CHAP 04

The
Partnership
Act
Business Law
Partnership
• Section 4---the relation between persons who
have agreed to share the profits of a business
carried on by all or any one of them acting for all.
• A voluntary association of two or more persons

who contribute money, time and skill to run a
business for profit and share the losses.
Characteristics of
Partnership
• Legal entity
• Agreement
• Number of partners
• Sharing of profits
• Unlimited liability
• Transfer of interest
Characteristics of
Partnership
• Legal Entity: A partnership is not considered a
separate legal entity from its owners (the
partners).
• This means that the partnership itself does not
pay taxes or incur liabilities; instead, the partners
individually report their share of profits or losses
on their personal tax returns, and they are
personally responsible for the partnership's debts
and obligations.
• Agreement: Partnerships are typically formed
through a partnership agreement, which is a
legally binding contract between the partners.
Characteristics of
Partnership
• Number of Partners: Partnerships can have two or more
partners.
• The maximum limit of the number of partners is 20.
• Sharing of Profits: Profits in a partnership are typically

shared among the partners according to the terms of the
partnership agreement.
• The agreement may specify the method for allocating profits,
which is often based on each partner's contribution to the
partnership (such as capital investment or effort), ownership
percentage, or as otherwise agreed upon by the partners.
• It's important to note that while partners share in the profits
of the business, they also bear the responsibility for any
losses incurred.
Characteristics of
Partnership
• Unlimited Liability: One of the key
characteristics of partnerships is that partners
have unlimited personal liability for the debts and
obligations of the business.
• This means that if the partnership is unable to
meet its financial obligations, creditors can go
after the personal assets of the partners to satisfy
those debts.
.
• Transfer of Interest:
• Shares can not be transferred to any one without
the consent of all the partners.
Kinds of Partners
• Here are the main types of partners under the
Partnership Act 1932:
• Active/Managing Partner: An active or managing
partner is actively involved in the day-to-day
management and operations of the partnership business.
• They have the authority to bind the partnership in
contracts and decisions related to the ordinary course of
business.
• Sleeping/Dormant Partner: A sleeping or dormant
partner contributes capital to the partnership but does
not take an active role in managing the business.
• They typically have limited involvement in decision-
making and operations.
Kinds of Partners
• Nominal Partner: A nominal partner is one whose
name is used in the partnership firm without any
actual involvement or contribution to the business.
• They lend their name to the partnership for various
reasons, such as to lend credibility or to comply
with legal requirements.
• Minor Partner: A minor partner is someone who is
below the age of majority (18 years) and is a
partner in the partnership.
• While a minor can be admitted to the benefits of
partnership, they cannot be made personally liable
for the debts and obligations of the partnership.
Kinds of Partners
• Partner in Profit Only:
• A partner in profit only is entitled only to a share
of the profits of the partnership and does not bear
any losses.
• Their liability is limited to the extent of their share
in the profits.
• Secret Partner:
• A partner whose membership is kept secret from
outsiders.
Kinds of Partners
• Senior Partner:
• A partner who has more investment in the firm
and receive more profit.
• Junior Partner:
• The partner who has recently joined the
partnership and have relatively less investment in
the firm.
• Junior partner receive relatively less profits.
Types of Partnership
1. Partnership-at-Will:
Thank You

CHAP 04

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The

• A voluntary association of two or more persons

• Sharing of Profits: Profits in a partnership are typically

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