School of Commerce and Management Sciences, Nanded.

A Seminar Report On

PartnershiP

Under the subject LEGAL ASPECTS OF BUSINESS

Presented By Miss. Jain Deepika D.

MBA I semester Roll No.18

Submitted To Mr. R.V. TEHERA

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INRODUCTION
The Indian Partnership Act was passed in 1932 to define and amend the law relating to partnership. Indian Partnership Act is one of very old mercantile law. Partnership is one of the special types of Contract. Initially, this was part of Indian Contract Act itself (Chapter IX - sections 239 to 266), but later converted into separate Act in 1932. The Indian Partnership Act is complimentary to Contract Act. Basic provisions of Contract Act apply to contract of partnership also. Basic requirements of contract i.e. legally enforceable agreement, mutual consent, parties competent to contract; free consent, lawful object, consideration etc. apply to partnership contract also.

Definitions of PARTNERSHIP
A partnership is the relationship existing between two or more persons who join to carry on a trade or business. Each person contributes money, property, labor or skill, and expects to share in the profits and losses of the business. A partnership must file an annual information return to report the income, deductions, gains, losses, etc., from its operations, but it does not pay income tax. Instead, it "passes through" any profits or losses to its partners. Each partner includes his or her share of the partnership's income or loss on his or her tax return. Partners are not employees and should not be issued a Form W-2. The partnership must furnish copies of Schedule K-1

(Form 1065) to the partners by the date Form 1065 is required to be filed, including extensions.

Characteristics of PARTNERSHIP
1. TWO or more persons: There should be at least two persons to form a partnership if the number of partners gets reduced to one by any reason, say death or insolvency of partner it would cease to be a partnership. As for the maximum number of partners in a firm, the Partnership Act is silent. However, section 11 of the Indian Companies Act limits the maximum number of partners to ten in case of a banking business and twenty in case of any other business.

2. Agreement between Persons: A Partnership originates from an agreement between persons. This agreement may be expressed or implied. It should also be noted that a partnership does not arise out of status as in the ownership. It is essentially the creation of contract between two or more persons and all elements of a valid contract must be present. 3. Business: Partnership can be formed only for the purpose of carring on some business. An association created primarily for charitable, religious, social purposes are not regarded as partnership. Similarly , when two or more persons agree to share the income of a joint

property, it does not amount to partnership. Such relationship is termed as co-ownership. 4. Sharing of Profit: Sharing the profits of business is the essence of partnership. Unless otherwise agreed, sharing of profits of a business implies sharing of its losses as well. However, a person can become a partner on the understanding that he will not share the losses. The ratio in which the profits and losses will be shared is a matter of agreement amongst the partners. It should be noted that though sharing of profits of a business is essential, it does not follow that everyone who participates in the profits of a business is necessarily a partner.

5. Business carried on by all or any of them acting for all: The under lying principal which governs partnership is the agency relationship amongst the partners. The business of the firm may be carried on by all the partners or by any of them acting for all. This means that a partner is both an agent and the principal. He can, by his acts, bind the other partners and is bound by the acts of the other partners.

Types of PARTNERSHIP

GENERAL PARTNERSHIP: A general partnership is a partnership with only general partners. Each general partner takes part in the management of the business, and also takes responsibility for the liabilities of the business. If one partner is sued, all partners are held liable. General partnerships are the least desirable for this reason. LIMITED PARTNERSHIP: A limited partnership includes both general partners and limited partners. A limited partner does not participate in the day-to-day management of the partnership and his/her liability is limited. In many cases, the limited partners are merely
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investors who do not wish to participate in the partnership other than to provide an investment and to receive a share of the profits. LIMITED LIABILITY PARTNERSHIP A limited liability partnership (LLP) is different from a limited partnership or a general partnership, but is closer to a limited liability company (LLC). In the LLP, all partners have limited liability. An LLP combines characteristics of partnerships and corporations. As in a corporation, all partners in an LLP have limited liability, from errors, omissions, negligence,

incompetence, or malpractice committed by other partners or by employees. Of course, any partners involved in wrongful or

negligent acts are still personally liable, but other partners are protected from liability for those acts. In recent years, the limited liability company has supplanted the general partnership and the limited partnership, because of the limits of liability. But there are still cases in professional practices in which some want to be limited in scope of duties and they just want to invest, having the liability protection.

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Types of PARTNERS

Depending on the reason behind which a particular partnership is made, partners may be of different types. To understand this better, consider the following: ACTIVE PARTRNES: The partners who actively participate in the day-to-day operations of the business are known as active partners. They contribute capital and are also entitled to share the profits of the business. They also share the losses that the business faces. Dormant/ Sleeping partners: Those partners who do not participate in the day-to-day activities of the partnership firm are known as dormant or
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sleeping partners. They only contribute capital and share the profits or bear the losses, if any. Nominal partners: These partners only allow the firm to use their name as a partner. They do not have any real interest in the business of the firm. They do not invest any capital, or share profits and also do not take part in the business of the firm. However, they do remain liable to third parties for the acts of the firm. Minor as a partner: In special cases a minor can be admitted as partner with certain conditions. A minor can only share the profit of the business. In case of loss his liability is limited to the extent of his capital contribution for the business.

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Partnership in Profit only: Partners who do not like loss bearing can enter into partnership sharing only the profit. Such a partnership is called as partnership in profit only. Sub Partnership: If a partner wants to share his profits to others he can enter into the partnership with others stating the profit sharing levels or ratio. This is sometime referred to as partnership marketing. Estoppel Partnership: When the person himself represents or allows him to be represented as a partner in the firm and the third person on the faith of representation gives credit to firm. Then he becomes liable to such third person. Such partnership is called partner by estoppel.

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formationof Partnership
Hearty LLP was formed in 1974 and is now a major regional player in the lawMarketplace, serving clients both locally and across the UK. Our rapid growth is aResult of offering a top quality service, backed by an innovative approach to the law. We have been first with many services and marketing initiatives, and continually driveTo exceed client expectations.

1 Choice of name A partnership does not have to register its name and theoretically could starttrading under any name it wishes. The choice is subject to the BusinessNames Act 1985, however, which prevents a business from using certainnames for example you cannot trade as Smith Europe unless you trade
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in Europe. Certain sensitive names are also restricted, for example in order touse the name Windsor you need the consent of the Lord Chancellor.Your name must be displayed outside your offices and also on your stationary(see below). Hegarty LLP can help you to choose the best name to complywith the statutes and suit your needs.

2 Partnership Agreements There is very little statutory control over the running of a partnership. Thepartners are free to decide between themselves how their business is run.Also, unlike the articles of a company, the partnership agreement is a

privatedocument.A partnership agreement can contain as much or as little control as thepartners wish. It can cover for example how decisions will be made, howprofits will be
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shared, and what will happen in the event of a partner wishingto leave the partnership (or indeed the majority of the partners wishing toexpel a partner).It is also entirely possible to have no agreement at all. In this case, the Partnership Act 1890 sets out default rules to cover the running of thebusiness. These include for example that profits will be shared equally, thatthere is no right to be paid for working for the business, all partners can takepart in the management, and that if one partner wishes to leave thepartnership, then the partnership will be dissolved. 3 Liabilities: The main disadvantage of a partnership is that there is no limited liability. Asa general rule, the liability of a company will only extend to the amount of itsshare capital, and so long as the shares have been issued fully paid up therewill be no
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reason for the shareholders to have to pay further money. In the case of a partnership on the other hand, all the partners are jointly andseverally liable for all the partnership debts. This means that any partner willbe liable for the full amount of all the debts of the partnership, regardless ofwhether they were responsible for incurring the debt. This liability is unlimited And can extend to all the personal assets of each partner, including theirhome.While this may seem to be a reason for choosing a company rather than apartnership, it is worth remembering that there are cases where directors of a Company will be held personally liable for debts incurred by the company and, in the case of small business, banks often ask for personal guarantees fromdirectors to avoid the risk of the company not having enough money to pay.
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4. Stationery All businesses must make sure all their business stationery contains certaininformation such as the principal place of business and the names of eachpartner. Extra information must also be included in certain situations.Hegarty LLP can tell you exactly what information you need to provide foryour situation. 5. Insurance It is essential to think about what insurance you will need for your newbusiness. Any property and other assets obviously need to be insured, butyou may also need other insurance including Public Liability Insurance,Professional Indemnity Insurance, and if you will have employees, Employers Liability Insurance.

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6. Accountants and Auditors The business must prepare annual accounts and therefore in most cases willrequire accountants. Also remember that once a business reaches a setturnover (currently 60,000) it must register for VAT and will thereafter haveto file a VAT return with Customs & Excise. You may also wish to have youraccounts audited by independent auditors. These are things you may want todiscuss with your accountants.

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Position of a minor in partnership firm

The position of a minor in partnership firm and the provision, of law in this respect are given below: A minor cannot become a partner in the firm:1. But he can admit 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.

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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.
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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.

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2. He has right to sue the partners for his share of the profits in property.

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