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INTRODUCTION TO BUSINESS LAW

COURSE CODE: BUS 360


SECTION: 07

LECTURE 6
THE LAW OF PARTNERSHIP
PRIMARY SOURCE: BOOK 3: CHAPTER 1 AND 2, COMMERCIAL LAW AND INDUSTRIAL LAW,
27TH EDITION BY ARUN KUMAR SEN AND JITENDRA KUMAR MITRA

Course Instructor: Afnan Ashfaque


Essential elements of partnership
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Definitions and characteristics


 There must be an agreement entered into by two

or more persons.
 The agreement must be to share the profits of a

business.
 The business must be carried on by all or any of
them acting for all.
Essential elements of partnership
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1. Voluntary agreement: A partnership can only arise


as a result of an agreement: express or implied.
Partnership is not created by status
Example: The sole proprietor of a business dies
leaving a number of heirs. The heirs inherit the stock
in trade of the business including the goodwill of the
business but do not become partners until there in
an agreement, express or implied, to carry on the
business as partners.
Essential elements of partnership
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2. Sharing of Profits of a Business: The existence of


a business is essential to a partnership. Business
includes any trade, occupation or profession.
Example: If two or more persons join together to form
a music club it is not a partnership because there is
no business in this case. But if two or more persons
join together to give musical performances to the
public with a view to earning profit, there is a
business and a partnership is formed.
Essential elements of partnership
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Mutual Agency: The third element is the most


important feature of partnership. It states that
persons carrying on business in partnership are
agents as well as principals. The business of a firm
is carried on by all or by anyone or more of them
on behalf of all. Every partner has the authority to
act on behalf of all and can, by his actions, bind all
the partners' of the firm, Each partner is the agent
of the others in all matters connected with the
business of the partnership.
Who can and cannot be a partner?
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1. Person
2. Minor
3. Person of unsound mind
4. Woman
5. Company
6. An alien enemy
When partnership is forbidden by law
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1. Number of partners: Forming a partnership for


banking related business with more than 10
persons and any other businesses with more than
20 persons is prohibited. For such purposes a
company must be formed.
2. Legality of business: An agreement to form a
partnership, for the purpose of carrying on an
illegal trade or a prohibited trade is void.
Two general rules regarding the
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conduct of the partners to one another
1. General duties of partners: Partners are bound to
carry on the business of the firm to the greatest
common advantage, to be just and faithful to each
other and to deliver true accounts and full
information of all things affecting the firm to any
partner or his legal representative.
2. 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.
Rules regarding conduct of partnership
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business
 Every partner has a right to take part in the conduct
of the business;
 Every partner is bound to attend diligently to his
duties in the conduct of the business;
 Difference arising as to ordinary matters connected
with the business may be decided by a majority of
the partners, and every partner shall have the right
the 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; and
 Every partner has a right to have access to and to
inspect and copy any of the books of the firm.
Mutual rights & duties of partners
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 a partner is not entitled to receive remuneration for taking


part in the conduct of business;
 the partners are entitled to share equally in the profits
earned and shall contribute equally to the losses sustained
by the firm;
 where a partner is entitled to interest on the capital
subscribed by him, such interest shall be payable only out of
profits ;
 a partner making, for the purposes of the business. Any
payment or advance beyond the amount of capital he has
agreed to subscribe, is entitled to interest thereon at the
rate of six percent per annum;
Mutual rights & duties of partners
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 the firm shall indemnify a partner in respect to


payments made and liabilities incurred by him-{i) in
the ordinary and proper conduct of the business,
and (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 carefulness, in his
own cases, under similar circumstances; and
 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.

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