Course material

THE PARTNERSHIP ACT, 1932

http://www.mca.gov.in/Ministry/actsbills/pdf/Part
nership_Act_1932.pdf

Course-outline
Nature of partnership
Relationship of partners with each other

Relations Of Partners To Third Parties.

Incoming And Outgoing Partners
Dissolution Of A Firm.

Registration Of Firms

Partnership v company
No separate legal personality from its

members
Created by a simple agreement
Partner cant transfer his share without consent of
others
Each partner is agent of others and can bind them by
his contracts made during partnership except when limited
by contact. Share holders not agent of each other

 Partners liable jointly and severallyno limits

A partner can not contract with the partnership a

share holder can

Death or retirement dissolves partnership

Partnership v co-ownership
Co-ownership is a legal concept where two or more co-

owners share the legal ownership of a property

Differences between the two:
Partnership arises out of agreementnot necessarily
he case with co-ownership
Necessarily involves sharing of profit and loss
A partner ca not transfer his interest without the
consent of partners
Every partner agent of the other

 Every partner has lien on partnership (a lien is a form

of security interest granted over an item of property to

secure the payment of a debt or performance of some
other obligation)
It must exist for gain
Partners cant seek division of property of partnership
in specie co-owners can

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.
Persons who have entered into partnership with one
another are called individually, "partners" and
collectively "a firm
the name under which their business is carried on is
called the "firm-name".

Essential characteristics of
partnership
The essential characteristics of partnership are:
Association of one or more persons
There must an agreement
Sharing of profits
There must be a business
Business must be carried by all or anyone of them on
behalf of all

There must an agreement

The relation of partnership arises from contract and

not from status

Contract can be express or implied
family business???????
Express contract:
A contract reduced in writing
Implied contract:
Conduct of the parties and the surrounding
circumstances justify inference an agreement between
the parties

Example of implied contract:

a patient goes to a doctor's appointment
his actions indicate he intends to receive treatment in
exchange for paying reasonable/fair doctor's fees.
by seeing the patient, the doctor's actions indicate he
intends to treat the patient in exchange for payment of
the bill.
Therefore, it seems that a contract actually existed
between the doctor and the patient, even though
nobody spoke any words of agreement.
If the patient refuses to pay after being examined, he
will have breached the implied contract.

 Persons carrying on business for a number of years

All parties concerned have either actively joint or

acquiesced in the carrying on that business and have

been sharing profits ????????
Is there a partnership?????????????

Business must be carried by all or

anyone of them on behalf of all
Example:
Owners of wool factory A,B,C enter into a pooling contract by virtue of which
they agreed to work in the factories for certain manner and to share the total
profits in certain profits
Contract was for 5 years
Factory A was for to work 2.5 years
Factory B to work for next 2.5 years
Factory Bs owner had the option working their factories or not as they pleased
but if they worked in their factories they were bound to share profits with the
other parties to contract according to the terms thereof.
held:
Parties certainly agreed to share the profits but it does not appear there was any
business carried by all or anyone of them acting for all. Partners managed their
own factories and no partners had any right to interfere with management of
the factories of the other partners

Test of agency:
Whether a person is a partner or not depends , in
almost every case, upon whether he has the authority
to act for those who are admittedly partners and
whether those admittedly partners have the authority
to act for him.

Sharing of profits

Agreement to share loss only constitute loss only.??????

Example 1:
A & B filed separate tenders to cut and remove
bamboos
Entered into agreement under which each party
entitled to take certain share of bamboos collected by
persons whose tenders had been accepted
Is there a partnership???????? And why???

Example 2:
A agrees with B , a goldsmith to buy and furnish gold
to B to be worked up him and sold
And they will share the resulting profit
Is it partnership?????????????

MODE OF DETERMINING
EXISTENCE OF PARTNERSHIP
In order to determine whether partnership exists or whether a

person is or is not a partner in a firm regard shall be to the real

relation between the parties, as shown by all relevant facts taken
together.
Explanation:
The sharing of profits or of gross returns arising from property
by persons holding a joint or common interest in that property
does not of itself make such persons partners.
The receipt by a person of a share of the profits of a business, or
of a payment contingent upon the earning of profits or varying
with the profits earned by a business, does not itself make him a
partner with the persons carrying on the business;

Whether the following situations establish existence of

partnership exclusively?
receipt of such share or payment by
A lender of money to persons engaged or about to engage
in any business
a servant or agent as remuneration
by the widow or child of a deceased partner, as annuity
by a previous owner or part-owner of the business, as
consideration for the sale of the goodwill or share thereof
Above receipts of such share or payment do not of themselves
make the receiver a partner with the persons carrying on
the business

Is sharing of profits conclusive

proof of existence of partnership
Cox v Hickman:
Before this case sharing of profits was considered to be
conclusive proof of existence of partnership
This case overruled this concept and established
though sharing of profits is strong test of existence of
partnership, there may be cases where upon a simple
participation in profits there is a assumption, not of
law, but of fact, there is a partnership, yet whether the
relation of partnership does or does not exist must
depend upon the whole contract between the parties.

Class activity:
decide whether partnership exists or does not
exists in the following cases:
A& B are co-owners of a house let to a paying tenant. they divide

the net rents between themselves.

A and B 100 bales of cotton which they agree to sell on their joint
account
A & B agree to work together as carpenters, but that A shall
receive all profits and shall pay wages to B.
A entered a contract with partnership firm on conditions that
i.
He was to receive in consideration of advances a commission
on net profits of the partnership business
ii. He will exercise control over the business fore the protection
of his interest
iii. But he was not given power to transact business for the
protection of his interest

Types of partnership
PARTNERSHIP-AT-WILL
no provision is made by contract between the
partners for the duration of their partnership,
or
for the determination of their partnership, the
partnership is partnership-at-will".

PARTICULAR PARTNERSHIP
A person becoming a partner with another person in
particular adventures or undertakings

Relations of Partners To one

Another
Essential reading
Section 9 to 17

Duties of partners
General Duties include:
Partners bound to carry on the business of the firm to
greatest common advantage
to be just and faithful to each other,
to render true accounts and full information of all
things affecting the firm to any partner, his heir or
legal representative.
.

Duty to indemnify:
Every partner shall indemnify the firm for any loss
caused to it by his fraud in the conduct of the business
of the firm
Its absolute duty and partners can not contract

themselves out of it.

If they do so such clause unlawful and thus
unenforceable

Duties of partners by contract:

the mutual rights and duties of the partners of a firm

may be determined by contract between the partners,

such contract may be express or may be implied
contract may be varied by consent of all the partners,
and such consent may be express or may be implied
contracts may provide that a partner shall not carry on
any business other than that of the firm while he is a
partner.

Duties of partners regarding

conduct of the business
a partner is not entitled to receive remuneration for

taking part in the conduct of the business;

Rights of partners regarding

conduct of the business
right to take part in the conduct of the business

right to have access to and to inspect and copy any of

the books of the firm:

in the event of the death of a partner, his heirs or legal
representatives or their duly authorized agents shall
have a right of access to and to inspect and copy any of
the books of the firm.

PROPERTY OF THE FIRM

(Subject to the contract between the partners)
the property of the firm includes
all property and rights and interest in property originally
brought into the stock of the firm
or acquired (by purchase or otherwise) by or for the firm
for the purposes and in the course of the business of the
firm, and includes also the goodwill of the business.
Unless the contrary intention appears, property and rights
and interest in property acquired with money belonging to
the firm are deemed to have been acquired for the firm.
the property of the firm shall be held and used by the
partners exclusively for the purposes of the business.

PERSONAL PROFITS
Subject to contact:
if a partner derives any personal profits from any
transaction of the firm, or from the use of the property
or business connection of the firm or the firm-name,
he shall account for that profit and pay it to the firm
partner carries on any business of the same nature as
and competing with that of the firm, he shall account
for and pay to the firm all profits made by him in that
business.

EFFECT OF CHANGE IN THE

FIRM ON RIGHTS AND DUTIES
OF THE PARTNERS
where a change occurs in the constitution of a firm, the

mutual rights and duties of the partners in the

reconstituted firm remain the same as they were
immediately before the change, as far as may be;
where a firm constituted for a fixed term continues to carry
on business after the expiry of that term, the mutual rights
and duties of the partners remain the same as they were
before the expiry, and so far as they may be consistent with
the incidents of partnership-at-will

PARTNER'S IMPLIED AUTHORITY

SOURCE OF PARTNERS IMPLIED

AUTHORITY
Source of implied authority of a partner is his agency

a partner is the agent of the firm for the purposes of

the business of the firm.

WHAT IS IMPLIED AUTHORITY OF

PARTNER AS AGENT :
act of a partner which is done to carry on, in the usual

way, business of the kind carried on by the firm, binds

the firm.
This authority of a partner to bind the firm is called his
"implied authority

Limits to the IMPLIED

AUTHORITY
Unless and until there is a usage or custom of trade to then

contrary, this implied authority does not include the

following :
submit a dispute relating to the business of the firm to
arbitration
compromise or relinquish any claim or portion of a claim
by the firm
withdraw a suit or proceeding filed on behalf of the firm
admit any liability in a suit or proceeding against the firm,
acquire immovable property on behalf of the firm or
transfer immovable property belonging to the firm
enter into partnership on behalf of the firm.
open a banking account on behalf of the firm in his own
name

EXTENSION AND RESTRICTION OF

PARTNER'S IMPLIED AUTHORITY
Partners can by contract between the partners, extend

or restrict the implied authority of any partner.

any act done by a partner on behalf of the firm which
falls within his implied authority binds the firm,
unless the person with whom he is dealing knows of
the restriction or does not know or believe that partner
to be a partner.
Does this doctrine exists in company law as well??????

EXTENSION OF PARTNER'S AUTHORITY IN CASE

OF EMERGENCY
in an emergency, a partner can to do all such acts for
the purpose of protecting the firm from loss as would
be done by a person of ordinary prudence, in his own
case, acting under similar circumstances, and such
acts bind the firm

REQUIREMENTS FOR AN ACT TO

BIND THE FIRM.
an act or instrument done or executed by a partner or
other person on behalf of the firm shall be
done or executed in the firm-name,
or in any other manner expressing or implying an
intention to bind the firm.

ADMISSION AND RECIVING A

NOTICE BY A PARTNER
admission or representation made by a partner

concerning the affairs of the firm binds the firm, if

made in the ordinary course of business.
Notice to a partner who habitually acts in the business
of the firm of any matter relating to the affairs of the
firm operates as notice to the firm, except in the case
of a fraud on the firm committed by or with the
consent of that partner

LIABILITY OF A PARTNER
acts of partners done for the firm:

Every partner is liable jointly with all the other partners

and also severally, for all acts of the firm done while he is a
partner
wrongful act or omission :
the wrongful act or omission of a partner while
i. acting in the ordinary course of the business of a firm
ii. or with the authority of his partners,
And loss or injury is caused to any third party,
or any penalty is incurred,
Partners are again liable jointly and severally

LIABILITY OF FIRM FOR

MISAPPLICATION BY PARTNERS
Where
(a) a partner acting within his apparent authority
receives money or property from a third party and
misapplies it
(b) a firm in the course of its business receives money or
property from a third party, and the money or
property is misapplied by any of the partners while it
is in the custody of the firm, the firm is liable to
make good the loss.