LAW OF PARTNERSHIP

CONTENTS

• Definition
• Nature and Essentials of Partnership
• Kinds of Partners and Partnership
• Duties and Rights of Partners
• Dissolution of Partnership
 LAW OF PARTNERSHIP

A partnership is a voluntary
association of two or more persons,
who contribute, money, property,
time, care or skill, to carry on, as co-
owners, a lawful business for profit
and to share the profits and losses of
the business.
 FORMAL DEFINITION

According to sec. 4 of the Indian Partnership Act,

1932, “Partnership” is 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.
 NATURE OF PARTNERSHIP

• Association of two or more than two persons.

• Result of an agreement between two or more
persons.
• Agreement must be to share profit of the
business.
• Business must be carried on by all or any of them
acting for all.
• Unlimited liability.
• Unanimity of consent.
• Agreement must be to carry on some business
 ESSENTIALS OF PARTNERSHIP
1. Agreement: a partnership is the result of an
agreement between persons who want to form a
partnership.

2. Number of partners: according to section 14 of

Company’s Rules, 2013, the maximum number of
members in case of a partnership firm should not be
more than 100.
 ESSENTIALS OF PARTNERSHIP

3. Existence of business: the partners must agree to

carry on a business. If the purpose is to carry on
some charitable work, it will not be a partnership.

4. Sharing of profits: the agreement between the

parties must be to share the profits of a business.
The profit will be distributed among the partners
according to their agreement.
 ESSENTIALS OF PARTNERSHIP

5. Duration: the partnership continues at the will of

the partners. It comes to an end if any of the
partners retires, dies or becomes insolvent.
However, if the remaining partners agree to
continue the business, the firm will not dissolve.
 KIND OF PARTNERS

1. Active partner
•Engaged in actual conduct of the
business
•His acts binds the firm and other
partners
•Notice to be given in case of
retirement
 KIND OF PARTNERS

2. Sleeping partner
•Does not take part in the conduct of business

•Contributes his share of capital and enjoys profits

and losses
•Not known to outside world

•Not liable to third parties for the acts of the firm

•Not required to give notice in case of retirement

 KIND OF PARTNERS

3. Nominal partner
•No real interest in business, does not
contribute any capital, lends his name
only
•No share in profits but liable to third
parties for all acts of the firm
 KIND OF PARTNERS

4. Senior partner: a partner who has made

more investment in the firm and receives
more profit is called a senior partner.

5. Junior partner: a junior partner is the one

who has a small investment in the business
and receives a nominal share in the profits.
 KIND OF PARTNERS

6. Partner in profits only: he is a

partner who shares the profits of the
firm but is not liable for the losses. But
he contributes capital and is equally
liable as other partners to the
outsiders.
 CONTRIBUTION OF CAPITAL

KINDS OF PARTNERS YES/NO

Active Partner
Sleeping Partner
Nominal Partner
Partner in Profits only
 CONTRIBUTION OF CAPITAL

KINDS OF PARTNERS YES/NO

Active Partner YES
Sleeping Partner YES
Nominal Partner NO
Partner in Profits only YES
 PARTICIPATION IN CONDUCT OF
BUSINESS

KINDS OF PARTNERS YES/NO

Active Partner
Sleeping Partner
Nominal Partner
Partner in Profits only
 PARTICIPATION IN CONDUCT OF
BUSINESS

KINDS OF PARTNERS YES/NO

Active Partner YES
Sleeping Partner NO
Nominal Partner NO
Partner in Profits only NO
SHARE IN PROFITS/LIABLE FOR LOSSES

KINDS OF PARTNERS YES/NO

Active Partner
Sleeping Partner
Nominal Partner
Partner in Profits only
SHARE IN PROFITS/LIABLE FOR LOSSES

KINDS OF PARTNERS YES/NO

Active Partner YES
Sleeping Partner YES
Nominal Partner NO
Partner in Profits only ONLY PROFITS
 LIABLE TO THIRD PARTIES

KINDS OF PARTNERS YES/NO

Active Partner
Sleeping Partner
Nominal Partner
Partner in Profits only
 LIABLE TO THIRD PARTIES

KINDS OF PARTNERS YES/NO

Active Partner YES
Sleeping Partner NO
Nominal Partner YES
Partner in Profits only YES
 TYPES OF PARTNERSHIP

1. Partnership at will:

•Where no provision is made by contract between

the partners for the duration of their partnership,
the partnership is ‘partnership at will.’

•The essence of a partnership at will is that the

partners do not fix any term of partnership and are
free to break their relationship at their own sweet
will. It is a partnership for an indefinite period.
 TYPES OF PARTNERSHIP

2. Particular partnership:

•When a partnership is formed for a particular

period or for a particular venture, it is called
particular partnership.

• In such a case, the partnership is automatically

dissolved at the expiry of the fixed term or on the
completion of the venture.
 RIGHTS OF PARTNERS

1. Right to take part in business: it is

not essential for every partner to take
part in business but the right of
participation should be available to
every partner.

2. Right to access books.

3. Right to share profits.
 RIGHTS OF PARTNERS

4. Right to be consulted

5. Right to retire: a partner can retire

with the consent of other partners or
according to the agreement or by
giving notice to all the partners.
 RIGHTS OF PARTNERS

6. Right to interest on capital

7. Right to interest on advances.
8. Right to indemnity.
 DUTIES OF PARTNERS

1. Duty to carry on Business: it is the duty of every

partner to carry on the business of the firm for the
common advantage.

2. Duty to be just and faithful: the partners should

be faithful and just towards the firm and towards
other partners in their actions specifically in
maintaining the firm’s accounts.
 DUTIES OF PARTNERS

3. Duty to indemnify: every partner is bound to

indemnify the firm for any loss caused to it by his
conduct like fraud or misrepresentation.

4. Duty not to transfer his shares without the

consent of other partners.
 INCOMING PARTNER

• No partner can be admitted as a partner into a

firm without the consent of all the existing
partners.

• Mutual trust and confidence among the partners

being an essential ingredient of an ideal
partnership, it is essential that here must be a
consent of all the partners.
 LIABILITY OF AN INCOMING PARTNER

• A new partner becomes liable for the debts and

acts of the firm only from the date he is admitted
as a partner.

• He cannot be held liable for the acts of the old

firm. A new partner may, however, agree to be
liable for the debts existing prior to his admission
but such agreeing will not give to a prior creditor
the right to sue him because of absence of
‘privity of contract.’
 RETIREMENT OF A PARTNER

• A Partner is said to retire when the surviving

partners continue to carry the business of the
firm, and the retiring member ceases to be a
partner.

• In case of ‘particular partnership’, a partner may

retire with the consent of all the other partners,
unless otherwise agreed. In case of ‘partnership
at will’, a partner may retire by giving a notice in
writing to all the other partners of his intention to
retire, unless otherwise agreed.
 EXPULSION OF A PARTNER

• A partner may be expelled from a firm by majority

of the partners only if:
a.) the power to expel has been conferred by
contract between the partners.
b.) such a power has been exercised in good faith
for the benefit of the firm.

• The partner who has been expelled must be given

reasonable opportunity to explain his position and
to remove the cause of his expulsion.
 INSOLVENCY OF A PARTNER

• When a partner in the firm is adjudicated as

insolvent, he ceases to be a partner on the date
on which the order of adjudication is made,
whether or not the firm is thereby dissolved will
depend upon the agreement of partnership
between the partners.

• The insolvent partner’s share in the firm’s assets

will be used for firm’s debts first and whatever
remains will be utilized for the insolvent partner’s
personal debts
 DEATH OF A PARTNER

• Although on the death of a partner, the firm is

dissolved, but if the other partners so agree the
firm may not be dissolved. When a firm is not
dissolved, the estate of the deceased partner is
not liable for any acts of the firm done after his
death.

• No public notice of death is required to relieve

the deceased partner’s estate from future
obligations.
 DISSOLUTION OF PARTNERSHIP

1. By Agreement: A firm may be dissolved with the

consent of all the partners or in accordance with a
contract between the partners. Partnership is
created by a contract, it can also be terminated by
a contract.
 DISSOLUTION OF PARTNERSHIP

2. By notice: Where the partnership is at will, the

firm may be dissolved by any partner giving the
notice in writing to all the other partners of his
intention to dissolve the firm. A notice of
dissolution once given cannot be withdrawn
without the consent of all the other partners.
 DISSOLUTION OF PARTNERSHIP

3. On the happening of certain contingencies:

Subject to a contract between the partners, a firm
may be dissolved if:

a.) if constituted for a fixed term, by the expiry of

that term.
b.) If constituted to carry out one or more
adventures or undertakings, by the completion
thereof.
c.) By the death of the partner.
d.) By the adjudication of partner as an insolvent.
 DISSOLUTION OF PARTNERSHIP

4. Compulsory Dissolution: A firm may be

compulsorily dissolved if:

a.) When all the partners, or all the partners but

one, are adjudged insolvent.
b.) When some event has happened which makes it
unlawful for the business of the firm to be carried
on.
 DISSOLUTION OF PARTNERSHIP

5. Dissolution by the Court: A firm may be dissolved

by the order of the court if any of the partners files
a suit for the same on any of the following grounds:

a. A partner has become of unsound mind.

b. A partner has become insolvent
c. A partner has committed breach
d. The firm is running on losses
 SETTLEMENT OF ACCOUNTS ON
DISSOLUTION
1. The partners shall pay losses, first from their
profits, next out of capital and lastly if necessary by
the partners individually according to the proportion
of their expected profits.
 SETTLEMENT OF ACCOUNTS ON
DISSOLUTION
2. The assets of the firm shall be applied to pay the
debts of third parties, to pay each partner what is
due to him, the rest if any to be divided among the
partners according to the proportion in which they
were to receive profits.
Thank You!