A partnership firm comes into being only by an agreement betwee

Learning Objectives

Partnership Deed
Duration of Partnership
Types of Partners
Minor as a Partner: rights;
liabilities; position on attaining
majority
Registration: time; procedure;
consequences of non-registration

PARTNERSHIP DEED
Although a partnership agreement may be oral,
yet it is always healthier to have it in writing. Such
an agreement-in-writing is called a Partnership
Deed. This document contains terms and
conditions of the partnership and sets forth the
rights and obligations of the partners. A
partnership deed should be carefully drafted and
stamped according to the provisions of the Indian
Stamp Act. Each partner should be given a copy of
the deed and if the firm is registered, a copy
should be filed with the Registrar of Firms at the
time of such registration.

Contents of Partnership
Deed

A partnership deed typically contains the following information:

1.Name of the firm;
2.Names and addresses of partners
3.Nature and scope of business and place(s) of business of the firm
4.Date of commencement and duration of partnership;
5.The amount of capital to be initially contributed by each partner
6.Provision for future capital and loans by partners to the firm
7.Ratio in which profits and losses are to be shared amongst the partners
8.Rules regarding operation of accounts, and arrangement for audit and safe custody
of funds
9.Interest on partners capital, partners loans, and interest, if any, to be charged on
drawings made by the partners
10.
Salaries, commission and remuneration, if any, payable to partners
11.
Accounting period and the date on which final accounts are to be prepared
12.
Rights, powers, and duties of the partners
13.
Rules relating to the admission, retirement or expulsion of partners
14.
Valuation of goodwill on admission, retirement, and death of a partner
15.
Mode of dissolution of the firm
16.
Settlement of accounts on the dissolution of the firm etc.; and
17.
The arbitration clause for the settlement of disputes among the partners amicably.

DURATION OF PARTNERSHIP

From the duration point of view, a partnership may be classified into two
categories, namely, partnership at will and particular partnership.
Partnership At Will [Section 7]. Where no provision is made by the partners
for the duration of their partnership, or for the determination of their partnership,
the partnership is partnership at will. In other words, a partnership is deemed to
be a partnership at will where
no fixed period has been agreed upon for the duration of partnership, and
no provision is made as to the determination of partnership in any other way.
Thus, it is a partnership for an indefinite period. The death or retirement of a
partner does not affect the existence of such a partnership.
Where the partnership is at will, the firm may be dissolved by any partner giving
notice in writing to all the other partners of his intention to dissolve the firm. The
firm is dissolved from the date mentioned in the notice as the date of dissolution.
And where no such date is mentioned, the firm is dissolved from the date of
communication of the notice.
[Section 43 (1)]
However, if the agreement provides that the partnership can be dissolved by a
mutual agreement only, it will not be a partnership at will. This is so because
such a firm cannot be dissolved by giving a notice only.
Contd.

.DURATION OF PARTNERSHIP

Particular Partnership [Section 8]. When a

partnership is formed for a specific venture, or for a
particular period, it is called particular partnership.
Such a partnership is automatically dissolved on the
completion of the venture, or on the expiry of the
period. However, if the partners want to dissolve the
firm before the fixed period, it may be dissolved
with the consent of all the partners.
Similarly, if the partners decide to continue such a
partnership after the expiry of the fixed term or
completion of the venture, it shall be deemed to be
a partnership at will.

TYPES OF PARTNERS

The following types of partners generally

exist in a partnership:
1. Active or ostensible partner
2. Dormant or sleeping partner
3. Nominal partner
4. Partner in profits only
5. Sub-partner
6. Partner by estoppels or holding out
Contd.

.TYPES OF PARTNERS

1.

2.

3.

4.

Active or Ostensible Partner. A person who enters into partnership by

agreement and takes active part in the conduct of the partnership
business is called an active or ostensible partner. S/He is an ordinary
partner who invests money into the business of the firm, acts as an agent
of other partners for all acts done in the ordinary course of business, and
shares its profits (and losses).
Dormant Partner. A dormant or sleeping partner is one who invests
funds in the firms business and has a share in the profits of the firm but
does not actively participate in the functioning and management of the
business. However, s/he is equally liable to third parties for all the debts
of the firm like an undisclosed principal.
Nominal Partner. A nominal partner is one who just lends his name to
the firm without any material interest in the firms business. A nominal
partner neither contributes to the capital to the capital of the firm nor
shares the profits (or losses) nor takes part in the management of the
firm. He along with other partner is liable to third parties dealing with the
firm for all the acts of the firm.
Partner-in-Profits Only. A partner-in-profits, as the term indicates, is
one who is entitled to a share in the profits of a partnership without being
liable for losses, if any. A person who has sufficient funds to introduce
towards the capital of the firm but is not inclined to take risk may be

.TYPES OF PARTNERS

5.

6.

Sub-partner. Where a partner agrees to share his/her profits

in the firm with a third person, that third person is known as a
sub-partner. A sub-partner, however, is in no way connected
with the firm, and hence, has no rights or duties towards the
firm and does not carry any liability for the debts of the firm
as well.
Partner by Estoppels or Holding Out. If the conduct of a
person causes an impression to the outsiders that he is a
partner in a firm (where in reality he is not) he can also be
treated as a partner. Such a person is stopped later on from
denying the liabilities for the acts of the firm. Anyone who by
words, spoken or written, or by conduct represents himself or
knowingly permits himself to be represented as a partner in a
firm, is liable as a partner in that firm to anyone who has on
the faith of any such representation extended credit to the
firm. [Section 28 (i)] The person so representing himself is
called a partner by estoppel or holding out. A retiring partner,
who has not given a public notice of his retirement, can also
be held liable on grounds of holding out if his name is still
being used by the firm. The reason for the same is that the

Effect of holding out

Though the holding out partner does not become a partner in the firm and
is not entitled to any rights or claim upon the firm, yet he is personally and
individually liable for the debts undertaken by the firm. An outsider, who
has given credit to the firm presuming him to be a partner (i.e., by virtue
of his conduct), can hold him liable as if he is a partner in that firm. Such a
partner may alone be required to pay the whole debts, as the liability of
the partners is joint and several. However, he can recover the amount so
paid from all the solvent partners of the firm under the Doctrine of
Subrogation as well as on the basis of Quasi-contract.
Exceptions to holding out
Where after a partners death the business is continued in the old firm
name, the unrelenting use of that name or of the deceased partners
name as a part thereof shall not of itself make his legal representative or
his estate liable for any act of the firm done after his death. Thus, the
doctrine of holding out does not extend to bind the estate of a deceased
partner, where after a partners death the business of the firm is
continued in the old firm name. Moreover, the principle of holding out
does not apply in the case of a partner who has been adjudicated
insolvent.
[Section
28 (2)]

POSITION OF MINOR AS A PARTNER

A partnership is created by an agreement not by status and we know that
an agreement by, or with, a minor is void ab initio. It follows that a minor
cannot enter into partnership. Section 5 of the Partnership Act clearly
states, The relation of partnership arises from a contract.. A minor
is incompetent to contract. Therefore, a partnership cannot come into
existence if the parties to a contract of partnership consist of one major
and a minor. A minor can, however, be admitted to the benefits of
partnership with the consent of all the partners by an agreement
executed through his/her guardian with the other partners.
[Section 30]
The above provision implies that a minor cannot be a full-fledged partner.
S/He can utmost be admitted into the benefits of the firm. In this regard
consent of all the existing partners is must. Consent only of the majority
of partners would not be sufficient.
It must be noted that a partnership firm cannot be formed with only
minors as partners. There must be at least two major partners before a
minor is admitted to a partnership firm to derive benefits under it.

Rights of Minor in Partnership

Section 30 grants the following rights to a minor:
1. S/He is entitled to share the profits and the property of the firm in
accordance with the agreement. But s/he cannot participate in the
functioning and management of the firms business, as s/he has no
representative capacity to bind the firm.
2. S/He has the right to have access to and inspect and copy any of
the accounts of the firm. S/He has, however, no such right in
respect of books other than accounts books as they may contain
secrets, which may be restricted to real partners only.
3. S/He has a right to bring a suit for his/her share of profits or the
property of the firm when s/he is not given his/her due share of
profits. However, s/he can exercise this right when s/he intends to
sever his/her connections with the firm and not otherwise.
4. S/He can become a partner in the firm on attaining majority but
shall be entitled to the same share of profits, which s/he was
getting as a minor.

Liability of Minor
A minors share is liable for the acts of the firm. But a minor is not personally liable for any
such act and so his/her private estate cannot be attached towards the payment of the
firms debts incurred during his/her minority. On attaining majority, however, if s/he elects
to become a partner, s/he becomes personally liable to third parties for all the acts of the
firm done since s/he was admitted to the benefits of partnership.
[Section30 (3)]
Position of a Minor on Attaining Majority. Within six months of attaining majority or
of obtaining knowledge that s/he had been admitted to the benefits of partnership,
whichever date is later, the minor partner has to elect whether s/he wants to continue, or
sever his/her connections with the firm. If s/he decides to leave the firm, s/he must give a
public notice of his/her intention. If s/he fails to give any public notice within period stated
above, it will be presumed that s/he has opted to become a partner in the firm.
[Section 35 (5)] Contd.
.

.Position of a Minor on Attaining Majority

When minor elects to become a partner . If the minor elects to become
a partner or becomes a partner by his/her failure to give public notice within
the stipulated time, his/her position will be as follows:
1. His/her rights and liabilities will be similar to those of a full-fledged partner
2. S/He will be personally liable to third parties for all acts of the firm, done
since s/he was admitted to the benefits of the partnership.
3. His/her share in the property and profits of the firm remains the same, as
s/he was entitled as a minor, unless altered by agreement.
[Section 30 (7)]
When minor elects not to become a partner . If the minor decides to
severe his/her connection with the firm, his/her position with regard to rights
and liabilities will be as follows:
4. His/her rights and liabilities shall continue to be those of a minor up to the
date of giving public notice.
5. His/her share shall not be liable for any acts of the firm done after the date
of the public notice.
6. S/He shall be entitled to sue the partners for his/her share of the property
and profits in the firm.
[Section 30 (8)]

REGISTRATION OF FIRM
The registration of a firm means getting the firms name
recorded along with necessary particulars in the Register of
Firms kept in the office of the latter. Prior to the enactment of
the Indian Partnership Act, 1932, there was no provision for the
registration of partnership firms in India. And as a matter of
fact, it is still not compulsory for a partnership firm to get it
registered. The Act has made the registration optional, solely
at the discretion of the partners. However, by creating certain
disabilities from which an unregistered firm suffers, the Indian
Partnership Act has made the registration of firms sought-after.
Time of Registration
Since registration of a firm is not compulsory, it can be
affected at any stage. A firm may get itself registered at any
time during the continuance of its business. Getting a firm
registered has its own advantages, such as the follows.

Procedure for Registration

The partners may get their firm registered by filing a statement in the
prescribed form and sending the same along with the prescribed fee by
post or delivering it to the Registrar of Firms of the area in which any place
of business of the firm is situated or is proposed to be situated. The
statement must be signed by all the partners, or by their agents
specifically authorized in this regard. It shall state the following:
1. The firms name
2. The place of business of the firm or if there is more than one place of its
business, the principal place of business
3. The names of any other places where the firm carries on business
4. The date when each partner joined the firm
5. The names in full and permanent addresses of the partners; and
6. The duration of the firm.
Contd.

.Procedure for Registration

The contents of the statement should be duly verified by the persons
signing it. A firm name shall not contain any of the following words namely;
Crown, Emperor, Empress, Empire, Imperial, King, Queen, Royal or
words expressing or implying the sanction, approval or patronage of the
government. Once the Registrar is satisfied that the provisions of Section 58
have been duly complied with, s/he shall record an entry of the statement in
a register called the Register of Firms, and shall file the statement. S/He
shall then issue a certificate of registration to the firm concerned.
[Section 58]
Change of particularsIf any alteration is made in the name of the firm or
in the location of the principal place of business, or in any other particulars
given after registration of the firm, the same should be duly notified to the
Registrar of Firms so that the changes can be incorporated in the register of
firms.
[Section 60]
Penalty for furnishing false particulars . If any person knowingly, or
without belief in its truth, furnishes false or incomplete information, s/he
shall be punishable with imprisonment, which may extend to three months,
or with fine, or with both.
[Section 70]

Consequences of Non-registration
Registration is the only evidence of the existence of a partnership, and the
facts entered in the records of the Registrar of Firms are treated as
conclusive proof by the courts. An unregistered firm and its partners suffer
from the following disabilities:
1. No suit can be filed in a civil court by a partner against the firm
or other co-partners. If any dispute arises among the partners or
between a partner and the firm, or between a partner and his co-partner,
and the dispute is based upon the rights arising from the partnership
agreement (i.e., partnership deed) or related to the rights conferred by
the Partnership Act, then a partner of an unregistered firm cannot
institute a suit (in any court of law) against the firm or the ex-partners(s).
[Section 69 (1)]
2. No suit can be filed in a civil court by the firm against third party
. An unregistered firm cannot institute a case against a third party in a
civil court to enforce any right arising out of the contract with the latter,
such as, for the recovery of the price of goods supplied. But, of course,
criminal proceedings can be brought against the wrong doers by an
unregistered firm also.
[Section 69 (2)]
3. No right of set off . The above two disabilities also apply to a claim of
set-off or other proceedings to enforce a right arising from a contract.
Accordingly, if any suit is filed by a third party against an unregistered
firm to recover a sum of money, the firm is not allowed to claim a set-off,
i.e., the firm cannot say that since the third party also owes some money

.Consequences of Non-registration: Exceptions

Non-registration of a firm, however, does not affect the following rights of a partnership
firm:
1. The right of third parties to sue the firm or any partner(s).
2. The right of the firm to institute a suit or claim a set-off if the value of suit does not
exceed Rs 100.
3. The right of partners to sue for the dissolution of the firm or for the accounts of a
dissolved firm, or any right or power to realize the property of a dissolved firm.
4. The powers of an Official Assignee, Receiver or Court to realize the property of an
insolvent partner.
5. The rights of firms or partners of the firm having no place of business in India.
It should be clear from the above that though there is no legal compulsion for a firm to
get it registered but, by creating (indirectly) certain disabilities, an unregistered firm
suffers from, the law has made it advisable for a partnership firm to get itself registered.