PARTNERSHIP ACT, 1932

By: Rehan Farhat

http://www.capakistan.com

DEFINITION:
Partnership is the relationship between persons who have agreed to have the profits of
the business carried-on by all or any of them acting for all.

ESSENTIAL ELEMENTS / TEST OF

PARTNERSHIP:
1.
2.
3.
4.
5.

Association of Persons.
Agreement.
Business.
Sharing of Profit.
Agency.

NATURE / CHARACTERISTICS OF
PARTNERSHIP:
1. Agency.
2. Unlimited Liability.

KINDS OF PARTNERSHIP:
1. Particular Partnership.
2. Partnership at Will.

DUTIES OF PARTNERS:
(GENERAL / FUNDAMENTAL /
ABSOLUTE)
1. Duty of good faith.
2. Duty to work for the greatest
common advantage.
3. Duty to render accounts.
4. Duty of disclosure.
5. Duty to indemnify for frauds.
6. Duty to act within authority.
7. Duty in emergency.
8. Duty to be liable.
9. Duty not to transfer interest.

QUALIFIED DUTIES:
1. Duty to attend delegately.
2. Duty to work without
remuneration.
3. Duty to contribute.
4. Duty to indemnify for willful
neglect.
5. Duty relating use of firms
property.
6. Duty to account for personal
profits.
7. Duty not to compete.

PARTNERSHIP VS. COMPANY [MCK-303]

Partnership

Company
REGULATING ACT

1932

1956

NO OF MEMBERS
Min/Max: 2-20

Min/Max: 7-50

ENTITY
No legal entity

Separate legal entity.

LIABILITY
Unlimited Liability

Limited to the extent of share capital.

AUTHORITY OF MEMBERS
Implied Authority

No mutual Agreement.

MANAGEMENT
All partners

Board of Directors (BOD)

TRANSFER OF INTEREST
AUDIT
Not necessary if profit is <40 Lac.

Compulsory for Ltd Co. Not mandatory of

Pvt. Ltd. Co.

REGISTRATION
May / may not

Must

WINDING UP
At the will of any partner.

On by order of court.

PARTNERSHIP VS. JOINT OWNERSHIP [NDK-272]

Partnership

Joint Ownership

MODE OF CREATION
By agreement

By status.

BUSINESS
Necessary

Exist without

NATURE OF INTEREST
Involves community of interest

May / may not

TRANSFER OF INTEREST
NUMBER OF MEMBERS
Statutory limit

No limit

AUTHORITY OF MEMBERS
Agent

Not an agent

PARTITION OF PROPERTY
Cant sue for partition

Sue for partition

LIEN FOR EXPENSES

RIGHTS OF PARTNERS:
1. Right to take part in business.
2. Right to be consulted.
3. Right of access to books.
4. Right to share profit.
5. Right to interest on capital.
6. Right to interest on advances @ 6% p.a.
7. Right to indemnity.
8. Right of joint ownership.
9. Right not to be expelled.
10. Right to retire.

IMPLIED AUTHORITY OF
PARTNER
Act by Partner:
As an agent of the firm.
In the usual course of business of
firm.
Act done in the name of the firm.
Act done in a manner expressing
an intention to bind the firm.
are the Acts of Firm.

RESTRICTIONS ON IMPLIED
AUTHORITY OF PARTNER:
A. STATUTORY RESTRICTIONS:
[SEC-19(2)]
1.
2.
3.
4.
5.
6.
7.
8.

Arbitration.
Banking Account.
Composition.
Withdrawal of Suit.
Admission.
Acquisition of immovable property.
Transfer of immovable property.
Partnership.

Effects of Statutory Restrictions:

Effective regardless of knowledge.

DISSOLUTION OF FIRM
A. DISSOLUTION WITHOUT THE
INTERVENTION OF COURT:
1. By agreement
By Partnership Agreement.
By mutual consent.
2. Compulsory Resolution:
Insolvency
All
All except one.
Subsequent illegality.
3. By Notice (Partnership At Will)
4. Contingencies (Subject to contract
b/w Partners)
a) By expiry of term.
b) By completion of business.
c) By death.
d) By insolvency.

B. Dissolution by The Order of

the Court.
1.
2.
3.
4.
5.
6.
7.

Insanity.
Permanent incapacity.
Misconduct.
Persistent breaches.
Transfer of Interest.
Perpetual loss.
Just and Equitable.

LEARN THE FOLLOWING SECTIONS:

B. RESTRICTIONS IMPOSED BY
PARTNERSHIP DEED:
Effect: not effective without prior
knowledge.

[SEC-2(a), 11, 14, 17, 26, 38, 48, 58,

59, 72]

RECONSTITUTION OF FIRM
INCOMING AND OUTGOING PARTNERS:
1. Introduction of a partner.
a) Liability of incoming partner:
Not liable for previous acts.
Liable for existing debts if:
o New firm is made;
agreed to take over
existing liabilities of old
firm.
o Creditor discharge old
firm, agreed new firm as
debtor.
2. Retirement of Partner:
Modes of retirement:
a) In agreement.
b) All partners consent.
c) Partnership at Will, notice to
retirement.
3. Expulsion of a Partner.[sec-33]
4. Insolvency of a Partner.
5. Death of a Partner.

RIGHTS OF RETIRED PARTNERS:

1. Right to carry on competing
business:
o Cant use name of the firm.
o Cant use a name similar to
old firm.
o Cant represent on behalf of
old firm.
o Cant solicit the customers.
o Restraint of trade.
2. Right to share subsequent
profits.
No final settlement after
retirement, Partner can:
o Claim interest @ 6% p.a.
o Claim share of profit.

LIABILITIES OF RETIRED PARTNERS:

1. Liable for acts before retirement or
TRIPETITE Agreement b/w firm,
partners and 3rd parties.
2. No public notice, liable after
retirement.

ADMISSION OF MINOR TO THE BENEFITS OF PARTNERSHIP FIRM:

1. Minor = Incompetent to Partnership.
2. But admitted to benefit of
o An already existing Partnership.
o With mutual consent of all partners.
3. When admitted, have same rights and liabilities.

POSITION BEFORE ATTAINING

MAJORITY:
RIGHTS:

1. Right to share the property and

profits.
2. Have access to inspects and copy
accounts.
3. Not personally liable for the acts of
the firm.
4. Cant be adjudicated insolvent.

LIABILITIES:

1. Share in investment is liable only.

DISABILITIES:

1. Not able to inspect other books

except accounts.
2. Cant sue for account and profits or
share in property, except serves
disconnection with firm (It doesnt
dissolve the firm).

POSITION ON ATTAINING
M A J O R IT Y :
(Within 6 months) At any time;

o of his attaining majority; or

o of obtaining knowledge,
he must give a notice whether.
If not, after expiry of 6 months, he
becomes a partner.

SUCH PERSON ELECTS TO BECOME A

PARTNER:

1. Old share in profit and property will

be treated as new share as a
partner.
2. Personally liable to 3rd Party for all
acts, since admitted as a
beneficiary.

SUCH PERSON ELECTS NOT TO

BECOME A PARTNER:
1. Rights and liabilities continue as a
minor till notice.
2. Share not liable after notice.

PARTNER: BY ESTOPPEL /
HOLDING OUT
ESSENTIAL REQUIREMENTS FOR THE
PRINCIPLE OF HOLDING OUT:
1-(A). Active Representation
1-(B). Tacit Representation
2.
Knowledge of Representation.

APPLICATION OF PARTNERS BY
ESTOPPEL:
1. Retired Partner (No Notice = Liable
due to Holding Out)
2. Minor on attaining majority.
EXCEPTION:
1. Deceased Partner share not
liable.
2. Insolvent Partner share not
liable.

CONSEQUENCES RESULTING FROM

INSOLVENCY OF PARTNERS:
1. The adjudicated partner ceases to
be a partner.
2. On the date when order of
adjudication is made.
3. Share not liable after order of the
adjudication.
4. Firm not liable for any act of
insolvent partner after the order of
adjudication.

TRANSFER OF INTEREST
A partner can transfer share to 3rd party,
but transferee cannot become a partner
without others consent.

DISABILITIES OF TRANSFEREE:

1. Cant interfere in the business of

firm.
2. Cant require accounts.
3. Cant challenge the accounts of
profit.
4. Cant sue partners for account
before dissolution.
5. Cant inspect the books.
6. Cant sue for dissolution of the
firm.

RIGHTS OF TRANSFEREE:

1. Entitled for same profit share as of

transferor
2. When dissolution occurs,
transferee can
o To require for accounts as
from the date of dissolution.
o To receive his share of assets
for which transferor is
entitled previously.

REGISTRATION OF FIRM
Optional, evidence of existence of
Partnership Firm.

EFFECTS OF NON REGISTRATION:

1. Suit against partners.
2. Suit against 3rd Party.
3. Right to setoff.
EXCEPTION:

EFFECTS OF DISSOLUTION:
A. RIGHTS ON / AFTER
DISSOLUTION:

1. Right to enforce winding up.

2. Right of continuing authority.
3. Right to have the debts of the firm
settled out of the property of the
firm.
4. Right to earn profits (name of the
firm)
5. Right of return of premium.

EXCEPTION:

Rights not affected are:

1. Right of 3rd Party to sue nonregistered partners.
2. Right of partners for dissolution.
3. Right of partners to sue for
settlement of accounts of an
already dissolved firm.
4. Right of partners to sue for
realization of assets after
dissolution.
5. Right of firm to sue for rights
arising otherwise then out of a
contract.
6. Rights of partners and the firm
having no place of business in
Pakistan.
7. Right of set-off not exceeding Rs.
100

METHODS OF REGISTRATION:
When and how Public notice is to be
given (See [Sec-72])

a) By death of partner.
b) By misconduct of the partner
paying the premium.
c) By mutual agreement of all
partners, no provision for
return of premium.
6. Rights where Partnership contracts
are rescinded from fraud or
misrepresentation.
a) Right of Lien.
b) Right of subrogation.
c) Right to indemnity.
7. Right to restrain.

B. LIABILITIES OF PARTNERS:
Unless public notice is given, all partners
are liable to 3rd parties.
o
o
o
o

Deceased partner.
Insolvent partner.
Dormant Partner.
A Partner who retires after giving
public notice.

MODE OF SETTLEMENT OF ACCOUNTS BETWEEN PARTNERS (SEE [SEC-48])

1. Deficiency of Capital.
2. Assets of the Firm.