1.
Partnership
Introduction
A partnership is an arrangement where parties, known as partners, agree to
cooperateto advance their mutual interests. The partners in a partnership may
be individuals, businesses, interest-
based organizations, schools, governments or combinations.
Organizations may partner together to increase the likelihood of each
achieving their mission and to amplify their reach. A partnership may result in
issuing and holding equity or may be only governed by a contract.
Definitions
 A type of business organization in which two or more
individuals pool money, skills, and other resources, and
share profit and loss in accordance with terms of the partnership
agreement. In absence of such agreement, a partnership is assumed
to exit where the participants in an enterprise agree to share
the associated risks and rewards proportionately .
 The partnership between the two men wasgoing alongsmoothlythey
had just pooled the money between the two of them and paid the deposit
for the buildingthat would house their second store.
Types of partnership
Types of partnerships:
1. General partnership
2. Limited partnership
3. Limited liability partnership
 General Partnership:
Partners divide responsibility for management and liability as well as the shares
of profit or loss according to their internal agreement. Equal shares are assumed
unless there is a written agreement that states differently.

2.
 Limited Partnership:
A limited partnership is a form of partnership similar to a general partnership
except that, in addition to one or more general partners (GPs), there are one or
more limited partners (LPs). It is a partnership in which only one partner is
required to be a general partner. LPs have limited liability, meaning they are
only liable for debts incurred by the firm to the extent of their
registered investment and have no management authority.
Limited Liability Partnership:
A limited liability partnership (LLP) is a partnership in which some or all
partners (depending on the jurisdiction) have limited liability. In an LLP, one
partner is not responsible or liable for another partner's misconduct or
negligence. This is an important difference from that of an unlimited
partnership.
Different Kinds of Partners
The different kinds of Partners that are found in Partnership Firms are as follows!
1. Active or managing partner:
A person who takes active interest in the conduct and management of the business of
the firm is known as active or managing partner. He carries on business on behalf of
the other partners. If he wants to retire, he has to give a public notice of his
retirement; otherwise he will continue to be liable for the acts of the firm.
2. Sleeping or dormant partner:
A sleeping partner is a partner who ‘sleeps’, that is, he does not take active part in the
management of the business. Such a partner only contributes to the share capital of
the firm, is bound by the activities of other partners, and shares the profits and losses
of the business
3. Nominal or ostensible partner:
A nominal partner is one who does not have any real interest in the business but
lends his name to the firm, without any capital contributions, and doesn’t share the
profits of the business. He also does not usually have a voice in the management of
the business of the firm, but he is liable to outsiders as an actual partner.

3.
Sleeping vs. Nominal Partners:
It may be clarified that a nominal partner is not the same as a sleeping partner.
A sleeping partner contributes capital shares profits and losses, but is not known
to the outsiders. A nominal partner, on the contrary, is admitted with the
purposeof taking advantage of his name or reputation.
4. Partner by estoppels or holding out:
If a person, by his words or conduct, holds out to another that he is a partner, he will be
stopped from denying that he is not a partner. The person who thus becomes liable to
third parties to pay the debts of the firm is known as a holding out partner.
5. Partner in profits only:
When a partner agrees with the others that he would only share the profits of the
firm and would not be liable for its losses, he is in own as partner in profits
only.
6. Minor as a partner:
A partnership is created by an agreement. And if a partner is incapable of
entering into a contract, he cannot become a partner. Thus, at the time of
creation of a firm a minor (i.e., a person who has not attained the age of 18
years) cannot be one of the parties to the contract. But under section 30 of the
Indian Partnership Act, 1932, a minor ‘can be admitted to the benefits of
partnership’, with the consent of all partners.
Different Kinds of Partners
(i) Active Partner:
An active partner is one who takes active part in the day-to-day working of the
business. He may act in different capacities such as manager, organizer, adviser and
controller of all the affairs of the firm. He may also be called a working partner.
(ii) Sleeping or Dormant Partner:
A sleeping partner is one who contributes capital, shares profits and contributes to the
losses of the business but does not take part in the working of the concern. A person
may have money to invest but they may not be able to devote time for the business:
such a person may become a sleeping partner

4.
(iii) Nominal Partner:
A nominal partner is one who lends his name to the firm. He does not contribute any capital
nor does him shares profits of the business. He is known as a partner to the third parties. On
the strength of his name, the business may get more credit in the market or may promote its.
(iv) Partner in Profit:
A person may become a partner for sharing the profit only. He contributes capital and
is also liable to third parties like other partners. He is not allowed to take part in the
management of the business. Such partners are associated for their money and
goodwill.
(v) Partner by Estoppels or Holding Out:
When a person is not a partner but poses himself as a partner, either by words or in
writing or by his acts, he is called a partner by estoppels or by holding out. A partner
by estoppels or by holding out shall be liable to outsiders who deal with the firm on
the presumption of that person being a partner in the business even though he is not a
partner and does not contribute anything to the business.
(vi) Secret Partner:
The position of a secret partner lies between active and sleeping partner. His
membership of the firm is kept secret from outsiders. His liability is unlimited and he
is liable for the losses of the business. He can take part in the working of the business.
(vii) Sub-Partner:
A partner may associate anybody else in his share in the firm. He gives a part of his
share to the stranger. The relationship is not between the sub-partner and the firm but
between him and the partner. The sub-partner is a non-entity for the partnership. He is
not liable for the debts of the firm.
(viii) Minor as a Partner:
A minor is a person who has not yet attained the age of majority. A minor cannot enter
into a contract according to the Indian Contract Act because a contract by a minor is
void ab initio
A Partnership Firm May Be Dissolved Under the
Following Circumstances
The dissolution of a firm means discontinuance of its activities. When the working of
a firm is stopped and the assets are realized to pay various liabilities it amounts to

5.
dissolution of the firm. The dissolution of a firm should not be confused with the
dissolution of partnership. When a partner agrees to continue the firm under the same
name, even after the retirement or death of a partner, it amounts to dissolution of
partnership and not of firm.
A firm may be dissolved under the following circumstances:
(a) Dissolutionby Agreement (Section40):
A partnership firm can be dissolved by an agreement among all the partners. Section
40 of Indian Partnership Act, 1932 allows the dissolution of a partnership firm if all
the partners agree to dissolve it. Partnership concern is created by agreement and
similarly it can be dissolved by agreement. This type of dissolution is known as
voluntary dissolution.
(b) Dissolutionby Notice (Section43):
If a partnership is at will, it can be dissolved by any partner giving a notice to other
partners. The notice for dissolution must be in writing. The dissolution will be
effective from the date of the notice, in case no date is mentioned in the notice, and
then it will be dissolved from the date of receipt of notice. A notice once given cannot
be withdrawn without the consent of all the partners.
(c) Compulsory Dissolution(Section41):
A firm may be compulsorily dissolved under the following situations:
(i) Insolvency of Partners:
When all the partners of a firm are declared insolvent or all but one partner is
insolvent, then the firm is compulsorily dissolved.
(ii) Illegal Business:
The activities of the firm may become illegal under the changed circumstances. If
government enforces prohibition policy, then all the firms dealing in liquor will have
to close down their business because it will be an unlawful activity under the new law.
(d) Contingent Dissolution(Section42):
In case there is no agreement among partners regarding certain contingencies,
partnership firm will be dissolved on the happening of any of the situations:
(i) Death of a Partner:
A partnership firm is dissolved on the death of any of the partner.

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(ii) Expiry of the Term:
A partnership firm may be for a fixed period. On the expiry of that period, the firm
will be dissolved.
(iii) Completion of Work:
A partnership concern may be formed to carry out a specified work. On the
completion of that work the firm will be automatically dissolved. If a firm is formed to
construct a road, then the moment the road is completed the firm will be dissolved.
(iv) Resignationby a Partner:
If a partner does not want to continue in the firm, his resignation from the concern will
dissolve the partnership.
(e) Dissolutionthrough Court (Section44):
A partner can apply to the court for dissolution of the firm on any of these grounds:
(i) Insanity of a Partner:
If a partner goes insane, the partnership firm can be dissolved on the petition of other
partners. The firm is not automatically dissolved on the insanity of a partner. The
court will act only on the petition of a partner who himself is not insane.
(ii) Misconduct by the Partner:
When a partner is guilty of misconduct, the other partners can move the court for
dissolution of the firm. The misconduct of a partner brings bad name to the firm and it
adversely affects the reputation of the concern.
(iii) Incapacityof a Partner:
If a partner other than the suing partner becomes incapable of performing his duties,
then partnership can be dissolved.
(iv) Breachof Agreement:
When a partner willfully commits breach of agreement relating to business, it
becomes a ground for getting the firm dissolved. Under such a situation it becomes
difficult to carry on the business smoothly.
(v) Transfer of Share:
If a partner sells his share to a third party or transfers his share to another person
permanently, other partners can move the court for dissolving the firm.

7.
(vi) RegularLosses:
When the firm cannot be carried on profitably, then the firm can be dissolved. Though
there may be losses in every type of business but if the firm is incurring losses
continuously and it is not possible to run it profitably, then the court can order the
dissolution of the firm.
Disputes among Partners:
Partnership firm is based on mutual faith. If partners do not trust each other, then it
will not be possible to run the business. When the partners quarrel with each other,
then the very basis of partnership is lost and it will be better to dissolve it.