Law, U 2

UNIT-2
LAW OF PARTNERSHIP (1932)
Sec 4 of the Indian partnership act, 1932, defines ‘partnership’in the

following term:
“Partnership is relation between person who have agreed to share the

profits of a business carried on by all or any of them acting for all.”
Essential elements
1. Contract
2. association of two or more persons
3. carrying on of business
4. sharing of profits
5. mutual agency
Distinction between partnership and co-ownership
1. Co-ownership is not necessarily the result of agreement.

Partnership is.
2. Co-ownership does not necessarily involve community of profit or
of loss. Partnership does.
3. one co owner can without the consent of others, transfer his
interest to a stranger, so as top put him in the same position as
regards other as the transfer himself was before the transfer. a
partner can not do this.
4. One co-owner is not as such the agent real or implied of the
other. A partner is.
5. One co-owner has no lien on the thing owned in common for
outlays or expenses. Not for what may be due from the others as
their share of a common debt. A partner has.
6. Co-ownership not necessarily existing for the sake of gain, and
partnership existing for no other purpose.
Distinction between partnership and joint Hindu family business
1. Regulation law
2. Mode of creation
3. Admission of new members
4. The position of females
5. Number of members
6. Authority of members
7. Liability of member
8. Right of member to share in profits
9. Effect of death of a member
Distinction between partnership and company
1. Regulation act
2. Number of members
3. entity
4. Liability
5. Authority of members
6. management
7. transfer of interest
8. audit
9. registration
10. Winding up
PARTNERSHIP DEED
The document in which the respective right and obligation of the

member of a partnership are set forth is called a partnership deed. It
should be drafted with care and be signed by all the partners.
The deed should cover the following points:
1. The name of the firm and the name and address of the partners
who compose it.
2. Nature of business and the town and the place where it will be
carried on.
3. Date of commencement of partnership.
4. The duration of partnership.
5. The amount of capital to be contributed by each partner and the
method of raising finance in future if so required.
6. The ratio of sharing profits and losses.
7. Interest on partner’s capital, partner’s loan and interest, if any to
be charged on drawings.
8. Salaries, commission etc., if any payable to the partners.
9. The method of preparing accounts and arrangement for audit and
safe custody of cash etc.
10. Division of task and responsibility, i.e., the duties, power
and obligation of all the partners.
11. Rules to be followed in case of retirement, death and admission
of a partner.
12. Expulsion of partners in case of retirement, death and
admission of a partner.
13. Can a partner carry on a competing business or any other
business whether competing or not. Sec 11(2) clearly provides
that the deed may provide that a partner shall not carry on any
business other than that of the firm while he is partner.
14. The circumstances under which the partnership will stand
dissolved.
15. Arbitration in case of dispute among the partners.
Duration of partnership
1. partnership at will
2. particular partnership
Kinds of partners
1. active and actual partner

2. sleeping and dormant partner
3. silent partner
4. partner in profits only
5. sub-partner
6. partner by estoppels or holding out sec 28
Minor admitted to the benefits of partnership
Sec 30 of the partnership act thus provides that though a minor can not
be a partner in a firm, but, with partnership by an agreement executed
through his guardian with the other partners.
The following points must be noted in this connection:
1. A minor can be admitted to benefits of a partnership with the

consent of all the existing partners.
2. There must be partnership in existence before a minor can be

admitted to its benefits.
3. There cannot be a partnership consisting of all minors.

4. If a minor is made a full-fledge partner under the term of a
partnership deed, the deed would be invalid.
Rights and liabilities of a minor who has been admitted to the benefits
of a partnership are governed by the following rules:
1. Entitled to receive agreed share
2. Has a right of inspecting and taking copies of the book of accounts of

the firm not for secrets books
3. Not personally liable for debt to third party
4. Can not take active part in conducting business and has no

representing capacity to bind the firm.
5. Can not sue to partner for an account or payment of his share of

property and profits.
6. On attaining age of majority the minor must decide within six month
whether ho would or would not like to become a partner in the firm.
7. When he become the partner then he is personally liable to third

party for all the debt.
8. When he chooses not to become a partner he is entitled to sue the

partners for his share of the property and profits in the firm.
Registration of a firm
Procedure of registration of a firm:
1. The name of the firm.
2. The place or principal place of business of the firm.
3. Name of any other places where the firm carries on business.
4. The date when each partner join the firm.
5. The name in full and permanent addresses of the partners.
6. The duration of the firm.
The application or statement must be signed by all the partners, or by

their agent specially authorized in this behalf.
Effect of non-registration
1. No suit in a civil court by a partner against the firm or other

copartners.
2. No suit in a civil court by firm against third parties.
3. The firm or its partner cannot make a claim of set-off or other
proceeding based upon a contract.
Rights of partners
1. Right to take part in the conduct of the business. Sec12(a)

2. Right to be consulted sec 12(c)
3. Right of access to books sec 12 (d)
4. Right of share of profits sec 13(b)
5. Rights to interest on capital. Sec 13(c)
6. Right to interest on advances Sec 13(d)
7. right to indemnity Sec 13(e)
Duties of partner
A. Absolute duties
1. Duty to carry on the business to the greatest common

advantage. Sec 9.
2. Duty to just and faithful inter-se. sec 9
3. Duty to render true accounts. Sec 9
4. Duty to provide full information. Sec 9
5. Duty to indemnify for loss caused by fraud. Sec 10
6. Duty to liable jointly and severally. Sec 25
7. Duty not assign his interest Sec 29
B. Qualified duties
1. Duty to attend diligently to his duties Sec 12(b)

2. Duty to work without remuneration Sec 13(a)
3. Duty to contribute to the losses Sec 13(b)
4. Duty to indemnify for willful neglect Sec 13(f)
5. Duty to use firm’s property exclusively for the firm Sec 15
6. Duty to account for personal profits derived Sec 16(a)
7. Duty not to compete with the business of the firm Sec
16(b)
Dissolution of partnership firm

The Indian partnership act distinguishes between:
(a)Dissolution of firm
(b)Dissolution of partnership
Sec 39 provides that the dissolution of partnership between all the
partners of a firm is called the dissolution of the firm.
When one or more partner ceases to be partners of the firm but other
continue the business in partnership, it is called dissolution of
partnership. in this case the firm is reconstituted without any
dissolution.
Modes of dissolution of a firm
1. by agreement sec 40
2. by notice sec 43
3. on the happening of certain contingency Sec 42
4. compulsory dissolution Sec 41
5. dissolution by the court Sec 44:-the court may dissolve a firm on
any of the following ground:
(a) insanity
(b) permanent incapacity
(c) misconduct
(d) persistent breach of agreement
(e) transfer of interest
(f) continuous losses
(g) just and equitable
Consequences of dissolution
1. continuing liability of partners after dissolution sec 45
2. continuing authority of partners for purposes of winding up sec 47
3. right of partner to enforce winding up sec 46
4. liability to share personal profits sec 50
5. return of premium sec 51
6. right where partnership contract is rescinded for fraud sec 52
7. right to impose restrictions

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UNIT-2

LAW OF PARTNERSHIP (1932)

Sec 4 of the Indian partnership act, 1932, defines ‘partnership’in the

“Partnership is relation between person who have agreed to share the

1. Co-ownership is not necessarily the result of agreement.

3. Admission of new members

4. The position of females

8. Right of member to share in profits

9. Effect of death of a member

Distinction between partnership and company

The document in which the respective right and obligation of the

The deed should cover the following points:

1. active and actual partner

Minor admitted to the benefits of partnership

The following points must be noted in this connection:

1. A minor can be admitted to benefits of a partnership with the

2. There must be partnership in existence before a minor can be

3. There cannot be a partnership consisting of all minors.

1. Entitled to receive agreed share

2. Has a right of inspecting and taking copies of the book of accounts of

3. Not personally liable for debt to third party

4. Can not take active part in conducting business and has no

5. Can not sue to partner for an account or payment of his share of

7. When he become the partner then he is personally liable to third

8. When he chooses not to become a partner he is entitled to sue the

1. The name of the firm.

2. The place or principal place of business of the firm.

3. Name of any other places where the firm carries on business.

4. The date when each partner join the firm.

5. The name in full and permanent addresses of the partners.

6. The duration of the firm.

The application or statement must be signed by all the partners, or by

1. No suit in a civil court by a partner against the firm or other

1. Right to take part in the conduct of the business. Sec12(a)

1. Duty to carry on the business to the greatest common

1. Duty to attend diligently to his duties Sec 12(b)

Dissolution of partnership firm

Modes of dissolution of a firm

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