PARTNERSHIP PORBIDDEN BY LAW

1. Number of partners. Section 11 of the Companies Act, 1956 prohibits

the formation of the partnership for the purpose of carrying on the business
of banking with more than ten persons and for any other purpose with more
than twenty persons. f it is desired to carry on business with more than 1! or
more than "! persons for banking and non#banking business respecti$e%y, a
company must be formed.
". An agreement to form a partnership, for the purpose of carrying on an
i%%ega% trade or a prohibited trade, is $oid.
SOME DEFINITIONS
Firm, Firm-name, &artner. &ersons who ha$e entered into partnership
with one another are ca%%ed indi$idua%%y 'partners( and co%%ecti$e%y 'a )rm(
and the name under which their business is carried on is ca%%ed the ')rm#
name.(*#Sec. +, para ".
The Legal Statu !" a Firm. A )rm is not an arti)cia% person %ike a
company. t is mere%y a co%%ecti$e name for the indi$idua% who are trading in
partnership. ,herefore, a )rm is not a %ega% person or a %ega% entity. A
partnership )rm cannot be distinguished from its partners. ,he rights, duties
and ob%igations of a )rm are actua%%y the rights, duties and ob%igations of the
persons who own the )rm.
#lae !" Partner$ Partner %an &e
%lai'e( a &el!)*
1. Acti$e &artner- An acti$e partner is one who actua%%y participates in the
business of the )rm. A person becomes a partner on%y by agreement.
". .ormant, S%eeping or Nomina% &artner- ,hese partners /oin the )rm by
agreement but do not take any acti$e part in the business. ,heir %iabi%ities are
same as of Acti$e &artners.
0. Sub#&artner- ,he transferee of a share of a partner1s interest in a )rm is
ca%%ed a Sub#partner. Suppose &, the owner of of )rm, transfers of his share
to 2. 2 wi%% be ca%%ed a sub# partner. 3is rights and %iabi%ities are %imited.
Name of a &artnership. ,he partners may se%ect any )rm#name they
p%ease, sub/ect to the fo%%owing restrictions-
4a5 ,hey must not se%ect a name which wi%% fraudu%ent%y imp%y that their
business is the same as some other competing concern.
4b5 ,hey cannot use words %ike 6&resident1, 67oya%1, etc. which wi%% imp%y
that the )rm is en/oying the patronage of the state.
,he names of a%% the partners may be used together as the )rm# name
or the name of any particu%ar partner may be so used. t may happen that the
name of a partner is used as the )rm#name but that name is identica% with
the )rm#name of a ri$a% trade. ,his is not i%%ega%. A man is entit%ed to use his
own name for. carrying on business though it is identica% with the name of
another person carrying on a simi%ar business. 8ut if there is any fraudu%ent
intention, he may be may be stopped from doing so. ,urton $. ,urton
1
#lae !" +artnerhi+*
&artnership can be c%assi)ed as be%ow-
1. partnership#at#wi%%- a partnership is ca%%ed a partnership#at#wi%%
415 9hen the partnership is not for a ):ed period of time and
4"5 9hen no pro$ision is made as o when and how the partnership wi%%
come to an end.#sec.;.
A partnership#at#wi%% can be disso%$ed whene$er any partner chooses to do
so.
". &aricu%ar partnership#/oint $enture- a particu%ar partnership is one which is
formed for a particu%ar ad$enture or undertaking.
0. <imited partnership- in =reat 8ritain, according to the pro$isions of the
partnership act of 19!;, a partnership may be %imited. ,here must be at %east
one partner with un%imited %iabi%ity, in ndia there is no such pro$ision. n ndia
t
he %iabi%ity of a%% the partners must be un%imited.
Partnerhi+ +r!+ert,
,he property of the )rm inc%udes a%% property and rights and interests in
property origina%%y brought into the sock of the )rm or ac>uired b purchase or
otherwise, by or for the form, or for the purposes and in the course of the
business of the )rm, and inc%udes a%so the goodwi%% of the business.#se.1+.
,hus property of the )rm means
1. &roperty origina%%y brought by the partners
". &roperty obtained whi%e the )rm was in business and
0. ,he goodwi%% of the )rm.
App%ication of the property of the )rm- sub/ect to contract between partners
the property of the )rm sha%% be he%d and used by the partners e:c%usi$e%y for
the purpose of the business*sac.15.
?:amp%es of partnership property- a partnership is formed with @, A, and B as
partners. @ contributes to the stock of the )rm a p%ot of %and, A a motor %orry
and, B he sum of 7s. 1!,!!!. Subse>uent%y the )rm purchases, out of its
1
(1889) 42 Cg. D. 128
earnings, a house. A%% these properties, and the goodwi%% of the business, are
properties of the )rm.
-!!()ill
=oodwi%% is not de)ned in the &artnership Act. =oodwi%% may be described as
he ad$antage which is ac>uired by a )rm 4o$er and abo$e the $a%ue of the
stock#in#trade and capita% and funds5 from the connections it has bui%t up with
is customers and the reputation it has gained.
',he goodwi%% of a business in the who%e ad$antage of the reputation and
conne:ion formed with customers and together with the circumstances,
whether of habit or otherwise, which tend to make such conne:ion
permanent. t represents in conne:ion with any business which the name and
reputation possesses.(
The +artnerhi+ agreement
,he agreement to carry on business in partnership may be ora% or in writing.
f it is in writing he document in which the terms are incorporated is ca%%ed
the .eed of &artnership or the Artic%es of &artnership.
9ritten documents of partnership usua%%y contain e:hausti$e pro$isions
regarding matters concerning the business and the re%ationship between the
partners. ,he fo%%owing maters are genera%%y inc%uded-
1. Name and address of the partners
". Cirm#name
0. Nature of business
+. &%ace of business and the business address
5. .uration of the partnership and the mode of disso%ution
6. the amount of capita% to be contributed by each partner
;. the share of pro)ts o be taken by each partner
D. the mode of management
9. the power of partners
1!.terms on which a partner can retire
11.e:pu%sion of partners
1".ntroduction of new partners etc.
Regitrati!n !" Firm
,he registration of a partnership is not compu%sory. ,herefore an unregistered
)rm is not an i%%ega% associate. 8ut an unregistered )rm suEers from certain
disabi%ities and therefore registration is necessary for carrying on business.
The "!rmati!n !" regitrati!n
4Sections 56#;15. ,he registration of a )rm may be eEected at any time by
sending by post or de%i$ering to the 7egistrar of Cirms of the %oca%ity, a
statement in the prescribed form and accompanied by he prescribed fee,
stating the fo%%owing particu%arsF
a. the )rm#name
b. the p%ace or principa% p%ace of business of the )r,
c. the names of any other p%aces where the )rm carries on business
d. the date when each partner /oined the )rm
e. the names in fu%% and permanent address of the partners and
f. ,he duration of the )rm
,he statement sha%% be signed and $eri)ed by a%% the partners, or their agents
specia%%y authoriGed on this beha%f. Hn receipt of the statement and the fees,
the registrar records an entry of the statement in the register of )rm and the
)rm is thereupon considered to be registered.
Time "!r regitrati!n
A )rm may be registered at any time. 8ut an unregistered )rm cannot )%e
certain suits. A )rm must be registered before it can )%e sits or c%aim set#oE.
A )rm can be registered e$en after the partners ha$e agreed to disso%$e the
)rm.
#!ne.uen%e !" n!n-regitrati!n /e%$ 012
An unregistered )rm and the partners thereof suEer from certain disabi%ities-
1. A partner of an unregistered an unregistered )rm cannot )%e a suit4 against
the )rm or any partner thereof5 for the purpose of enforcing a right conferred
by the &artnership Act.
". No suit can be )%ed on beha%f of an unregistered )rm against any third pary
fot the purpose of enforcing a right arising from a contract.
0. An unregistered )rm cannot c%aim a set#oE in a suit
E3%e+ti!n- there are certain e:ceptions to the ru%es sated abo$e.
1. A partner of an unregistered )rm can )%e a suit for the disso%ution of the )rm
and for accounts.
". Suits can be )%%ed for the rea%iGation of the properties of a disso%$ed )rm e$en
though it was unregistered.
0. ,he oIcia% assignee or recei$er can rea%iGe the properties of an inso%$ent
partner of an unregistered )rm.
+. ,here is no bar to suits by unregistered )rms and by the partners thereof in
areas where the pro$isions re%ating to the registration of )rms do not app%y
by noti)cation of a State =o$ernment under section 56.
5. An unregistered )rm can )%e a suit4 or c%aim a set oE5 for a sum not
e:ceeding 7s. 1!! in $a%ue, pro$ided he suit is of such a nature that it has to
be )%ed in the ma%% Causes Court. &roceedings incidenta% to such suits, e. g.
e:ecution of decree, are a%so a%%owed.
6. An unregistered )rm suEers from certain disabi%ities but it is not an i%%ega%
association. ,herefore registration of a )rm is optiona%.