The Partnership Act, 1932

Definition

Section 4 of the Partnership Act,

1932 defines Partnership as the
relation between persons who have
agreed to share the profits of a
business carried on by all or
anyone of them acting for all.
The persons who enter into such
relationship are called PARTNERS

Essential Elements of
Partnership

Association of two or more persons

Max. limit : 10 for banking; 20 for other business
Result of an agreement
Partnership relation based on Contract.
Implied or Express (Oral or Written)
Must carry on some business
Trade, Occupation or Profession
Share profits of the business
Business is carried on by all or any one of them
acting for all (mutual agency)

Mode of Creating
Partnership

Based on agreement
Agreement may be express or implied
In Writing : helpful in times of adversity
Written agreement : Partnership Deed
Essence of Partnership : Trust & Confidence
Drafted with care and signed by all partners
Stamped in accordance with Indian Stamp Act
Firm should be registered and copy of the
Deed to be filed with the Registrar

Partnership Deed

Prepared for resolving mutual differences

Usual Contents :
Date of Agreement
Name and Address of the Firm
Name and Address of the Partners
Nature of Business
Duration of Partnership
Capital invested by each partner
Ratio to divide profits and loss

Partnership Deed

Usual Contents Contd. :

Appointment of Auditor and remuneration
Drawing by partners and interest
Interest on Capital and Advances
Salary and Commission payable to partners
Duties, Functions and Powers of Partners
Rules regarding admission, retirement and death
Dissolution
Arbitration
Method of valuation of Goodwill

Firm Name

Name under which the business is carried

on
Any name
Should not be a name already adopted by a
reputed firm, to mislead public
Should not contain words : Crown, Emperor,
King, Queen, Royal, Empire, Imperial or
words expressing or implying the sanction,
approval or patronage of Government

Property of the Firm

Joint property of all the partners as opposed to

their personal property
Property includes
Originally brought into firm by partners
Acquired by the firm
Acquired by one or more partners for the
purpose of business
Goodwill of the firm
To be held and used by all partners for the
purpose of business (not for private use)

Positions

Lunatic : cannot become a partner

Alien Enemy : cannot become a partner
Alien Friend : can enter into contract
Woman : Married or Unmarried can be
a partner
Insolvent : Cannot become a partner;
ceases to be a partner from date on
which order was passed by court

Position of Minor

Sec 30(1), A person who is a minor

according to law to which he is subject
may not be a partner in a firm, but with
the consent of all the partners for the
time being, he may be admitted to the
benefits of partnership.
A minor can only be admitted to the
benefits of an already existing
partnership

Position of Minor

During his Minority

Rights
Right to receive agreed share of profits and
property
Have access to and inspect and copy the
accounts of the firm
If share in profits is not given, can sue (can do if
he wants to sever his connection)
Liabilities
Only to the extent of share in profits and
properties (not personally liable)

Position of Minor

On Attaining Majority

Within six months should give notice

whether he is joining the partnership
or not.
If notice not given he shall become a
partner

Position of Minor

When a Minor elects to become a partner

Rights
Share remains the same
Rights and Liabilities as that of a full fledged partner
Rights will be the same till the date on which he
becomes a partner
Liabilities
Liabilities will be the same till the date on which he
becomes a partner
Personally liable to third parties for all acts of the
firm from the date of becoming a partner

Position of Minor

When a Minor elects not to become a partner

Rights
Rights will be the same till the date of notice
Entitled to sue for his share of property and
profits
Liabilities
Liabilities will be the same till the date of notice
His share of property and profits will not be
liable for any acts of the firm after the date of
notice

Types of Partnerships

Partnership at Will

No provision in contract between the

partners for

Duration of Partnership
Determination of Partnership

If any partner gives notice of

dissolution in writing, the partnership
is dissolved.

Types of Partnerships

Particular Partnership

A person may become a partner with

another person in particular
adventures or undertakings.
On completion of such a venture, the
partnership comes to an end.

Types of Partnerships

Partnership for a Fixed Term

Duration is fixed
Partnership comes to an end when
the term expires.
If Partners continue the business after
the fixed period, it becomes
partnership at will.

Classes of Partners

Actual or Active Partner

Engaged in actual conduct of the business
His acts binds the firm and other partners
Notice to be given in case of retirement
Sleeping or Dormant Partner
Does not take part in the conduct of business
Contributes his share of capital and enjoys
profits and losses
Not known to outside world
Not liable to third parties for the acts of the firm.
Not required to give notice in case of retirement

Classes of Partners

Nominal Partners

No real interest in business, Does not

contribute any capital, Lends his name only
No share in profits but liable to third parties
for all acts of the firm

Partner in Profits only

Shares the profits but not losses

No interest in the management of the firm
Liability for the acts of the firm is unlimited

Classes of Partners

Partner by Estoppel or Holding Out

Represents himself as a Partner, by words
spoken or written or by conduct
Liable as a partner if credit is given to the firm
based on his representation. He cannot deny.
If a partner does not give public notice and
his name is still used in the business, he is
also liable to third parties

Deceased partner is an exception to this rule.