Definition

Section 4 of the Indian Partnership Act,

1932defines Partnership as the relation between
persons who have agreed to share the profits of a
business carried on by all or anyone of them
acting for all.

The persons who enter into such relationship are
called PARTNERS

Essential Elements of Partnership

Association of two or more persons

Max. limit : 10 for banking; 20 for other
business

Result of an agreement

Partnership relation based on Contract.

Implied or Express (Oral or Written)

Must carry on some business

Trade, Occupation or Profession

Share profits of the business

Business is carried on by all or any one of
them acting for all (mutual agency)


Mode of Creating Partnership
Based on agreement

Agreement may be express or implied

In Writing : helpful in times of adversity

Written agreement : Partnership Deed

Essence of Partnership : Trust & Confidence




Drafted with care and signed by all partners
Stamped in accordance with Indian Stamp Act

Firm should be registered and copy of the
Deed to be filed with the Registrar

Partnership Deed


Prepared for resolving mutual differences

Usual Contents :

Date of Agreement
Name and Address of the Firm

Name and Address of the Partners


Partnership Deed
Nature of Business

Duration of Partnership

Capital invested by each partner

Ratio to divide profits and loss

Usual Contents Contd. :

Appointment of Auditor and remuneration
Drawing by partners and interest

Interest on Capital and Advances

Salary and Commission payable to partners

Duties, Functions and Powers of Partners

Rules regarding admission, retirement and dea

Partnership Deed
Dissolution

Arbitration

Method of valuation of Goodwill

Firm Name
Name under which the business is carried on
Any name
Should not be a name already adopted by a
reputed firm, to mislead public
Should not contain words : Crown, Emperor,
King, Queen, Royal, Empire, Imperial or words
expressing or implying the sanction, approval
or patronage of Government

Property of the Firm


Joint property of all the partners as opposed
to their personal property

Property includes

Originally brought into firm by partners

Acquired by the firm



Acquired by one or more partners for the
purpose of business

Goodwill of the firm

To be held and used by all partners for the
purpose of business (not for private use)

Positions
Lunatic : cannot become a partner

Alien Enemy : cannot become a partner

Alien Friend : can enter into contract

Woman : Married or Unmarried can be a partner

Insolvent : Cannot become a partner; ceases to be a
partner from date on which order was passed by court


Position of Minor
Sec 30(1), A person who is a minor according
to law to which he is subject may not be a
partner in a firm, but with the consent of all
the partners for the time being, he may be
admitted to the benefits of partnership.

A minor can only be admitted to the benefits
of an already existing partnership



Position of Minor

During his Minority: Rights

Right to receive agreed share of profits and property

Have access to and inspect and copy the accounts of the firm

If share in profits is not given, can sue (can do if he wants to
sever his connection)

Liabilities

Only to the extent of share in profits and properties (not
personally liable)

Position of Minor


On Attaining Majority

Within six months should give notice whether
he is joining the partnership or not.

If notice not given he shall become a partner

When a Minor elects to become a partner

Rights

Share remains the same

Rights and Liabilities as that of a full fledged
partner

Rights will be the same till the date on which
he becomes a partner

Liabilities

Liabilities will be the same till the date on
which he becomes a partner

Personally liable to third parties for all acts of
the firm from the date of becoming a partner

When a Minor elects not to become a partner

Rights

Rights will be the same till the date of notice

Entitled to sue for his share of property and profits

Liabilities

Liabilities will be the same till the date of notice

His share of property and profits will not be liable for any
acts of the firm after the date of notice


Types of Partnerships


Partnership at Will

No provision in contract between the partners for

Duration of Partnership

Determination of Partnership

If any partner gives notice of dissolution in writing, the
partnership is dissolved.

Particular Partnership
A person may become a partner with
another person in particular adventures or
undertakings.
On completion of such a venture, the partnership
comes to an end.
Partnership for a Fixed Term
Duration is fixed
Partnership comes to an end when the term
expires.
If Partners continue the business after the fixed
period, it becomes partnership at will.



Classes of Partners

Actual or Active Partner
Engaged in actual conduct of the business
His acts binds the firm and other partners
Notice to be given in case of retirement
Sleeping or Dormant Partner
Does not take part in the conduct of business
Contributes his share of capital and enjoys profits
and losses
Not known to outside world
Not liable to third parties for the acts of the firm.
Not required to give notice in case of retirement

Nominal Partners
No real interest in business, Does not
contribute any capital, Lends his name only
No share in profits but liable to third parties
for all acts of the firm
Partner in Profits only
Shares the profits but not losses
No interest in the management of the firm
Liability for the acts of the firm is unlimited

Partner by Estoppels or Holding Out

Represents himself as a Partner, by words spoken
or written or by conduct

Liable as a partner if credit is given to the firm
based on his representation. He cannot deny.

If a partner does not give public notice and his
name is still used in the business, he is also liable
to third parties

Deceased partner is an exception to this rule.


Limited Liability Partnership


Limited Liability Partnership Act, 2008 came
into effect from 31
st
March 2009.
LLP: A corporate business vehicle that enables
professional expertise and entrepreneurial
initiative to combine and operate in flexible,
innovative and efficient manner, providing
benefits of limited liability while allowing its
members the flexibility for organizing their
internal structure as a partnership.



LLP has separate Legal Entity
Liability of the partners limited to their agreed
contribution
Not liable for the independent or un-
authorized actions of other partners
Perpetual succession
Indian Partnership Act, 1932 not applicable
No maximum limit of members; one partner
should be Indian
Registrar of Companies - register and control
LLPs

Partnership Vs Company
Regulating act
No of members
Entity
Liability
Authority of members
Management
Transfer of interest
Audit
Registration
Winding up

Partnership Vs Joint Hindu Family
Regulating law
Mode of creation
Admission of new member
The position of females
Number of members
Authority of members
Liability of members
Right of members to share in profits
Effect of death of a member

Test of partnership
Agreement

Sharing of profit of a business

Mutual agency

Effects of non registration
A partner can not sue for a right arising out of
contract against the firm.
Can not sue against a present or past partner.
As a firm can not sue against a third part in a
court of law.
The firm can not set off claim to enforce a
right arising out of a contract.
Rights of partner
Right to take part in management
Right to be consulted
Right to have access to books
Right to share profits
Interest on capital
Interest on advance
Right to be indemnified
Right to use the partnership property
Powers in an emergency,
No new partner to be introduced
No liability before joining , carry on competing business
Right to retire, not to be expelled,
Duties of partners
Absolute duties: To carry on business to
greatest common advantage
To be just and fair and faithful inter se
To render true account
To provide full information
To indemnify for loss caused by fraud
To be liable jointly and severally
Duty not to transfer his interest

Duties of partners
Qualified duties: To perform his duty diligently
To work without remuneration
To contribute to losses
To indemnify for willful neglect
To use firms property for exclusively for firm
To account for personal profits derived
Duty not to compete with the business of firm

Thank You