Nature of partnership the law of partnership

THE LAW OF PARTNERSHIP
Nature of Partnership
Prepared for:
Dr. Mohammad Monirul Islam
Assistant Professor
Department of International Business
Faculty of Business Studies
University of Dhaka
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Department of International Business
MBA (Evening) Program – Fall 2020

Prepared by:
Saima Tasnim Pinky (802031021)
Fahema khan (802031025)
Md. Rakibul Hasan Rubbi (802031033)
THE LAW OF PARTNERSHIP
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Nature of Partnership

Partnership
When two or more persons join hands to set up a business and
share its profits and losses, they are said to be in partnership.
“Partnership created by agreement between parties”
The Indian partnership Act - 1932
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In section 04 of the Indian Partnership Act 1932 defines partnership as 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”
M d . R a k i b u l H a s a n R u b b i ( 8 0 2 0 3 1 0 3 3 )

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Three essential elements ……PARTNERSHIP
(as defined in the Act)
Must have three agreements -
• Two or more persons
• Share profits of a business
• Carried on by all or any of them acting for all.

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Characteristics……PARTNERSHIP
(as defined in the Act)
 Voluntary Agreement
 Sharing of Profits
 Mutual Agency

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Voluntary Agreement
The first elements shows the voluntary contractual nature of Partnership, and it
can only arise by an agreement, express or implied, between two or more
persons.
“A partnership cannot be formed with more than ten persons in banking and
twenty persons in other types of business.”
All the process must be registered under a Partnership Act.
The relation of partnership arises from contract and not from status.
(Section -05,1932)

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Money is an effective, powerful and simple motivator. Self-evidently, money motivates and
extra money motivates people to work extra hard. It makes people more committed.
Case study: Musical Club
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 person or more persons join together to give musical
performances to the public place with a view to earning profit, there is a business and a
partnership is formed.
Sharing of Profits

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Mutual Agency
It is the third element, and most important feature of partnership. It states that
persons carrying on business in partnership are agents as well as principals.
A business firm is carried on by all or by any one or more of them on behalf of all.
In all matters, Partners are connected with an agent/ authority,
which have Power of Attorneyto act on behalf of all.

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Mutual Agency
The law of Partnership has therefore been called a branch of the law of agency.
A good example of mutual agency is when you select an insurance
representative. You are authorizing the insurance representative to
act on your behalf when dealing with agency underwriting
and insurance companies. An insurance representative is there to
walk you through the process and explain in detail your options; they
do not make the sole decision. They know agency underwriters are
there to make paperwork more difficult so they are there to make it
easier to understand. You have a mutual agency.

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Who can be a partner ???
 Person
 Minor
 Person of Unsound mind
 Woman
 Company

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 Person, who has the capacity to enter into a
contract.
 Minor, a minor cannot be a partner. But in
an existing partnership, a minor could be
admitted into a firm if all partners of the
firm agree.
(Minor Admitted as a partner – details in Sec. 30, 1932 Act)

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Person of Unsound mind
Sound mind -
• Purpose of the making
a contract
• Capable to understand
about Business
(Indian Contract Act 1872,
Sec. 12)
A person who is usually of unsound mind, but occasionally of sound mind,
may take a contract when he is of sound mind.
A patient in a lunatic asylum, who is, at intervals,
of sound mind, may contract during those
intervals.
Example:
A person who is usually of sound mind, but occasionally of unsound mind,
may not make a contract when he is of unsound mind.
A sane man, who is delirious from fever, or who is so
drunk that he cannot understand the terms of a
contract, or form a rational judgment as to its effect on
his interests, cannot contract whilst such delirium or
drunkenness lasts.
Example:
Unsound minds are
like-
• Idiots
• Lunatics
• Drunken or
Intoxicated persons
A p e r s o n w h o i s o f u n s o u n d m i n d c a n n o t b e a p a r t n e r.

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a woman can be a partner, married or
unmarried.
Of course, a woman cannot be a
partner if she is a minor or she is of
unsound mind.
Woman

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Company
The liability of the members of a firm
under the Partnership Act, for the debts of
the firm, is unlimited.
But a company cannot incur unlimited
liability.
A Company cannot become a partner of a firm.

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An Alien, it means a citizen of a foreign state. Contracts with aliens are valid.
But an alien enemy cannot enter into a contract of partnership with a citizen of India.

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S a i m a T a s n i m P i n k y ( 8 0 2 0 3 1 0 2 1 )
Partnership Co- ownership
Each partner is the agent of the others.
Co-ownership is not the agent of the other owners.
The rights of a Co-owner can’t be affected by any
act done by the others.
Partnership always arise out of agreement. Co-partnership may arise by agreement or by
operation of law .
A partner can transfer his interest, under certain
circumstances, but transferee can never become a
partner of the business without the consent of the
consent of the other partners.
A Co-owner can transfer his interest to a third party
without the consent of the other co-owners.
A partnership always implies a business. Co-ownership may exit without any business.
There must be sharing of profits. It may exit without business, the question of sharing
profit or losses is immaterial in co-ownership.
A partner has a lien on partnership assets for
moneys spent by him for the partnership.
It has no lien under similar circumstances.
Partnership & Certain Similar Org.

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Partnership & a Club
1.Club is not a business – There is no motive to earning
profit and sharing them.
2.Not a Agent – A member of a club is not the agent of the
other members, a member is not responsible for the debts
of the club unless he participated in the transaction.
3.Existence of the club – The death or resignation of a
member does not affect the existence of the club.

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Partnership & Company
1. Registration
2. Minimum number of member
3. Maximum number of members
4. Legal Status
5. Authority of members
6. Contractual capacity
7. Management
8. Length of Existence
9. Liability of members
10. Liability of firm & Company
11. Transferability
12. Statutory obligations

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Partnership & a Joint Hindu family Firm
Point of
Difference
Partnership A Joint Hindu Family
Method of
creation
It’s created by Agreement. It’s created by operation of law.
Authority of
members
Every partner has authority to bind the
firm by his actions & can participate in
the business of the firm.
The Manager or Karta has authority
to bind the members by all acts.
Positon of
minors
A minor can’t be a member except in
one special case.
In Joint Hindu Family, minors are
the member of the firm from the date
of birth.
Position of
Women
A women can be a partner under act. Women can’t be a partner but this
view is changing.
Death of
Partner
In partnership Business, death of a
partner dissolves the firm, unless
otherwise agreed by the partners.
The death of a member of the joint
Hindu family firm has no effect on
the firm.

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Partnership & a Joint Hindu family Firm
Point of
Difference
Partnership A Joint Hindu Family
Dissolution &
accounts
A partner of a firm under similar
circumstances can.
A member of a joint family firm
when serving his connection with the
firm can’t ask for accounts of a past
profits and losses.
Law Partnership is governed by the
Partnership Act.
A Joint Hindu Family is governed by
Hindu Law.
Partnership The Karta of a joint Hindu family &
an undivided member of that family
can join a partnership.
The Hindu undivided family cannot
as such enter into a contract of
partnership with another person or
persons.

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Partnership forbidden by Law
• Number of Partners
• An Agreement to form a partnership

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F a h e m a k h a n ( 8 0 2 0 3 1 0 2 5 )
Classes of Partners
Partners can be classified as below:
• Active Partner
• Dormant, Sleeping or Nominal Partner
• Sub Partner

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F a h e m a k h a n ( 8 0 2 0 3 1 0 2 5 )
Classes of Partnership
Partnership can be classified as below:
• Partnership-at-will
• Particular Partnership – Joint venture
• Limited Partnership

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F a h e m a k h a n ( 8 0 2 0 3 1 0 2 5 )
Fixed time term
Partnership property
The Property of the firm includes all
property , rights and interests in property
originally brought into the stock of the
firm or acquired by purchase or otherwise
by or for the firm or for the purposes and
in the course of the business of the firm
and includes also the good will o the
business.

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Fixed time term
F a h e m a k h a n ( 8 0 2 0 3 1 0 2 5 )
Goodwill
Goodwill may be described as the
advantage which is acquired by a firm
(over and above) the value of the
stock-in-trade and the capital and
fund) from the connections it has built
up with it’s customers and the
reputation it has gain.

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The Partnership Agreement
F a h e m a k h a n ( 8 0 2 0 3 1 0 2 5 )
The agreement to carry on business in
Partnership may be oral or in writing. If
it is in writing, the terms are
incorporated is called the deed of the
partnership or the articles of
Partnership.

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Registration of Firms
Time for Registration
Consequences of Non-registration (Sec. 69)
F a h e m a k h a n ( 8 0 2 0 3 1 0 2 5 )

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“Q” n “A”
Thank You!!

Nature of partnership the law of partnership

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