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Definition of partnership
Partnership is 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 !
"ssentials of a Partnership
Association of two or more persons Agreement #usiness $haring of profits %utual agency
1+ 2+
Agreement
Partnership is created by contract ,hus( Partnership agreement li*e any other contract( must have all essential elements of a valid contract &ompetent to contract
the age of ma-ority sound mind and is not dis.ualified from contracting by any law to which he is sub-ect to
#usiness
A partnership can be formed only or the purpose of carrying on some business #usiness includes every trade( occupation and profession ,he business to be carried on by the firm must be legal
$haring of profits
,he ob-ect of partnership must be to ma*e profit Profit must be distributed among the partners in an agreed ratio It also includes sharing of losses It may be agreed that one or more of the partners shall not be liable for losses
%utual agency
,he true test of partnership is the e'istence of /%utual Agency0 relationship( I e the capacity of a partner to bind other partners by his acts done in firm0s name and be bound by the acts of other partners ,hus partnership can be presumed when a ,here is an agreement to share the profits of business and b ,he business is carried on by all or by any of them acting for all
3ormation 5f Partnership
%inor Partner) A minor may be admitted to the benefits of partnership with the consent of all the other partners &onsideration) As no consideration is re.uired to create an agency( no consideration is re.uired to create partnership which is an e'tension of the law of agency 3ormation 5f Partnership %ay be formed by oral or written agreement All essential elements of valid contract be present %utual rights and 5bligation to be in Partnership Deed ,he deed to be registered
;inds of Partnership
<eneral partnership
;inds of Partnership
5n the #asis of Duration Partnership at will 2 it is a partnership when no fi'ed period has been agreed upon for the duration of the partnership Partnership for a fi'ed period 21here a provision is made by a contract for the fi'ed period of the partnership 5n the #asis to the e'tent of the business Particular partnership 2 a partnership organi=ed for the prosecution of a particular adventure It comes to end when the adventure is completed <eneral partnership 2 where a partnership is constituted
7egistration of 3irms
7egistration of 3irms not compulsory but advisable Procedure for registration ,he registration of a firm may be effected at any time by filing an application in the form of a statement( giving the necessary information( signed by all partners with the 7egistrar of 3irms of the area( accompanied by the prescribed fee ,he application should state the following - ,he firm name - the place or principal place of business of the firm> - the names of any other places where the firm carries on business> - the date when each partner -oined the firm>
- the names in full and permanent addresses of the partners> and - the duration of the firm
"ffects of non 7egistration 4o suit in a civil court by a partner against the firm or co partner 4o suit in civil court against third parties 3irm or partners cannot ma*e claim to set off other proceeding based upon a contract
7ights of a Partner
1 2 3 ? @ A B C 9 1+ 11 12 13 1? 7ight to ta*e part in business 7ight to be consulted 7ight to access to accounts 7ight to share in profits 7ights to interest on capital 7ights to interest on advances 7ight to be indemnified 7ight to the use of partnership property 7ight of the partner as agent of the firm 4o new partner to be introduced 4o liability before -oining 7ight to retire 7ight not to be e'pelled 7ight of outgoing partner to share in the subse.uent profits
Duties of a Partner
1 2 3 ? @ A B C 9 1+ 11 12 13 ,o carry on the business with common advantage ,o be -ust and faithful ,o indemnify for loss caused by fraud ,o carry out the duties diligently ,o wor* without remuneration ,o share losses ,o indemnify the firm for wilful neglect ,o hold and use firms property e'clusively for the firm ,o account for personal profits derived ,o account for profits for competing business with the firm ,o act within authority ,o be liable -ointly and severally 4ot to assign his rights
firm in the usual way - ,he act must be done in the name of the firm( or in any other manner e'pressing or implying an intention to bind the firm
,ypes of Partners
Active D actual D ostensible partners
- is actively engaged in the conduct of the business of the partnership
4ominal Partner
- 1ho lends his name to the firm( without having any real interest in the firm - Does not invest capital - Does not have any share in profit - Does not participate in management
$ub partner
- 1hen a partner agrees to share his profits derieved from the firm with a third person( that third person is *nown as a sub2partner
%inor Partner
- 1ith the consent of all the partners( a minor may be admitted to the benefits of partnership - A minor cannot be a promisor( but he can be a promisee or a beneficiary
Position of a %inor before attaining %a-ority) 7ights of %inor partner - 7ight to share of the property - 7ight to share of the profits of the firm as may have been agreed upon - 7ight to have access to and to inspect( and copy any of the accounts( but not the boo*s of the firm - 1hen he is not given his due share of profit ( he has a right to file a suit for his share of the property of a firm Fiabilities of %inor partner - Eis liability is confined only to the e'tent of his share in
the profits and property of the firm - Ee cannot be declared as insolvent2 only if firm is declared insolvent
Position of a %inor after attaining %a-ority - Ee may ( at any time within si' months of attaining ma-ority( give public notice that he has elected to becomeD not to become a partner in the firm - If he fails to give a public notice( he is deemed to have become a partner in the firm on the e'piry of the said si' months
- 1here he elects to become a partner) Ee becomes personally liable to third parties for all acts of a firm done Eis share in the property and profits of the firm is the share to which he was entitled as a minor partner - 1here he elects not to become a partner) Eis rights and liabilities continue to be those of a minor up to date of the notice Eis share is not liable for any acts of the firm done after the date of public notice
Ee is entitled to sue the partners for his share of the property and profits in the firm
Introduction of a partner A person may be admitted as a new partner either2 - 1ith the consent of all the e'isting partners( or - In accordance with a contract already entered into between the e'isting partners for the admission of a new partner - "g Agreed to enter a partner0s son on attaining age of 21 Fiability of incoming partner - 4o liability for any act of the firm done prior to his admission as a partner - Ee is liable for the acts of the old firm only if( 4ew firm assumes the liabilities of the old firm ,he creditors accept the new firm as their debtor and
7etirement of a partner A partner may retire from a firm - 1ith the consent of all the partners - "'press agreement by the partners - <iving notice in writing Fiable to third parties only until public notice is given of retirement A retired partner need not give a public notice of his retirement to persons who are ignorant of his being a partner in the firm 7ights of the retired partner - ,o carry on competing
"'pulsion of a partner A ma-ority of partners can e'pel a partner only if such power is conferred by contract between the partners( and the power is e'ercised in good faith by the ma-ority Insolvency of a partner 1here a partner in a firm is ad-udicated insolvent( he ceases to be a partner on the date on which the order of ad-udication is made( whether or not the firm is thereby dissolved Death of a partner $ub-ect to contract between the partners( a firm is dissolved by the death of a partner
Dissolution by &ourt
#y agreement
&ompulsory dissolution
#y notice
Dissolution of firm
A &ourt
- Insanity of a partner - Permanent incapacity of a partner - &onduct affecting pre-udicially the businessD %isconduct - #reach of partnership agreement - ,ransfer of interest of a partner - #usiness wor*ing at a loss
# 5thers
- Dissolution by agreement - &ompulsory dissolution in case of insolvency - Dissolution on happening of certain contingency
If constituted for a fi'ed term( by the e'piry of that term If constituted to carry out one or more adventures or underta*ings( by its completion #y the death of a partner 5n insolvency of a partner
7ights of Partner on dissolution 7ight to have business wound up 7ight to have the debts of the firm settled out of the property of the firm 7ight to personal profits earned after dissolution 7ight to return of premium on premature dissolution 7ight where partnership contract is rescinded for fraud or misrepresentation
- 7ight of lien on the surplus assets - 7ight of subrogation9becomes creditor of firm if spend from his own poc*et: - 7ight to be indemnified
Fiabilities of a partner on dissolution If a public notice is not given of the dissolution of a firm( the partners continue to be liable to third parties for any act done by any of them after dissolution
- 4o notice re.uired in case of
Deceased partner Insolvent partner $leeping partner who retires