Law of Partnership

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 What is partnership?
• Relation between persons carrying
business in common with a view to earn
profit.

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 Feature
• Relation between two or more persons
• Relation created by agreement
• Purpose to carry business
• Exist with a view to earn profit
• Carried by all or any of them
• Partnership is commonly described as
firm.

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Reason to establish partnership
• Easy to form
• No formalities
• Capital not divided in shares
• All can be in the management
• No disclosure
• Easy to dissolve
• Easy to share profit.

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• The business name of partnership
• Partnership operates under a business
name and are limited by Business Names
Act in their business name.
• For eg. Anderson and partners

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 Features
• No legal personality
• Unlike company it is not a legal person.
• A third party entering into business
transaction with a partnership doesnot
have a contractual agreement with the
partnership; the contractual agreement is
between the third party and all the
partners as indivisuals.
• In partnership no limited liability
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 Types
• General partner: who carries business
• Sleeping partner:
• Who invests but take no part in day to day
running of business apart from receiving a
return on capital invested.
• Salaried partner: professional partnership
who received salary but in reality not really
a partner nonetheless, they are liable for
partnership debts too.
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 Existence of partnership
• Partnership is created by contract not by
status.
• Agreement is must, written agreement
called ‘articles of partnership’.
• Sharing the gross profit is prima facie of
partnership
• Mutual agency

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 Partnership agreement
• Defines the purpose of the partnership and the rights
and duties of partners.
• It should also state the amount that partners are
putting into
• If it fails to set out the terms of partnership:
• Will be as per the provision of Partnership Act .
• Partners can specify the rules in their written
agreement.
• The terms can be amended by the consent of the
partners.
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 Duties of partners:
• Even though duties may not be specified in the
agreement partners owe certain duties as they
stands on fiduciary relation.
• Duty of disclosure:
• Disclosure of true accounts and full information
in relation to all things affecting the partnership
to the other partners of their legal
representatives.

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• Duty of account:
• partners must account to the firm for any benefit
obtained.

• Bentley v Craven:
• Craven was in partnership with the plaintiff in a
sugar refinery business. He bought sugar on his
own account and later sold it to the partnership
at a profit, without declaring his interest to the
other partners.
• It was held that the partnership was entitled to
recover the profit from the defendant.
• Duty not to compete.
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 Rights of partners:
• To share equally in the capital and profits of
partnership business.
• Right to indemnify for any liabilities incurred or
payments made in the course of the firms
business.
• To take part in the management of the business
• To have access ot the firm’s books
• To prevent the admission of new partners or
change the nature of business.
• Right to share the profit proportionately.
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 Partnership property
• Must be owned collectively:
• 1. Partnership property must be used
exclusively for partnership purposes.
• 2. Any increase in the value of partnership
property belongs to the partnership.
• 3. On the dissolution of the firm,
partnership property is used to pay debts
before personal property.
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 Dissolution of partnership
• By the expiry of fixed term [32]
• By completion of the specified purpose [32]
• By giving notice,
• By death or bankruptcy of any partner, [33]
• Illegality
• By mental incapacity of partners or permanent
incapacity,
• If partners activity is prejudicial to the business,
• If the partnership agreement is breached.
• By consent of all partner [29] 14
Dissolution by court

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