Professional Documents
Culture Documents
Introduction of Partnership..........................................................................................1
Important elements necessary to constitute partnership.........................................1
Types of Partnership....................................................................................................1
Ordinary Partnership................................................................................................1
Limited Partnership..................................................................................................1
Partnership at-will.....................................................................................................2
Difference between Company and Partnership............................................................3
Difference between Joint Venture and Partnership......................................................5
Rights Duties and Liabilities of Partners......................................................................6
Rights of Partners.....................................................................................................6
Duties of Partners (General/ Fundamental /Absolute)..............................................6
Liabilities of Partners................................................................................................6
Registration of Partnership..........................................................................................8
Procedure and Requirements...................................................................................8
Partnership Deed......................................................................................................8
Application................................................................................................................9
Advantages of Registration........................................................................................10
Advantages of Registration to the firm...................................................................10
Advantages of Registration to the Partners............................................................10
Advantages of Registration to the Creditors...........................................................10
Costs for Non-Registered Firm................................................................................10
Reconstitution of a Partnership Firm..........................................................................11
Dissolution of Firm/ Partnership.................................................................................12
Process for the dissolution of a Partnership firm........................................................15
References.................................................................................................................16
References
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Introduction of Partnership
“Partnership" is the relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all. The term is
defined as a voluntary contract between two or more competent person to
place their money, effects, labor and skill, or some or all of them, in lawful
commerce or business, with the understanding that there shall be a
communion of the profits thereof between them. Halsbury defines a
partnership as "the relation which subsists between persons carrying on a
business in common with a view of profit".
Types of Partnership
Thus, when all these conditions are fulfilled, a group can be registered as
partners. Now there are various types of partnerships.
1. Ordinary Partnerships
2. Limited Partnerships
3. Partnership at-will
Ordinary Partnership
All of the partners share equal rights and responsibilities in the management
of the business. Likewise, each partner in an ordinary partnership assumes
full personal liability for the debts and obligations of the business. And one
partner can enter into a contract on behalf of the partnership, making the
other partner(s) legally bound to the terms of the contract. The profit of a
general partnership passes through to its owners, making it taxable at each
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partner's individual income tax rate. (Partnership losses are also "pass-
through", giving each partner the ability to offset taxable income from other
sources.)
Limited Partnership
In this kind of partnership one or more partners have limited liability and at
least one of the partners has unlimited liability. The liability of the limited
partner is limited to the extent of his investment in the business.
a) It is formed under Limited Partnership Act 1907 (of England)
b) One or more partners have limited liability
c) There is at least one partner with unlimited liability
d) The firm must be registered. Once this is done the rights and duties of the
partners are also recognized.
e) A limited partner has no right to take an active role in the management of
partnership.
f) The capital invested by the limited partner will not be returned to him as
long as he remains a limited partner on the firm.
g) The limited partner can inspect the accounts of the firm at any time.
h) A new partner can be introduced into the firm at any time without the
consent of the limited partners.
i) The partnership should not consist of more than 20 partners (whether
limited or not) except in the case of banking where they should not exceed
10.
j) The registrar of Joint Stock Companies shall be the registrar of Limited
Partnerships.
Partnership at-will
The essence of a “partnership at-will” is that the partners do not limit the
duration of their partnership, and are free to break their relationship at any
time they see fit. It is a partnership for indefinite period. The partnership may
be dissolved at any point as long as the partner gives notice to all the other
partners. An ordinary partnership becomes a partnership at-will under the
following circumstances:
a) If the partnership is of a indefinite period
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b) If a partnership is formed for a limited period of time, and the firm
continues to function after the expiry of this period.
c) If a partnership is formed to conduct a particular venture, and then
continues to function after the venture is complete.
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Difference between Company and Partnership
The above mentioned partnership types can be differentiated from a
company in many ways. These include:
PARTNERSHIP COMPANY
1. A partnership is not a distinct legal 1. A company is a distinct legal person.
person, but is made of the persons
composing it.
4. Each partner is prima facie the agent of 4. Shareholders in a Company are not the
others, and can bind them by his contract agents of one another.
made in the course of business of the
partnership.
5. Each partner is liable in full for the debts 5. The liability of Company’s shareholders is
of the firm. limited by shams or by guarantee.
6. A partner cannot contract with his firm. 6. A share holder in a company can contract
with the company.
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10. Property may be the common property 10. Property belongs to the company and not
of partners. to its members.
11. Restrictions contained in a partnership 11. On the other hand restrictions in the
deed will not affect third parties, who are Articles of a Company affect third parties also.
not aware of such restrictions.
12. A firm cannot sue and be sued in its own 12. A company can sue and be sued in its own
name. name.
13. Decree against a firm can be executed 13. A Decree against a company cannot be
against the partners. executed against its shareholders.
15. A firm having no separate legal 15. A company on the other hand can be a
existence cannot be shareholder of shareholder of another company.
company.
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Difference between Joint Venture and Partnership
Partnership can also be differentiated from a joint venture according to the
following differences:
3. The members in a partnership 3. Joint ventures on the other hand can use
can claim Capital Cost Allowance as much or as little of the CCA as they
as per the partnership rules. wish. There is no need to file returns in a
joint venture but it has to be filed in
partnership.
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Rights Duties and Liabilities of Partners
Rights of Partners
The different rights of the partners are as follows.
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Liabilities of Partners
The liabilities of the partners are given below.
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Registration of Partnership
Procedure and Requirements
The registration of Partnership firm is not required by law and there is no
penalty for non-registration. Nevertheless registration can give my
advantages to the firm. First of all Form – I needs to be filled. It is attached in
appendix B. Then Partnership Deed is prepared on the Stamp Paper of worth
Rs. 500. A sample for the statement of Partnership Deed is also added in
appendix B. Registration fee of Rs. 500 also needs to be deposited in
National Bank of Pakistan through Challan Form. It is mandatory for the firm
to be located in commercial area. Copy of Lease Agreement or Ownership
proof needs to be provided as well. A template of Lease Agreement is
attached in appendix B.
Partnership Deed
“Partnership Deed” is a document that tells about the mutual rights and
obligations of all partners. This needs to be signed by all the partners and
subsequent copies held by each partner. At the time of registration, a copy of
the deed has to be submitted with an application to the Registrar of Firms in
the concerned area. This document may also be referred to as an “Article of
partnership”. A partnership deed usually contains the following format:
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capital is property, a full description of the property and the valued
amount should be given also.
5. The names and addresses of each partner should be given
6. The duration of the partnership if any
7. The ratio of sharing profits and losses
8. The amount or percentage of interest, if any, which is to be allowed on
capital
9. The amount of salary each partner is to receive
10. The manner in which a partnership is to be dissolved and the
subsequent distribution of property among the partners.
11. In the case of insolvency the valuation and treatment of goodwill
12.Provisions regarding the accounting system and the fiscal year to be
used
13. Rules to be followed in the case of retirement, death and admission of a
partner
14. The method of settling disputes if any among partners. I.e. whether or
not an arbitrator is to be appointed
15. Method of calculating amount issued to a deceased partner, and
whether this is to be paid in full or in installments to his legal
representative.
16. In the case of breach of duty by one partner, powers of other partners
to expel him from the firm
17. The keeping of proper books of accounts and periodical preparation of
accounts.
18.Any provisions to prevent any future misunderstanding and ill will.
Application
The procedure of registration is comparatively simple. An application in the
Form No. 1 Partnership Act 1932) along with the fee has to be submitted to
the Registrar of Firms. All the partners must sign the application. The
application or statement must contain the following particulars:
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6. The name and address of the partners.
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Advantages of Registration
Advantages of Registration to the firm
1. The registered firm can sue the third party if it violates the term on
contract and can claim adjustments from third party in court of law.
2. The registered firm attracts large capital resources from the public and
it increases the goodwill of the firm, as in case the details of the firm
are needed, they can be acquired from the third party.
3. The registered firm also obtains the benefit of income tax concession.
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Reconstitution of a Partnership Firm
Change in partners may occur due to various factors like admission of new
member, retirement, expulsion, insolvency, death etc. After such change the
liabilities and rights of each partner are determined again. This is named as
reconstitution of a firm.
The new ‘incoming partner’ can be added by consent of other partners and
by agreeing to the previous contracts. He has all the rights of existing partner
according to ‘section 31’ and he is not liable for any act of the firm prior to his
admission. The partner gets retirement by the consent of all partners and in
accordance with the agreement with other partners. A written notice is given
to all partners as well, showing the intention to retire of the leaving partner
and he is liable for all the acts of the firm before the date of his retirement
unless he is discharged from liability.
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Dissolution of Firm/ Partnership
When an environment is created where a partnership is no longer possible,
there are two main steps involved:
There are various methods which can be adopted for this purpose. The first
involves dissolution by agreement. This occurs when there is mutual
agreement between the partners to terminate the firm and hence the firm is
dissolved.
The second is the case of compulsory dissolution. In such a case the following
circumstances need to prevail:
1. If the firm is constituted for a fixed term, on the expiry of that term.
2. If the firm is constituted to carry out one or more projects, on the
completion thereof
a. A death of one of the partners in the firm
b. If a partner of the firm is declared as insolvent or bankrupt
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Partnership may also be dissolved through dissolution by Court. In this case,
the court may dissolve the firm if a partner files a suit for dissolution of the
firm on any of the following basis:
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have the surplus distributed among the partners or their representatives
according to their rights.
Provided that the firm is in no case bound by the acts of a partner who has
been adjudicated insolvent; but this proviso does not affect the liability of any
person who has after the adjudication represented him or knowingly
permitted him to be represented as a partner of the insolvent.
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paid to him. The separate property of any partner shall be applied first in the
payment of his separate debts, and the surplus (if any) in the payment of the
debts of the firm.
Provided that where any partner or his representative has bought the
goodwill of the firm, nothing in this section shall affect his right to use the
firm name.
Provided that where any partner or his representative has bought the
goodwill of the firm, nothing in this section shall affect his right to use the
firm name.
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Agreements in restraint of trade
Partners may, upon or in anticipation of the dissolution of the firm, make an
agreement that some or all of them will not carry on a business similar to that
of the firm within a specified period or within specified local limits; and
notwithstanding anything contained in section 27 of the Contract Act, 1872,
such agreement shall be valid if the restrictions imposed are reasonable.
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References
• “Registration procedure for partnership” prepared by: Policy Planning
○ [http://www.jamilandjamil.com/publications/pub_commercial_laws/ac
t1932.htm]
○ http://www.scribd.com/doc/2441358/Partnership-Act
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