LLB-II SPECIAL CONTRACTS

1. Partnership
Course: LLB II
Subject : Company Act
Unit: III

2. Sole proprietorship :-
• Meaning :- A Sole proprietorship or one man’s
business organization owned and managed by
a single person. He is entitled to receive all the
profit and bears all risk of ownership.
• A sole proprietorship is a business established,
owned, and controlled by a single person.

3. SOLE PROPRIETORSHIP FEATURES:-
1. This is a form of business organization that is owned
and usually managed by one person.
2. It is the oldest and simplest form of business
ownership.
3. The easiest to start.
4. They dominate the retailing, agriculture and service
industries.

4. Sole Proprietorship Advantages:-
1. Ease and low cost of formation and dissolution,
2. Retention of all profits.
3. Independence and flexibility.
4. Tax advantage and less government regulation.
5. The business itself pays no income tax the
owner pays income tax as an individual.

5. Sole Proprietorship Disadvantages:-
• Unlimited liability
• Limited Financial Resources
• All Decisions
• Owner is the only person who can arrange
financing and capitalization.
• Limited growth
• Limited life span

6. Features of Partnership :-
• Two or more members : At least two members are required to start a
partnership business. But the number of members should not exceed 10 in
case of “banking business” and 20 in case of “other business.
• Lawful business : The partners should always carry on any kind of lawful
business, they cannot indulge in illegal business like smuggling, black
marketing, etc..
• No separate legal existence : Partnership firms are no legal entities as
opposed to companies, who have their separate legal existence, partnerships
are not recognized in law at their own, they are recognized by their partners
• Eligibility of partners : Since individuals join hands to become partners, it is
necessary that they must be “competent” to enter into a partnership. Thus,
minors, lunatics and insolvent people are not eligible to become partners.
However, a minor can be admitted to the benefits of partnership i.e., he can
have a share in the profits only.

7. Features of Partnership :-
• No separate legal existence : Partnership firms are no legal
entities as opposed to companies, who have their separate legal
existence, partnerships are not recognized in law at their own,
they are recognized by their partners
• Eligibility of partners : Since individuals join hands to become
partners, it is necessary that they must be “competent” to enter
into a partnership. Thus, minors, lunatics and insolvent people
are not eligible to become partners. However, a minor can be
admitted to the benefits of partnership i.e., he can have a share
in the profits only.

8. Conti…
• Sharing of profits : The main objective of every partnership firm
is to make and share the profits of the business. Suppose, there
are two partners in the business and they earn a profit of
Rs.20,000. They may share the profits equally i.e., Rs.10,000 each
or in any other agreed proportion.
• Unlimited liability : The biggest disadvantage of partnership is
that the liability of partners in a partnership is unlimited.
Suppose, the firm has to make payment of Rs.30,000/- to the
creditors. The partners are able to arrange for only Rs.20,000/-
from the business. The balance amount, of Rs.10,000/- will have
to be arranged from the personal properties and assets of the
partners.

9. Conti…
• Voluntary registration : Though the Partnership Act provides
for registration but had not made it mandatory to register a
partnership firm.
• Restriction on transfer of interest : No partner can sell or
transfer his share or part in the firm to any one without the
consent of the other partners. For example, A, B, and C are
three partners .If “A” wants to sell his share to “D” as his
health problems prevent him from working, he cannot do so
until B and C both agree.
• Continuity of business : A partnership firm comes to an end
at death, lunacy or bankruptcy of any partner.

10. Types/Forms of Partnership:-
• General / Active Partner : The partners who actively
participate in the day-to-day operations of the business
are known as active partners. They contribute the
capital and are also entitled to share the profits & losses
of the business.
• Limited Partner : Those partners who do not participate
in the day-to-day activities of the partnership firm are
known as dormant or “sleeping partners”. They only
contribute capital and share the profits or bear the
losses, if any.

11. Conti…
• Nominal / Outside Partners : These partners are persons,
who hold a particular goodwill as to their character or
work and to allows the firm to use this goodwill by
showing them as the partner in their firm.
• Minor as a Partner : Legally only a person who is or
above the age of 18 can become a partner in the firm but
in special cases, a minor can also be admitted as partner
with certain conditions. A minor can only share the profit
of the business.

12. References
• Saharay H.K. : Indian Partnership and Sale of
Goods Act, Universal
• Pollock and Mulla's : Indian Partnership Act,
Lexis Nexis-Butterworths
• P.C. Markanda's: The Law of Partnership in
India, Lexis Nexis-Butterworths