Partnership Act 1932

Outline
Partnership Definition
Essentials of Partnership
Types of partnership
Registration of Partnership
Effect of Non-Registration
Method of Registration
When does partnership become illegal?
Outline (Continue..)
Partnership Agreement
Rules regarding rights and liabilities of
partners.
Personal profits earned by the partners
The property of the firm
Implied authority of the partners
Reconstitution of a firm
Dissolution of partnership

Partnership
Partnership has been defined by the
Partnership Act as the relation between
persons who have agreed to share the profits
of a business carried on by all or any one of
them acting for all. Persons who have entered
into partnership with one another are called
individually as partners, and collectively as
firm and the name under which their business
is carried on is called the firm name.
Essentials

Types of Parnership

Registration of Partnership

Effects of non-registration

Method of registration

When partnership becomes illegal?

Partnership Agreement
Partnership agreement is also known as deed
of partnership or Articles of Partnership
The partnership agreement may be written on
paper or entered into orally. But it is always
advisable to have it in black and white.
The Partnership agreement must state:
The name of the firm
The nature of the business to be carried on.
















Partnership Agreement (Cont)
The term or duration of partnership
The amount of capital each partner is to
contribute
The drawings
The interest to be allowed on capital and
drawings
Powers and authorities of partners
Remuneration of partners
Method of division of profits and losses

Partnership Agreement (Cont)
Method to be followed in the event of death
of a partner, dissolution, etc.
Treatment of goodwill at the time of winding
up
Keeping of books of accounts, and audit
Arbitration clause, laying down the procedure
to be followed in case of disputes
RULES REGARDING RIGHTS AND
LIABILITIES OF PARTNERS
Rules Regarding Rights/Liabilities
As Partnership is the creation of contract
between the partners, the mutual rights and
liabilities of the partners may be determined
by contract between the partners, such a
contract may be expressed or implied.
But in all cases, following two principles will
govern the rights and liabilities of partners:
Rules Regarding Rights/Liabilities (Cont..)
1. Partners are bound to carry on the business
of the firm to the great common advantage
to be just and faithful to each other, and to
share true accounts and full information of
all things affecting the firm to any partner
and his legal representative.
2. Every partner must indemnify the firm for
any loss caused to it by his fraud in the
conduct of the business of the firm.

Rules Regarding Rights/Liabilities (Cont..)
Every partner has a right to take part in the
conduct of the business.
Every partner is bound to perform his duties
diligently in the conduct of the business.
Any difference arising as to ordinary matters may
be decided by a majority of the partners, and
every partner has a right to express his opinion
before the matter is decided, but no change may
be made in the nature of the business without
the consent of all the partners.

Rules Regarding Rights/Liabilities (Cont..)
Every partner has a right to have access to and to
inspect and copy any of the books of the firm
A partner is not entitled to receive any
remuneration for taking part in the conduct of
the business.
The partners are entitled to share profits earned,
and shall contribute losses according to
predetermined ratio.
In the absence of agreement, no partner is
entitled to receive interest on the capital
contributed by him.


Rules Regarding Rights/Liabilities (Cont..)
A partner making, for the purposes of the
business, any payment or advance beyond the
amount of capital he agreed to subscribe, is
entitled to interest thereon at 6 percent per
annum from the date of the advance.
A partner shall indemnify the firm for any loss
caused to it by his willful neglect in the
conduct of the business of the firm.


Rules Regarding Rights/Liabilities (Cont..)
The firm shall indemnify a partner in respect
of payments made and liabilities incurred by
him.
i. In the ordinary and proper conduct of the
business
ii. In doing such act, in any emergency for the
purpose of protecting the firm from loss, as
would be done by a person of ordinary
prudence, in his own case under similar
circumstances.
Personal Profits Earned By
Partners
Personal Profits Earned By Partners
If a partner derives any profit for himself from
any transaction of the firm or from the use of
property or business connection of the firm or
the firm name, he shall account for that profit
and pay it to the firm and share it with his co-
partners.
If a partner carries on any business of the same
nature and competing with that of the firm, he
shall account for and pay to the firm all profits
made by him in that business and share the same
with his co-partners.
The Property Of The Firm
The Property Of The Firm
The property of the firm shall be held and
used by the partners exclusively for the
purposes of the business.
Implied Authority of Partners
Implied Authority of Partners
A partner is the agent of the firm, therefore, a
transaction entered into by one partner on behalf of
the firm is binding on the firm and makes every partner
liable, provided the following conditions laid down in
Section 19 (1).
The transaction must be related to the normal business
of the firm,
The transaction must be an act for carrying on business
in the usual way
The transaction must be executed in the firm name, or
in any other manner expressing or implying an
intention to bind the firm
Implied Authority of Partners (Cont.)
The Implied authority does not empower him to:
1. Open a banking account on behalf of the firm
2. Compromise any claim or portion of a claim by
the firm
3. Withdraw a suit or proceeding filed on behalf of
the firm
4. Admit any liability in a suit or proceeding against
the firm
5. Acquire immoveable property on behalf of the
firm
Reconstitution of a firm

A firm is said to be reconstituted when
A new partner is introduced
Any of the partners retires
Any of the partners is lawfully expelled
Any of the partners becomes insolvent
Any of the partners dies
1-Introduction of New Partner
In the absence of any contract, between the
partners, no person shall be introduced as a
partner into a firm without the consent of all
the existing partners. If an existing partner
sells his share in the partnership, the
purchaser of the share does not become a
partner unless all the other partners agree to
such transfer.
2-Retirement of the partner
A partner may retire
With the consent of all other partners
In accordance with an express agreement by the
partners
Where the partnership is at will, by giving notice in
writing to all other partners of his intention to retire.
The mode of retirement of partners in any firm may,
however, be specified by a special agreement between
the partners.
A retiring partner has to give a public notice of retirement
in order to obtain freedom from liability for the debts of
the firm from the date of such notice.
3-Expulsion of a partner
A partner cannot be expelled except in the
manner specified by the contract between the
partners and unless the expulsion has been
made in good faith.
An expelled partner cannot claim damages. His
only right is to seek reinstatement. A legal
expelled partner stands on the same footing as a
retire partner as regards his liabilities for the
debts of the firm.
4-Insolvency of a partner
A partner ceases to be a partner as soon as he is
adjudged an insolvent. But the firm is not
dissolved unless all the partners or all but one
are adjudged insolvent.

5-Death of a partner.
Unless otherwise provided by the contract of
partnership. The death of a partner has the
effect of dissolving the partnership. Where
under a contract between the partners, the firm
is not dissolved by the death of a partner, the
estate of a deceased partner is not liable for any
act of the firm done after the death.
Dissolution of Partnership
Dissolution of Partnership
A firm may be dissolved with the consent of all
the partners, or according to the terms of the
partnership agreement. It may be dissolved in
the following cases:
1-Compulsory Dissolution.
2-Dissolution on the happening of certain
contingencies
3-Dissolution by notice of partnership at will
4-Dissolution by the court
Compulsory Dissolution
A firm is compulsory dissolved if all the partners,
or all of the partners but one, become insolvent,
or if the business of the firm becomes unlawful.
Dissolution on the happening of
certain contingencies
Subject to an agreement between the partners,
a firm is dissolved:
If constituted for a fixed term, by the expiry of
the term
If constituted to carry out one or more
projects, by the completion thereof
By the death of a partner
By the adjudication of a partner as an
insolvent

Dissolution by notice of partnership at
will
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
Dissolution by the court
At the suit of a partner, the court may dissolve a firm on any of the
following grounds:
That a partner has become of an unsound mind
That a partner has become in any way permanently incapable of
performing his duties as a partner
That a partner is guilty of misconduct
That a partner willfully or persistently commits breach of
partnership agreement
That a partner has in any way transferred his interest in the firm to
a third party
That the business of a firm cannot be carried on except at a loss
Any other ground that renders it just and equitable that the firm
should be dissolved.
Further topics
Kinds of partners
Test determining the existence of partnership
Difference between partnership and co-
ownership