 Rights and duties of the partners of a firm
may be determined by contract between
the partners.
 Maximum limit of members
On banking business- 10
On any other business – 20
 If the number of persons exceeds the
aforesaid limit ,the partnership firm
becomes an illegal association.
 Conti..
 Every partner shall indemnify the firm for
any loss caused to it by his fraud in the
conduct of the business of the firm.
Section10
 such contracts may provide that a partner
shall not carry on any business other than
that of the firm while he is a partner.
 Conti..
 Section9 GENERAL DUTIES OF PARTNERS
Partners are bound to carry on the
business of the firm to greatest common
advantage, to be just and faithful to each
other, and to render true accounts and full
information of all things affecting the firm,
to any partner, his heir or legal
representative
 Kinds of partners
 Active partner-Partners who take an active
part in the conduct of the partnership
business are called actual partners. Such a
partner must give public notice of his
retirement from the firm in order to free
himself from the liability for acts after
retirement.
 Sleeping partner-There are some persons
who merely put in their capital and do not
take active part in the conduct of the
partnership business. They are known as
sleeping partners. They do share profits
and losses of the business, have a voice in
management, but their relationship with
the firm is not disclosed to the general
public.
 Silent partners-Those who by an
agreement with the other partners have
no voice in the management of the
partnership business are called silent
partners. They share profits and losses are
fully liable of the debts of the firm and
may take active part in the conduct of the
business.
 Partner in profits only-A partner who has
stipulated with the other partners that he
will be entitled to a certain share of
profits,without being liable for the losses,
is known as a partner in profits only. As a
rule such a partner has no voice in
management of the business.
Sub-partner-When a partner agrees to share
his share of profits in a partnership firm
with an outsider, such an outsider is called
a sub-partner. Such a sub-partner has no
rights against the firm nor he is liable for
the debts of the firm.
 Partner by estoppel or holding out-
A person whoby conduct or words represents
, or allows him/herself to be represented,
as a partner in a firm is liable for
the credit or loans obtained by firm on the
basis of such representation.
By behaviour, initiatives & impression of
person that show he is a partner of a firm.
He does not contribute in capital and does
not take part in management. He does not
shares profits & losses. He has unlimited
liability towards the creditors.
 Section12- Rights of partners.
Subject to contract between the partners-
 (1) Right to take part in the conduct of
the business-Every partner has the right
to take part in the management and
conduct of day to day affairs of the
business of the partnership enterprise.
 (2) Right to express opinion-Every partner
has right to express his opinion on the
matters relating to business of the
partnership enterprise. Ordinary matters
during the course of business are decided by
majority votes, but major business decision
of the business are taken unanimously by all
the partners.
(3) Right to take out copies and inspect
the books of account- Every partner has
a right to inspect the books of accounts of
the partnership enterprise and further take
out the copies of the same.
(4) Right to share profits- In the absence
of any contract to the contrary, every
partner has an equal share in the profits
 of the partnership enterprise. Otherwise,
they have to share the profit and loss as
per the agreed ratio stated in the
partnership deed.
(5) Right to have interest -
A partner is entitled to claim interest on the capital
Out of the profit if the agreement provides
so. The partner is entitled to claim interest
on any loan or advances he has made to
the firm. The interest of the loan is
payable whether or not the firm makes
profit.
(6) Right to be indemnified-Every
partner has the right to be indemnified by
the firm in respect of any losses suffered
and expenses incurred by him in the
conduct of the business of the firm.
(7) Right to retirement-Every partner
has the righty to retire from the firm with
the consent of all other partners or in
accordance with an express agreement
among the partners, or by giving a notice
in writing to all other partners.
(8) Right to dissolve-Every partner has
the right to dissolve the partnership firm
with the consent of all other partners
except when the partnership is at will. In
that case dissolution of firm takes place
after giving notice by any partner in
writing to all other partners.
(9) Right to have profits after
retirement or death-After retirement
every partner and his legal heirs (in case
of his death) had the right to share the
profits or to have 6% interest as per
choice unless the balance due to the partner
is paid off.
(10)Right to use the firms property-
Every partner has the right to use
partnership property for the purpose of the
business of the firm. However, a partner
may use the partnership property for his
personal purpose if the agreement provides
so.
 Section13 DUTIES AND
LIABILITIES.
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.
3. Duty to indemnify: 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.
 iii. To render true accounts:
 Every partner must render true and proper
accounts I his co-partners. Each and every
entry in the books must be supported by
vouchers and di explanations if demanded
by other partners.
 iv. To provide full information:
 Every partner must provide full
information of £ activities affecting the
firm to the other co-partners. No
information should be concealed, kept
secret.
 v. To attend diligently to his duties:
 Every partner is bound to attend diligently
to duties in the conduct of the business of
the firm.
 vi. To work without remuneration:
 A partner is not entitled to receive any
kind remuneration for taking part in the
conduct of the business. But in practice,
the working partners are generally paid
remuneration as per agreement, so also
commission in some case.
 vii. To indemnify for loss caused by
fraud or willful neglect:
 If any loss is caused to the firm because
of a partner's willful neglect in the conduct
of the business or fraud commit by him
against a third party then such partner
must indemnify the firm for the loss.
 viii. To hold and use partnership
property exclusively for the firm:
 The partners must hold and use the
partnership property exclusively for the
 purpose of business of the firm not for
their personal benefit.
 ix. To account for personal profits:
 If a partner derives any personal profit
from partnership transactions or from the
use of the property of the firm or business
connection the firm or the firm's name, he
must account for such profit and pay it to
the firm.
 Not to carry on any competing
business:
 A partner must not carry on competing
business to that of the firm. If he carries
on and earns any profit then he must
account for the profit made and pay it to
the firm.
 xi. To share losses:
 It is the duty of the partners to bear the
losses of the firm. ' partners share the
losses equally when there is no agreement
 Not to carry on any competing
business:
 A partner must not carry on competing
business to that of the firm. If he carries
on and earns any profit then he must
account for the profit made and pay it to
the firm.
 xi. To share losses:
 It is the duty of the partners to bear the
losses of the firm. ' partners share the
losses equally when there is no agreement
 or as per their profit share ratio.
 xii. To act within authority:
 Every partner is bound to act within the scope
of authority. If he exceeds his authority and
the firm suffers from any loss, he shall have
compensate the firm for such loss.
 xiii. Duty to be liable jointly and
severally:
 Every partner is jointly and individual liable to
the third parties for all acts of the firm done
while he is a partner.
 A minor Partner-A minor may be admitted to
the benefits of a partnership with the consent
of all the partners.
But he can admitted to the benefit of
partnership business with the consent of all
other partners. This can be performed by an
agreement executed by his guardian on his
behalf with the existing partners of the firm.
2. A minor will be entitled to his agreed share
of the property and of the profits of the firm.
3. He is not personally liable for the
obligations of the firm but his share in
profit and property may be liable for the
debts of the firm.
4. He can file a suit for accounts and for his
agreed share of property or profit when
he severs his connection with the firm.
5. He has a right to inspect and copy books
of accounts of the firm.
 Position of a minor after attaining
maturity:-
Within six months of his attaining maturity, a
minor has to decide whether he wants to
become full-fledged partner or not. He may
give public notice of his consent to become
partner.

A. In case of becoming partner:-

After attaining maturity and option to become
a partner, his position will be as follows:
 1. He will be personally liable for all
obligations of the firm incurred since he was
admitted to the benefits of the partnership.
 2. The right and liability of the minor after
attaining maturity continue to be those of a
minor.

3. His interest into his business i.e. share in

profit and property of the firm shall be the
same which he has got as a minor.
4. He can perform the role of an agent and can
bind the other persons by his act.
5.He is entitled to conduct the management of
the business.
B. In case of not becoming partner:-
If minor doesn't want to become full-fledged
partner after attaining maturity, his position
will be as under:
1. He will not be liable for all the debts an
obligations of the firm after the date of notice.
2. He has right to sue the partners for his
share of the profits in property.
 Partnership deed
 The document containing the agreement
in writing amongst partners is called
Partnership Deed. Thus, partnership deed
is a written agreement between two or
more persons for managing the affairs of
a partnership firm. The partnership deed
is to be duly stamped as per the Indian
Stamp Act, and duly signed by all the
partners.
 Partnership deed
 Name of the firm
 Names and address of all partners .
 Nature and place of business.
 Date of commencement of partnership.
 Duration of partnership.
 Amount of capital of each partner.
 Profit sharing ratio.
 Interest on capital.
 Conti..
 Interest on drawing.
 Interest on loan advanced by a partner to the
firm.
 Salary or commission payable to any partner.
 Method of valuation of goodwill and other assets
and liabilities in case of admission or retirement
or death of a partner
 Settlement of accounts in case of retirement/
death of a partner or dissolution of firm.
 Registration
I. obtain a statement from the registrar of
firms
II. State following information in the
statement :-
1. Name of firm
2. The principle place of the firm.
3. Name of other places where the firm
carries on business.
 Conti..
4. The date when each partner join firm.
5. The duration of firms.
III. Statement must be duly signed by the
by the all partners.
IV. file the statement along with prescribed
fees with the registrar.
V. obtain a certificate from the registrar.
 Time of registration
 Since registration of firm is not
compulsory , so it can be done at any
stage .
 Effects of non registration
1. No suits by a partner against the firm or
the other partner (Sec 69(1))-Any
dispute arises among the partners or
between a partner and the firm or
between a partner and ex-partners, and
the dispute is based upon the rights
arising from the contract. Then a partner
of an unregistered firm cannot institute a
suit to settle such disputes.however
Criminal proceedings can be brought by one
partner against the others.
2 No suit can be filed by or on behalf of an
unregistered firm against third party in a
court-An unregistered firm cannot file a
suit against a third party, if it so becomes
necessary, to enforce any right arising
from contract e.g for recovery of the price
of the goods supplied.
.
3.The firm or its partners cannot make a
claim of set off or other proceedings
based upon a contract-If a third party
sues the firm to recover a sum of
money, the firm cannot claim a set off
and the same should be adjusted against
the claim in question
 RECONSTITUTION OF FIRM
 Introduction of a partner (sec 31)
 Retirement of a partner (sec 32)
 Expulsion of a partner (sec 33)
 Insolvency of a partner (sec 34)
 Death of a partner (sec 35)
 Transfer of partner’s interest (sec 29)
 Dissolution

 ‘Dissolution’ stands for discontinuation.

Under the Indian Partnership Act, 1932
the dissolution may either of partnership
or of a firm
 Dissolution of partnership

 It refers to the change in the excising

relations of the partners. The firm
continues its business after being
reconstituted.
 Dissolution of partnership firm

 It means that the dissolution of

partnership between all the partners of a

firm. In such a situation the business of

the firm is discontinued

 Modes of dissolution of firm
(sec- 40 to 44)
 Dissolution without the order of the
court
1. Dissolution by mutual agreement.-A firm
can be dissolved with the consent of all
the partners or in accordance with a
contract between the partners.
Partnership is created by contract, it can
also be terminated by contract
1. Compulsory dissolution- A firm is
compulsorily dissolved under any of the
following circumstances-a)When all the
partners,or all the partners but one, are
adjudged insolvent, b)When some event
has happened which makes it unlawful
for the business of the firm to be carried
on or for the partners to carry it on in
partnership(becomes alien enemy).
2. Where the firm is carrying more than
one adventures or undertakings, the
illegality of one or more shall not of itself
cause the dissolution of the firm .
3.-Dissolution on happening of some
contingencies –Subject to contract
between the partners, a firm is dissolved
a)If constituted for a fixed term, by the
expiry of that term,
b)If constituted to carry out one or more
adventures or undertaking, by the
completion thereof,
c)By the death of the partner and,
d)By the adjudication of a partner as an
insolvent.
4)By Notice- Where the partnership is at
will, the firm may be dissolved by any
partner giving notice in writing to all the
other partners of his intention to dissolve
the firm. A notice of dissolution once given
cannot be withdrawn without the consent
of other partners .The firm is dissolved as
from the date mentioned in the notice as
the date of dissolution or if no date is so
mentioned, as from the date of the
communication of the notice.
 Dissolution by an order of court
(sec 44)-
 Dissolution of a firm by the court is necessitated when there is a
difference of opinion between the partners regarding the matter
of dissolution.For example where one of the partners has become
insane,some of the partners may be willing to continue the firm
and share the profits with the insane partner.Insanity of any
partner
 Permanent incapacity.
 Misconduct
 Persistent breach of agreement .
 Transfer of interest.
 Perpetual losses.
 Any other just and equitable ground.
 The court may dissolve a firm on any of
the following grounds-
 A)Insanity-When a partner becomes
insane. In this case the section permits
not only any of he partners but the next
friend of the insane partner to file the suit
for dissolution of he firm.
 B)Permanent incapacity-When the
partner other than the partner suing
becomes permanently in capable of
performing his duties as a partner.
 C) Misconduct-When a partner other
than the partner suing is guilty of
misconduct, which is likely to affect
prejudicially the carrying on of the
business of the firm. It is not necessary
that the misconduct which is made the
ground of dissolution should be connected
with the partnership business e.g
conviction for travelling without ticket or
immoral activity can also be a ground of
misconduct.
 D)persistent breach of agreement-
When a partner other than the partner
suing, commits frequently breaches of the
partnership agreement or otherwise so
conducts himself in matters relating to the
business that other partners find it
impossible to carry on the business in
partnership with him. Taking away the
books of account, using firms monies,
continious quarrelling with other partners
are good grouns for dissolution of firm
 E)Transfer of interest-When a partner,
other than the partner suing has
transferred his whole of his interest in the
firm to a third party or has allowed his
share to be sold in execution of a decree.
transfer or assignment of partners interest
does not by itself dissolve the firm. But
the other partners may apply to the court
to dissolve the firm if such a transfer
occurs.
 F)Continous losses- When the business of
the firm cannot be carried on except at a
loss.
 G)Just and equitable-When on any other
ground the court considers it just and
equitable that the firm should be
dissolved, for example, if partners are not
on speaking terms.