PARTNERSHIP AND ITS MEANING Partnership is defined as an association of persons who agree to share profits of a business carried on by all

or by anyone of them. The four essentials of a partnership are: 1. Agreement: A partnership is created by an agreement and not by status. There is a distinction made in law between partnership and other business relations like joint family carrying on business, which do not arise by agreement, but are result of status, succession or inheritance. Business:
In a partnership either all or any one acting for all should carry on the business of the firm. The business should be on a continuing basis and not just a single transaction.

2.

3.

Sharing of profit:
The partners must share the profit earned by the firm in any agreed upon ratio. The real status of the parties should however be kept into view while looking into this clause.

4.

Mutual agency: Every partner is a principal as well as an agent of every other partner thus every partner is bound by the acts of other partners as they have implied authority acquired from each other.

PARTNERS, FIRM AND FIRM NAME The persons entering into a partnership are called partners individually and Firm collectively and the name under which they are carrying business is called Firm name.

The name however is only for convenience sake and has no significance except that for convenience sake we say Firm Employees, Firm Property etc. There can not be any partnership of firms. The firm is an entity distinct from persons forming it only for the purposes of Income Tax under Income Tax Act 1961. FIRM NAME In choosing a firm name following rules are to be observed: 1. The firm name should not be similar or identical to the existing firm names, or to the trademark or goodwill of the firms engaged into similar business. 2. The name should not be such that implies the approval, sanction or patronage of Government, unless there is consent to that effect. 3. The firm can not use the word Limited as suffix. 4. Th firm must not chose words, which show in any way the patronization of world organizations. Names like WHO, UNO UNICEF are therefore prohibited. ADVANTAGES OF PARTNERSHIP 1. Ease of formation. 2. More Interest. 3. Better Public Relationing. 4. Elasticity 5. Quick Decisions. 6. Maintenance of Secrecy. 7. Sharing of Risk. 8. Ease of Dissolution. DISADVANTAGES 1. 2. 3. 4. 5. Unlimited Liability. Lack of Public Confidence. Possibility of Disagreement. Limited Size. Frozen Investment.

DISTINCTION BETWEEN PARTNERSHIP AND CO-OWNERSHIP 1. Mode of creation.

2. 3. 4. 5.

Profit Motive. Transfer of Interest. Nature of Authority. Limitation on the number of members.

DISTINCTION BETWEEN PARTNERSHIP AND COMPANY 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Regulating Act. Entity. Number of members. Liability. Mutual Agency. Management Transfer of interest. Registration. Audit. Winding up.

PARTNERSHIP DEED Also known as instrument of partnership it is a formal written agreement in a document shape. It is not the requirement of the Partnership Act but necessary only under the Income Tax Act 1961. If prepared it ordinarily contains: 1. 2. 3. 4. 5.
6. 7. 8. 9. 10.

Name of the firm and names of persons composing it. Nature of business and place it will be carried out. Date of commencement of business. Duration of partnership. Methods of raising finance, and amount of capital invested by each partner.
Salaries, commissions etc payable to each partner. Division of tasks and responsibilities. Expulsion policies in case of gross misconduct. Circumstances for dissolution of firm. Arbitration in case of dispute.

REGISTRATION OF FIRMS

Although the registration of a firm is discretionary but disabilities attached to non-registration almost make it obligatory on the part of the firms to get themselves registered with the registrar of firms. The registration is obtained by filing an application to the registrar of firms at any time during the partnership, giving the: 1. 2. 3. 4. 5. Firms name. The place or principal place of business of firm. Names of other places where the firm carries on business. Date of joining of the partners. The duration of firm.

EFFECTS OF NON-REGISTRATION 1. 2. 3. No suit against other partners. No suit against third parties. No claim of set off.

Non-registration however does not effect the following rights: 1. 2. 3. The right of third parties to sue the firm. The right of partners to sue for dissolution of firm. To sue for the realization of the property of a dissolved firm.

TYPES OF PARTNERSHIP 1. 2. Partnership for a fixed term or particular partnership. Partnership at will.

KINDS OF PARTNERS 1. 2. 3. 4. 5. Actual or Active Partners Dormant or sleeping partners. Nominal partner. Partner in profit only. Partner by estoppel or holding out.

MINOR AS A PARTNER

According to the Contract Act a contract with a minor is VOID AB INITIO, as such he can not enter into an agreement of partnership. However partnership Act of 1932 provides a minor to be admitted to the benefits of a partnership with the consent of all other partners and not through the majority alone. Further there should be a partnership in existence before the minor is admitted to the benefits of partnership and there can not be a partnership consisting of all minors. RIGHTS OF A MINOR A minor admitted to the benefits of partnership has following rights: 1. 2. 3. Right to share the profits and property in case of dissolution of firm. Right to have access to the to do inspection of the accounts. Right to exercise option on attaining majority, whether to continue in the firm or not.

LIABILITIES 1. 2. The liability of minor partner is limited to the extent of his share in the firm therefore like other partners he is not personally liable. If the firm is declared as insolvent he will not be declared insolvent in personal capacity but his share vests with the official reciever.

POSITION ON ATTAINING MAJORITY A minor admitted to the benefits of a firm may choose to become a partner in that firm. He has to give a notice within six months of attaining the age of majority for such decision. In case of failure to give such notice he is deemed to be a partner on expiry of six months.

When such person becomes partner: a) His rights and liabilities as a minor continue up to the date on which he becomes a partner, and he also becomes personally liable to third parties

for all acts o f the firm done since he was admitted to the benefits of the partnership. b) The share in the profit and property will be the same to which he was entitled as a minor. In case he elects not to become a partner: a) He continues to be liable until the date of the Notice. b) He shall not be liable for any acts of the firm done after the date of the Notice. c) He shall be entitled be entitled to sue the partners for his share of the profits. RIGHTS / DUTIES AND LIABILITIES OF PARTNER 1. 2. 3. 4. Right to take part in the conduct of business. Right to be consulted. Access to the books of the firm. Right to indemnify. a) In the ordinary and proper course and conduct of business. b) Doing any act in emergency to protect the firm from loss, as would have been done by a person of ordinary prudence, in his own case in similar situation. Rights to profits. Right to interest. Right to carry out competing business after retirement. Right to give consent for admission of new partner.

5. 6. 7. 8.

DUTIES 1. 2. 3. 4. 5. 6. Duty of good faith. Duty not to compete. Due diligence. Duty to indemnify for fraud. Duty to render true accounts. Proper use of firm property.

LIABILITIES 1. 2. 3. 4. Liability of partner for acts of the firm. Liabilities of wrongful act of a partner. Liability for negligence. Liability for fraud.

DISSOLUTION OF FIRM The Partnership Act distinguishes between: A) B) Dissolution of Partnership. Dissolution of firm.

A firm may be dissolved in any of the following modes: 1. 2. 3. By agreement. By notice. On happening of certain contingencies a) Expiry of fixed term. b b) Death of a partner. c c) Insolvency of a partner. d) Completion of undertaking or venture. Compulsory. a) Insolvency of all partners or all but one. b) Business becoming unlawful. Dissolution by Court: a) Insanity. b) Permanent Incapacity. c) Misconduct. d) Persistent breach of agreement.

4. 5.

SETTLEMENT OF ACCOUNTS ON DISSOLUTION In case of any agreement among the partners with regard to the settlement of accounts upon dissolution same will apply. If such an agreement does not exist following rules of Partnership act will apply: 1. 2. Treatment of goodwill. Meeting losses.

3.

4.

Order of application of Assets to third parties. a) In paying the debts of the firm. b) In paying each partner rateably what is due to him on account of the advances made as distinct from Capital. c) In paying to each partner rateably what is due to him on account of Capital. Losses arising from insolvency of a partner. REQUIREMENT AND MODE OF PUBLIC NOTICE

The partnership Act requires that a Public Notice must be given in each of the following cases: 1. 2. 3. 4. On Minor Attaining Majority. Retirement of a partner. Expulsion of a partner. Dissolution of a firm.

CONSEQUENCE OF FAILURE TO GIVE PUBLIC NOTICE 1. 2. In case of expulsion, retirement or dissolution the partner or the firm as the case may be continue to be liable to the third parties if they fail to give notice. In case a minor admitted to the benefits of a partnership, fails to give notice within 6 months of his attaining majority he becomes liable for the acts of the firm from the date he was admitted to the benefits of the firm.