Partnership Act 1

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Md.

Wahid Murad FCA


E-Mail: wahid_17_apu@yahoo.com

Synopsis: 01 (The Partnership Act, 1932)

Business & Commercial Law

1. What do you mean by Partnership?

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. Characteristics:
i. Relation between persons
ii. Share profits
iii. Business
iv. Carried on by all or any of them acting for all.

2. What do you mean by Firm, Firm-name and Partner?

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”.

i. Individually partner
ii. Collectively firm
iii. Name-firm name

3. Who can be a partner?

Under the Partnership Act, a person may be partner if he has the capacity to enter into a contract. From the
purposes of the Partnership Act, the term ‘person’ does not include a partnership or a limited company. Thus
a company P cannot form a partnership with a company Q. Similarly, a firm X cannot form a partnership with
firm Y. But all the partners of firm X and all the partners of firm Y can form a single partnership, subject to the
rules regarding the number of partners. However, it is assumed that except the followings all are eligible to
become a partner of a firm:
a. Minor: A minor cannot be a partner. But in an existing partnership, a minor can be admitted
into a firm if all the partners of the firm agree. Such minor gets all the benefits of the partnership.
b. Person of unsound mind: A person who is of unsound mind cannot become a partner.
c. Insolvent: A person, who is adjudged insolvent by the court, cannot become a partner.
d. Company: In a Company the capacity to enter into contract is determined by the
Memorandum and Articles of the Association of the Company. The liability of the members of a firm
under the Partnership Act, for the debts of the firm, is unlimited. But a company cannot incur
unlimited liability. Therefore a company cannot become a partner of a firm.
e. An alien enemy: An alien enemy cannot enter into a contract of partnership with a citizen of the
country like Israel.
f. Ambassador: Any foreign ambassador in Bangladesh cannot enter into a partnership in the country.

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Md. Wahid Murad FCA
E-Mail: wahid_17_apu@yahoo.com
4. What are the difference between Partnership and Co-ownership?

Difference between partner and co-ownership are sited below:


Subject Partnership Co-ownership
1.Definition Partnership is the relation Co-ownership means joint
between persons who have Ownership.
agreed to share the profits of a
business carried on by all or
any of them acting for all.
In a partnership each partner is But a co-owner is not the agent
2. Agent the agent of the others. of the other owners.

Partnership always arises out Co-ownership may arise by


3. Agreement of agreement. agreement or by operation of
law.
A partnership alw a ys implies Co-ownership may exist
4. Business a business. without any business.

In a p ar tners hip ther e mus t Since a co-ownership may


5. Sharing of profit b e sharing of profit. exist without a business, the
question of sharing profits
or loss is immaterial in a co-
ownership.
5. Can a partner bind the firm?

A partner can bind the firm by the means of his acts relating to partnership business. Persons carrying on
business in partnership are agents as well as principals. The business of a firm is carried on by all or any one or
more of them acting for all. Every partner has the authority to act on behalf of all and can, by his actions, bind all
the partners of the firm.

i. A partner can bind the firm


ii. Relating to partnership business
iii. Persons in a partnership-agent and principal
iv. Act for all partners

6. What are the essential elements of a Partnership?

The following three elements are the essential of a partnership:


1. Contractual relation / Voluntary agreement:
There must be an agreement entered into by two or more persons.
2. Sharing profit/ loss: The agreement must be to share the profits of a business.
3. Carrying of business: The business must be carried on by all or any of the partners acting for all.

7. Can a firm be liable for the wrongful acts of a partner?

A firm can be liable for the wrongful acts of a partner. Where, by the wrongful act or omission of a partner
acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is
caused to any third party, or any penalty is incurred, the firm is liable therefore is liable to the same extent as
the partner.

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Md. Wahid Murad FCA
E-Mail: wahid_17_apu@yahoo.com
8. What do you mean by Registration of Firms?

Registration of firm means the registration of the contract with the registrar. It is not compulsory but an
unregistered firm suffers from certain disabilities and therefore registration is necessary for carrying on
business.

9. Is it mandatory for a firm to registration?

The registration of a partnership firms is not mandatory. Therefore an unregistered firm is not an illegal
association. But an unregistered firm suffers from certain disabilities and therefore registration is necessary form
carrying on business.

10. Can you spell out the procedure for registration of a firm?

a. If any firm wants to be registered then it shall have to make application to the registrar under prescribed form &
fee mentioning the following subjects / information:
i. Name of the firm
ii. The principal office
iii. The branch office (if any)
iv. Objectives
v. Date of joining of each partner
vi. Date of constitutions
vii. Name and full address of the partners
viii. Duration of the firm.

b. The above application must be signed & verified by all partners or their agent specially authorized on this
behalf.

c. If registrar satisfies with the application he record an entry of the statement in the Register of Firm and the
firm is thereupon considered to be registered.

11. What are the effects or consequences of Non-registration of a firm?

An un-registered firm and the partners thereof suffer from certain disabilities:
1. A partner of an unregistered firm cannot file a suit (against t h e firm or any partner thereof) for the
purpose of enforcing a right arising from contract or a right conferred by the Partnership Act.
2. No suit can be filed on behalf of an unregistered firm against any third party for the purpose of enforcing
a right arising from a contract.
3. An un-registered firm cannot claim a set-off in a suit.
4. Cannot c l a i m to the court for the receivable amount exceeding Tk.100 from the third party.
Exceptions:
1. A partner of an unregistered firm can file a suit for the dissolution of the firm and for accounts.
2. Suits can be filed for the realization of the properties of a dissolved firm even though it was not registered.
3. The Official Assignee or Receiver can realize the properties of an insolvent partner of an unregistered firm.
4. There is no bar to suit by unregistered firms and by the partners thereof in areas where the provision relating to
the registration of firms do not apply by notification of State Government under Section 56.
5. Partners have right to claim for his portion of share from access the assets of dissolved firm.
6. An unregistered firm can file a suit (or claim a set off) for a sum of not exceeding Tk. 100.
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Md. Wahid Murad FCA
E-Mail: wahid_17_apu@yahoo.com

12. Can a minor be admitted as a Partner?

A minor cannot enter into a contract of partnership because an agreement by a minor is void. But if all
partners agree, a minor may be admitted to the benefits of an existing firm.
13. In what situations compulsory dissolution may take place?

Dissolution of a partnership firm is compulsory in case of following cases:


a. by the adjudication of all the partners or of all the partners but one as insolvent, or
b. by the happening of any event which makes the business of the firm unlawful.

14. What are the grounds of dissolution?

A firm may be dissolved on any of the following grounds:


2. By agreement: A firm may be dissolved at any time with the consent of all the partners of the firm.
Partnership is created by contract; it can also be terminated by contract.
3. Compulsory dissolution: A firm is dissolved—
a. by the adjudication of all the partners or of all the partners but one as insolvent, or
b. by the happening of any event which makes the business of the firm unlawful.
4. On the happening of Certain 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 constitute to carry out one or more adventures or undertakings, by the completion thereof;
c. by the death of a partner; and
d. by the adjudication of a partner as an insolvent.
5. By Notice :Where the partnership is at will, the firm may be dissolved by any partner giving notice in
written to all other partners of his intention to dissolve the firm.
6. Dissolution by the Court:
At the suit of a partner the court may dissolve a firm on any one of the following grounds:
a. Insanity: If a partner has become of unsound mind. The suit for dissolution in this case can be filed
by the next friend of the insane partner or by other partner.
b. Permanent Incapacity: If a partner becomes permanently incapable of performing his duties as a
partner. The suit for this case must be brought by a partner other than the person who has
become incapable.
c. Guilty Conduct: If a partner is guilty of conduct which is likely to affect prejudicially the carrying
on of the business, regard being had to the nature of the business.
d. Persistent Breach of Agreement: If a partner willfully and persistently commits breach of the
partnership agreement regarding management, or otherwise conducts himself in such a way that it is
not reasonably practicable for the other partners to carry on business in partnership with him.
e. Transfer of Whole interest: If a partner has transferred the whole of his interest in the firm to an
outsider or has allowed his interest to be sold in execution of a decree.
f. Loss: If the Business of the firm cannot be carried on except at a loss.

Just and Equitable Clause: If the court considers it just and equitable to dissolve the firm.

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Md. Wahid Murad FCA
E-Mail: wahid_17_apu@yahoo.com
15. Happening of certain contingencies m a y lea d to dissolution o f partnership. what a r e
those?

Subject to contract between the partners, a firm is dissolved on the happening the following of certain
contingencies
a. if constituted for a fixed term, by the expiry of that term;
b. if constitute to carry out one or more adventures or undertakings, by the completion thereof;
c. by the death of a partner; and
d. by the adjudication of a partner as an insolvent.

16. What are the ten Important elements of a stand and partnership deed?

The important elements of a stand and partnership deed are as follows:


1. Name and address of the partners
2. Firm name
3. Nature of business
4. Place of business and business address
5. Duration of the partnership and mode of dissolution
6. The amount of capital to be contributed by each partner
7. The mode of management
8. The powers of the partners
9. Terms on which a partner can retire
10. Expulsion of partners
11. Introduction of new partners

17. What are the classes of Partners?

a. Active partner: An active partner is one who actually participates in the business of the firm. A person
becomes a partner only by agreement.
b. Sleeping or Nominal partner: These partners join the firm by agreement but do not take any active part in
the business. Their liabilities are same as of Active Partners.
c. Sub-partner: The transferee of a share of a partner’s interest in a firm is called a sub- partner. Suppose P,
the owner of ¼ of firm, transfers ½ of his share to Q. Q will be called a sub-partner. His rights and liabilities
are limited.

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