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Indian partnership act

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Indian Partnership Act 1932
Indian Partnership Act 1932
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Indian partnership act

  1. 1. INDIAN PARTNERSHIP ACT, 1932 Ajay Nath Dubey
  2. 2. INDIAN PARTNERSHIP ACT, 1932 The law of partnership is one of the specific contracts contained in the Indian partnership act which was come into existence on 1st Oct, 1932. According to sec (4) of Indian partnership act, “partnership is the relation between the persons who have agreed to share the profits of the business carried on by all or any of them acting for all”. The person who has entered into the partnership agreement with one another is individually called partners and collectivity of a firm.
  3. 3. ESSENTIAL ELEMENTS OF PARTNERSHIP  Association of two or more persons: There should be at least two competent parties to form a partnership. Hence any person who is not a minor, of sound mind and is not disqualified by law can be a partner. Partnership act does not say anything about the maximum no of partners but sec11 of the companies act fixes the maximum no. at 10 or according on banking business and 20 for carrying on any other business. If the no. of partners exceeds this limit the partnership becomes an illegal association.
  4. 4. CONT…  Agreement: There must be an agreement to form a partnership. This agreement may be express or implied. Partnership is created by contract and not arises by operation of law. If one of the partners is expired, his son or daughter will not automatically become partners unless there is an agreement between them to carry on the business as a partner.  Business: A partnership can be formed only for the purpose of carrying on some business. Where there is no business to be done there can be no question of partnership. The business to be carried on by the firm must be legal.
  5. 5. CONT…  Sharing of profits: The sharing of profits is an essential feature of partnership. Profits must be distributed among the partners in an agreed ratio. The partners may agree to share profits in any manner they like. They may share it equally or in any other proportion.  Mutual agency: The business of partnership may be carried on by all the partners or any of them acting for all. In a firm each partner is a representative of the other partners. Each of the partners is an agent as he can bind the other partners by his act and he is a principal in the sense that he is bound by the act of the other partners.
  6. 6. CONT…  Restriction on the transfer of shares: No partners can sell or transfer his share to the third party without the consent of all the partners.  Extent of liability: Liability of each partner for the firm is unlimited. The creditors have the right to recover the firm debt from the private property of any or all the partners.  No separate entity: Partnership is an association of person who are individually called as partners and collectively called firm. Legally a partnership firm is not a separate entity from the partners.
  7. 7. DURATION OF PARTNERSHIP At the time of partnership agreement partners may fix the duration of the partnership or may not. The duration may be decided as:  Partnership for a fixed term: It is a partnership created for a fixed period of time. When the fixed period is over, partnership comes to an end.  Partnership at will: According to sec 7 of the act where no provision has been agreed for the duration of the partnership, it is called partnership at will. A partnership at will may be dissolved by any partner by giving notice in writing to all the partners of his intention to dissolve the firm.  Particular partnership: When a partnership is formed for a specific venture, the partnership is called particular partnership. It comes to an end on the completion of the venture.
  8. 8. TYPES OF PARTNERS  Active partner: A partner who is actively engaged in the conduct of business is known as an active partner. He is also called a working partner and his liabilities are unlimited.  Sleeping partner: Sleeping partner is one who contributes share, profits and losses of the firm but does not participate in the working of the business. He is also liable for the liabilities of the firm.  Nominal partner: A nominal partner is one who does not contribute any capital or share in profit but lends his name to the business is called nominal partner. He is also liable to the third parties.
  9. 9. CONT…  Partner in profit only: A partner sharing a profit of business without bearing the losses is called partners in profits only. He contributes capital and is also liable to the third party but is not allowed to take part in the management of the firm.  Minor as a partner: A minor cannot become the partner in the partnership firm because he cannot enter into the contract but he may be admitted to the benefits of partnership as per the consent of all the partners.  Incoming partner: A person who is admitted as a partner in an existing partnership is called as incoming partner. He is not liable to the creditors for anything that has happened before he joined the business.
  10. 10. CONT…  Outgoing partner: Partner leaving the existing firm is called an outgoing partner or retiring partner. An outgoing partner is liable for the debts incurred before retirement.  Partner by estoppel or holding out: When a person is not a partner but he pretend to be partner by words spoken or written or by his conduct is called partner by estoppel or holding out. He shall be liable for the third party who deals with the firm on the supposition that he is a partner even though he is not a partner.
  11. 11. MINOR AS A PARTNER A minor cannot become a partner in the partnership because according to Indian contract act he is incapable of entering into the contract of partnership but he may be admitted to the benefits of partnership with the consent of all the partners. The position of minor partner is studied under two heads:  Position before majority: a) Every minor has a right of share in the profits and property of the business as agreed by the members. b) He has the right to inspect the books of accounts. c) If he is not given his due share, he has the right to file a suit against the firm.
  12. 12. CONT…  Position after majority: On attaining majority the minor has to declare within six months whether he shall continue in the firm or leave it. If he fails to declare, he becomes partner in the firm at the end of six months. 1) When he elects to be a partner:  He becomes personally liable to all the third parties for all the act of the firm since he has admitted to the benefits of partnership.  His share in the profits of the firm is the share to which he has entitled as a minor. 2) When he elects not to become a partner:  His right and duties continue to be as a minor up to the date of notice.  He is not liable for any act of the firm done after the date of public notice.  He has a right to sue the partners if his share of profits is denied.
  13. 13. ADVANTAGES OF PARTNERSHIP  Easy formation: Like sole proprietorship partnership form of organization can be formed without legal formalities because registration is not compulsory and the agreement may be written or oral.  Sharing of risk: In partnership the losses are shared by all the partners, whereas in case of sole traders, he bears it alone.  Large resources: Partnership firm enjoys large resources as compared to sole proprietorship.  Flexibility: The partnership business is considered flexible because it is free from legal formalities and the partners can introduce any change whenever required.
  14. 14. CONT…  Maintenance of secrecy: The partnership business is less secretive but it doesn’t have to get it accounts audited and published as is necessary for joint stock companies.  Direct relationship between reward and work: In partnership there is direct relation between reward and work and this enables the partners to put more labor and earn more profit.  Easy dissolution: The partnership business can be easily dissolved on the death, insolvency of partners. There are no legal formalities involved in the dissolution.
  15. 15. DISADVANTAGE OF PARTNERSHIP  Lack of harmony: In partnership firm there is mostly disharmony among partners which results in lack of management.  Limited resources: Maximum no of partners is 20 in a partnership firm so it limits the amounts of capital raised.  Instability: One major disadvantage is that the firm can come to abrupt and on death, lunacy and insolvency of partners. It can also be closed by the order of law or if a partner expresses his desire to dissolve the partnership.
  16. 16. CONT…  Lack of public faith: There is lack of public faith in this form of organization as it has no legal formalities and people do not get exact position of business because accounts in this form of organization is not published.  Restriction of transfer of interest: In partnership, if a partner wants to transfer his interest to the third party, he will have to seek the consent of all the partners.  Liability after retirement: A partner is liable after his retirement also. He is liable to all the acts done by him when he was a partner.
  17. 17. PARTNERSHIP DEED Partnership is the result of an agreement which may be in writing or formed verbally. But it is desirable to have the partnership agreement in writing to avoid future disputes. The deed is required to be duly stamped as per the Indian Stamp Act, 1889 and duly signed by all the partners. The agreement between the partners is written in a partnership deed. The agreement should be signed by all the partners. Partnership deed is not a public document like M.O.A (Memorandum of association).
  18. 18. CONTENTS OF PARTNERSHIP DEED  Name of the firm.  Name and addresses of all the partners.  Nature and place of the business.  Term or duration of partnership.  Amount of capital to be contributed by each partner.  The drawings that can be made by each partner.  The interest to be allowed on capital, and charges on drawings.  Rights of partners.  Duties of partners.  Remuneration of partners.  Ratio in which the profits and losses are to be shared.  The procedure of admission and retirement of a partner.  Settlement of amount in case of retirement, death of partners or dissolution of the firm.  The procedure to be adapted in case of disputes.
  19. 19. RULES TO BE FOLLOWED IN ABSENCE OF PARTNERSHIP DEED  The partners will share the profits and losses equally.  They will not get any interest on capital.  No interest will be charged on personal drawings.  No salary for the partners.
  20. 20. REGISTRATION OF PARTNERSHIP Sec 57 deals with appointment of registrar of firms. The state govt. is empowered to appoint registrar of firms for carrying out the purposes of act and lays down the areas within which they shall exercise their powers and perform their duties.
  21. 21. PROCEDURE FOR REGISTRATION Sec 58&59 deal with the procedure for the registration of the firm. An application in the prescribed fees is to be filled with the registrar of the area in which any where place of the business of the firm is situated or proposed to be situated. The application shall state the following:  The name of the firm.  The place of the business of the firm.  The name of any other place where the firm carries on business.  The date when each partner join the firm.  The name in full and the permanent addresses of all the partners.  The duration of the firm.
  22. 22. CONT… The application shall be signed and verified by each partner or his agent specifically authorized for this purpose in the manner prescribed by law. When the registrar is satisfied that the provision of sec58 have been compiled with, he shall make an entry of the application in the register of firms and shall file the same.
  23. 23. RIGHTS OF PARTNERS The rights of all the partners are as follows:  Right to take part in the business.  Right to be consulted.  Right to access of account.  Right to share in profit.  Right to interest on capital.  Right to the use of partnership property.  Right to retire.  Right to remuneration.
  24. 24. DUTIES OF PARTNERS  To indemnify for loss caused by fraud.  To work without remuneration.  To share losses.  To hold and use property of the firm.  To act within authority.  To account for profits of completing business.
  25. 25. RELATION OF PARTNER WITH THIRD PARTIES Subject to the provision of the partnership act, 1932 every partner is the agent of the firm for the purpose of the business of the firm (sec18). One of the essential of the partnership is that the business must be carried on by all or any one of them acting for all. Accordingly partners are agent and principal both. In carrying of the business of the firm partners act as agent as well as principals.
  26. 26. IMPLIED AUTHORITY OF A PARTNER Sec19 provides that the act of the partner which is done to carry on the business of the firm, binds the firm. Thus the authority of the partner to bind the firm by his act is called the implied authority of the partner. Acts within implied authority:  Purchasing goods on behalf of the firm in which they deal.  Selling the goods of the firm.  Receiving payments of the debts and giving receipts for them.  Settling accounts with the person dealing with firm.  Engaging servants for the partnership business.  Borrowing money on the credit of the firm.
  27. 27. CONT… Limitations of implied authority:  Cannot open a bank account on behalf of the firm in his own name.  Cannot withdraw a suit for proceedings file on behalf of the firm.  Cannot acquire immovable property on behalf of the firm.  Cannot transfer immovable property belonging to the firm.  Cannot enter into partnership on behalf of the firm.
  28. 28. IMPLIED AUTHORITY WITH THIRD PARTY The relation of partners with the third parties arises out of the authority of partners as an agent of the firm. Any third party while dealing with an agent believes that he is dealing with the firm. The act makes some special provisions with regard to the relation of partner with third parties. They are as follows:  Admission or representation by a partner (sec 23): It is obvious that if a partner acts beyond his authority then the firm shall not be bound by it but the third party acting in good faith can bind the firm and in that case the partner concern shall indemnify the firm.
  29. 29. CONT…  Notice to acting partner (sec 24): 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 fraud on the firm committed.  Liability of a partner (sec 25): According to sec 25 the liability of the partner is joint and several even though the act of the firm may have been done by only one of them. Thus a third party if he so likes can bring an action against anyone of them or against all of them jointly.  Liability of the firm (sec 26&27): Since a partner represents as an agent of the firm with the third parties and hence the firm becomes liable to third parties for binding the firm.
  30. 30. DISSOLUTION OF PARTNERSHIP FIRM Dissolution of the firm means dissolution of partnership between all the partners of the firm. It means the business of the firm is discontinued. Dissolution of partnership involves only change in the relation of the partners. The firm still continues even after the dissolution of partnership because this may happen on admission, retirement or death of the partner.
  31. 31. MODES OF DISSOLUTION OF FIRM 1) Dissolution without the order of the court (sec 43): Dissolution of the firm without the order of court may take place in the following ways: a) Dissolution by agreement (sec40): A firm may be dissolved with the consent of all the partners with the contract between the partners. The contract for the dissolution of firm may be express or implied. b) Compulsory dissolution (sec 41): A firm is compulsory dissolved in the following circumstances:  If all the partners or one partner of the firm are declared insolvent.  If some events takes place which makes it unlawful for the business of the firm to be carried on.
  32. 32. CONT… c) Dissolution on the happening of certain contingencies (sec 42): A firm is dissolved on the following four contingencies:  On the expiry of the fixed term.  On completion of the venture or undertaking.  On the death of a partner.  On the insolvency of the partner. d) Dissolution by notice (sec 43): 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.
  33. 33. CONT… 2) Dissolution by court (sec. 44): According to sec 44 of the Indian partnership act, dissolution by court may take place on the following grounds: a) Insanity: The court may dissolve the firm where a partner has become of unsound mind. The firm may dissolve on the petition of any of the partner or by the next friend of insane partner. b) Permanent incapacity: When a partner has become permanently incapable of performing duties, any other partner may apply for dissolution in the court. The incapacity must be of a permanent nature such as physical disablement, illness etc.
  34. 34. CONT… c) Misconduct: The court may order the dissolution of firm on account of misconduct of any partner other than the one filling a suit for dissolution. d) Persistent breach of agreement: When a partner willfully or persistently commits breach of the partnership agreement relating to the affairs of the firm or conduct of the business, the court may at instance of any of the other partner dissolve the firm. e) Business working at loss: Where the business of the firm cannot be carried on except at a loss, the court may order dissolution of the firm.

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