The Indian

Partnership Act, 1932

Definition

Section 4 of the Indian Partnership Act, 1932

defines Partnership as the relation between
persons who have agreed to share the profits
of a business carried on by all or anyone of
them acting for all.
The persons who enter into such relationship
are called PARTNERS

Essential Elements of
Partnership
Association of two or more persons

Result of an agreement

Partnership relation based on Contract.

Implied or Express (Oral or Written)

Must carry on some business

Max. limit : 10 for banking; 20 for other business

Trade, Occupation or Profession

Share profits of the business

Business is carried on by all or any one of them
acting for all (mutual agency)

Mode of Creating
Partnership
Based on agreement

Agreement may be express or implied

In Writing : helpful in times of adversity

Written agreement : Partnership Deed

Essence of Partnership : Trust & Confidence

Drafted with care and signed by all partners
Stamped in accordance with Indian Stamp
Act
Firm should be registered and copy of the
Deed to be filed with the Registrar

Partnership Deed

Prepared for resolving mutual differences

Usual Contents :

Date of Agreement
Name and Address of the Firm
Name and Address of the Partners
Nature of Business
Duration of Partnership
Capital invested by each partner
Ratio to divide profits and loss

Partnership Deed

Usual Contents Contd. :

Appointment of Auditor and remuneration

Drawing by partners and interest
Interest on Capital and Advances
Salary and Commission payable to partners
Duties, Functions and Powers of Partners
Rules regarding admission, retirement and death
Dissolution
Arbitration
Method of valuation of Goodwill

Firm Name

Name under which the business is carried on

Any name
Should not be a name already adopted by a
reputed firm, to mislead public
Should not contain words : Crown, Emperor,
King, Queen, Royal, Empire, Imperial or
words expressing or implying the sanction,
approval or patronage of Government

Property of the Firm

Joint property of all the partners as opposed

to their personal property
Property includes

Originally brought into firm by partners

Acquired by the firm
Acquired by one or more partners for the purpose
of business
Goodwill of the firm

To be held and used by all partners for the

purpose of business (not for private use)

Positions

Lunatic : cannot become a partner

Alien Enemy : cannot become a partner
Alien Friend : can enter into contract
Woman : Married or Unmarried can be a
partner
Insolvent : Cannot become a partner; ceases
to be a partner from date on which order was
passed by court

Position of Minor

Sec 30(1), A person who is a minor according

to law to which he is subject may not be a
partner in a firm, but with the consent of all
the partners for the time being, he may be
admitted to the benefits of partnership.
A minor can only be admitted to the benefits
of an already existing partnership

Position of Minor

During his Minority

Rights

Right to receive agreed share of profits and

property
Have access to and inspect and copy the
accounts of the firm
If share in profits is not given, can sue (can do if
he wants to sever his connection)

Liabilities

Only to the extent of share in profits and

properties (not personally liable)

Position of Minor

On Attaining Majority

Within six months should give notice whether he

is joining the partnership or not.
If notice not given he shall become a partner

Position of Minor

When a Minor elects to become a partner

Rights

Share remains the same

Rights and Liabilities as that of a full fledged partner
Rights will be the same till the date on which he
becomes a partner

Liabilities

Liabilities will be the same till the date on which he

becomes a partner
Personally liable to third parties for all acts of the firm
from the date of becoming a partner

Position of Minor

When a Minor elects not to become a partner

Rights

Rights will be the same till the date of notice

Entitled to sue for his share of property and profits

Liabilities

Liabilities will be the same till the date of notice

His share of property and profits will not be liable
for any acts of the firm after the date of notice

Types of Partnerships

Partnership at Will

No provision in contract between the partners for

Duration of Partnership
Determination of Partnership

If any partner gives notice of dissolution in writing,

the partnership is dissolved.

Types of Partnerships

Particular Partnership

A person may become a partner with another

person in particular adventures or undertakings.
On completion of such a venture, the partnership
comes to an end.

Types of Partnerships

Partnership for a Fixed Term

Duration is fixed
Partnership comes to an end when the term
expires.
If Partners continue the business after the fixed
period, it becomes partnership at will.

Classes of Partners

Actual or 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

Sleeping or Dormant 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

Classes of Partners

Nominal Partners

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

Partner in Profits only

Shares the profits but not losses

No interest in the management of the firm
Liability for the acts of the firm is unlimited

Classes of Partners

Partner by Estoppel or Holding Out

Represents himself as a Partner, by words spoken

or written or by conduct
Liable as a partner if credit is given to the firm
based on his representation. He cannot deny.
If a partner does not give public notice and his
name is still used in the business, he is also liable
to third parties
Deceased partner is an exception to this rule.

Limited Liability Partnership

Limited Liability Partnership Act, 2008 came

into effect from 31st March 2009.
LLP: A corporate business vehicle that
enables professional expertise and
entrepreneurial initiative to combine and
operate in flexible, innovative and efficient
manner, providing benefits of limited liability
while allowing its members the flexibility for
organizing their internal structure as a
partnership.
http://llp.gov.in/

Limited Liability Partnership

LLP has separate Legal Entity

Liability of the partners limited to their agreed
contribution
Not liable for the independent or un-authorized actions
of other partners
Perpetual succession
Indian Partnership Act, 1932 not applicable
No maximum limit of members; one partner should be
Indian
Registrar of Companies - register and control LLPs.