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Ans. The Indian Partnership Act, 1932, Section 4, defined partnership as “the relation between
persons who have agreed to share the profits of business carried on by all or any of them acting
for all”. " Partnership is the relation between persons who have agreed to share profit of business
carried on by all or any of them acting for all." Partnership is a mean of bringing together the
persons who can contribute capital, skill for the expansion of business. In the ordinary business
number of partners shall exceed than twenty. In case of banking business they may not exceed
than ten. This type of business organization is very popular in our country.
Features:
1.Agreement:-Without agreement partnership can not be formed. The agreement may be written
or oral. But it must be written on settle the disputes.
2.Registration:-It is not necessary that a partnership may be registered. But in case of registered
firm many problems can be created.
3.Number of Partners :-In a partnership there should be at least two partners. In ordinary
business the partners must not exceed the twenty. In case of banking not more ten.
4.Profit and Loss Distribution :-The basic aim of partnership is to earn profit. This profit is
distributed among the partners according their agreement. In case of loss also all the partners
share in it.
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6.Unlimited Liability :-The liability of the partner is not limited to his invested amount. In case
of loss the private property of the partner also used to pay the business obligations.
7.Entity :-Law has not granted it any legal entity, it is not independent from the partners. It has
not separate entity from its members.
8.Share in Capital :-According to the agreement every partner contributes his share. It is not
necessary all the partners should contribute equally. Some people provide only skill and ability
to become a partner.
9. Management :-All the partners can participate actively in the business management.
Sometimes only few persons are allowed to handle the business affairs.
10.Payment of Tax :-Every partner pays the tax on his share of profit individually.
11.Co-Operation :-For the successful partnership mutual co-operation and mutual confidence is
an important factor.
12.No Audit :-In the partnership there is no restriction for the audit of accounts. So this type of
organization may operate freely.
13. Partners are Agent :-Every partner stand as an agent and principal to one another. In the
position of an agent one can do contract with other parties on behalf of the firm.
14.Transferability of Shares :-No one partner can transfer his share to any other person without
the consent of the existing partners.
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15. Dissolution :-It is a temporary form of business. It operates at the pleasure of the partners. It
is dissolved if a partner leaves, dies or declared bankrupt or insane. Partners can also dissolve it
by obtaining the degree from the court.
Ans. Advantages:
1. Easy Formation:
Partnership is a contractual agreement between the partners to run an enterprise. Hence, it is
relatively ease to form. Legal formalities associated with formation are minimal. Though, the
registration of a partnership is desirable, but not obligatory.
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5. Flexibility:
Like proprietorship, the partnership business is also flexible. The partners can easily appreciate
and quickly react to the changing conditions. No giant business organisation can stifle so quick
and creative responses to new opportunities.
6. Tax Advantage:
Taxation rates applicable to partnership are lower than proprietorship and company forms of
business ownership.
Disadvantages:
1. Unlimited Liability:
In partnership firm, the liability of partners is unlimited. Just as in proprietorship, the partners’
personal assets may be at risk if the business cannot pay its debts.
2. Divided Authority:
Sometimes the earlier stated maxim of two heads better than one may turn into “too many cooks
spoil the broth.” Each partner can discharge his responsibilities in his concerned individual area.
But, in case of areas like policy formulation for the whole enterprise, there are chances for
conflicts between the partners. Disagreements between the partners over enterprise matters have
destroyed many a partnership.
3. Lack of Continuity:
Death or withdrawal of one partner causes the partnership to come to an end. So, there remains
uncertainty in continuity of partnership.
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Ans. There are two factors on the basis of which partnership is classified. One is on the basis of
duration and on the basis of liability.
1. Partnership at will- This kind of partnership can be formed and closed on the will of the
partners. It can continue as long as the partners want and can end on the wish of the
partners.
2. Particular partnership- There are certain kinds of partnership which come into
formation for certain purposes. For example, a particular project for construction of a
building is called particular partnership.
Ans. The different kinds of Partners that are found in Partnership Firms are as follows!
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7. Minor as a partner:
A partnership is created by an agreement. And if a partner is incapable of entering into a
contract, he cannot become a partner. Thus, at the time of creation of a firm a minor (i.e., a
person who has not attained the age of 18 years) cannot be one of the parties to the contract. But
under section 30 of the Indian Partnership Act, 1932, a minor ‘can be admitted to the benefits of
partnership’, with the consent of all partners. A minor partner is entitled to his share of profits
and to have access to the accounts of the firm for purposes of inspection and copy.He, however,
cannot file a suit against the partners of the firm for his share of profit and property as long as he
remains with the firm. His liability in the firm will be limited to the extent of his share in the
firm, and his private property cannot be attached by creditors.On his attaining majority, he has to
decide within six months whether he will become regular partner of withdraw from partnership.
The choice in either case is to be intimated through a public notice, failing which he will be
treated to have decided to continue as partner, and he becomes personally liable like other
partners for all the debts and obligations of the firm from the date of his admission to its benefits
(and not from the date of his attaining the age of majority). He also becomes entitled to file a suit
against other partners for his share of profit and property.
Ans. The Indian Partnership Act does not make registration of a firm compulsory nor does it
impose any penalty for non-registration. It is optional for the firm to get itself registered or not.
However, Section 69 puts down certain disabilities to a non-registered firm which normally
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(a) No suit by a partner against other partners or firm – a partner of a unregistered firm
cannot sue the firm or any partner of the firm to enforce a right arising from the contract or
conferred by the Partnership Act. He can do so only if the firm is registered and the person suing
is shown as a partner in the register of firms.
(b) No suit against any third party – an unregistered firm cannot sue a third party to enforce a
right arising from a contract.
(c) No right to counter claim or to claim setoff – an unregistered firm or any partner thereof
cannot claim setoff in the proceedings instituted against a firm by a third party to enforce a right
arising from a contract. Setoff means a claim by the firm which would reduce the amount of
money payable to the claimant.
(d) Arbitration proceedings – In arbitration proceedings it will be barred if the firm was
unregistered.
Q.4 Explain rights and duties of partners under Partnership Act 1932?
(b) Every partner has a right to be consulted and heard in all matters affecting the business of the
partnership.
(c) Every partner has a right of free access to all records, books and accounts of the business, and
also to examine and copy them.
(e) A partner who has contributed more than the agreed share of capital is entitled to interest at
the rate of 6 per cent per annum. But no interest can be claimed on capital.
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(g) Every partner is, as a rule, joint owner of the partnership property. He is entitled to have the
partnership property used exclusively for the purposes of the partnership.
(h) A partner has power to act in an emergency for protecting the firm from loss, but he must act
reasonably.
(i) Every partner is entitled to prevent the introduction of a new partner into the firm without his
consent.
(J) Every partner has a right to retire according to the Deed or with the consent of the other
partners. If the partnership is at will, he can retire by giving notice to other partners.
(l) A retiring partner or the heirs of a deceased partner are entitled to have a share in the profits
earned with the aid of the proportion of assets belonging to such outgoing partner or interest at
six per cent per annum at the option of the outgoing partner (or his representative) until the
accounts are finally settled.
Duties of Partners:
(a) Every partner is bound to diligently carry on the business of the firm to the greatest common
advantage. Unless the agreement provides, there is no salary.
(b) Every partner must be just and faithful to the other partners.
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(d) Every partner is bound to indemnify the firm for any loss caused by his willful neglect or
fraud in the conduct of the business.
(e) A partner must not carry on competing business, nor use the property of the firm for his
private purposes. In both cases, he must hand over to the firm any profit or gain made by him but
he must himself suffer any loss that might have occurred.
(f) Every partner is bound to share the losses equally with the others.
(h) No partner can assign or transfer his partnership interest to any other person so as to make
him a partner in the business.
Ans. The dissolution of a firm means discontinuance of its activities. When the working of a firm
is stopped and the assets are realised to pay various liabilities it amounts to dissolution of the
firm. The dissolution of a firm should not be confused with the dissolution of partnership. When
a partner agrees to continue the firm under the same name, even after the retirement or death of a
partner, it amounts to dissolution of partnership and not of firm. The remaining partners may
purchase the share of the outgoing or deceased partner and continue the business under the same
name; it involves only the dissolution of partnership. The dissolution of firm includes the
dissolution of partnership too. The partners have a contractual relationship among themselves.
When this relationship is terminated it is an end of the firm.
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Partnership Act, 1932 allows the dissolution of a partnership firm if all the partners agree to
dissolve it. Partnership concern is created by agreement and similarly it can be dissolved by
agreement. This type of dissolution is known as voluntary dissolution.
notice for dissolution must be in writing. The dissolution will be effective from the date of the
notice, in case no date is mentioned in the notice, and then it will be dissolved from the date of
receipt of notice. A notice once given cannot be withdrawn without the consent of all the
partners.
enforces prohibition policy, then all the firms dealing in liquor will have to close down their
business because it will be an unlawful activity under the new law. Similarly, a firm may be
trading with the businessmen of another country. The trading will be lawful under present
conditions.
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After some time a war erupts between the two countries, it will become a trading with an alien
enemy and further trading with the same parties will be illegal. Under new circumstances the
firm will have to be dissolved. In case a firm carries on more than one type of business, then
illegality of one work will not amount to dissolution of the firm. The firm can continue with the
activities which are lawful.
work the firm will be automatically dissolved. If a firm is formed to construct a road, then the
moment the road is completed the firm will be dissolved.
A partner can apply to the court for dissolution of the firm on any of these grounds:
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The firm is not automatically dissolved on the insanity of a partner. The court will act only on
the petition of a partner who himself is not insane.
the firm. The misconduct of a partner brings bad name to the firm and it adversely affects the
reputation of the concern. The misconduct can be in business or otherwise. If a partner is jailed
for committing a theft, it will also affect the good name of the firm though it has nothing to do
with the business.
for getting the firm dissolved. Under such a situation it becomes difficult to carry on the business
smoothly.
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When the firm cannot be carried on profitably, then the firm can be dissolved. Though there may
be losses in every type of business but if the firm is incurring losses continuously and it is not
possible to run it profitably, then the court can order the dissolution of the firm.
possible to run the business. When the partners quarrel with each other, then the very basis of
partnership is lost and it will be better to dissolve it.
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