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LAW RELATING TO PARTNERSHIP

PARTNER:
One who partakes or shares with another
An associate
One who has a share with another or others in some
commercial, manufacturing or other undertaking
One who dances with another.
An associate in a firm. A member of a firm or
partnership.
PARTNERSHIP

PARTNERSHIP:
The state or condition of being a partner
The association of two or more persons for the purpose of
undertaking and prosecuting conjointly any business,
occupation, or calling
That which subsists between persons who have agreed to
combine their property, labour skill in some business and to
share the profits thereof between them
A type of business entity in which partners share with each the
profits or losses of the business.
FIRM:
Persons who enter into partnership are collectively called a
firm
PARTNERSHIP²Contd.

Persons who enter into partnership with one another


are individually µpartners¶ and collectively a µfirm¶
and the name under which their business is carried
on is called the µfirm name¶
Partners may choose any name as their firm¶s name
provided id does not go against the rules relating to
trade name or goodwill----mislead the public into
confusing with a firm already in existence or words
which express or imply sanction, approval or
patronage of the Government
PARTNERSHIP--Contd

In Pakistan for small to medium size business set ups the


common mode of business.
Advantage of structural flexibility and formality of
relationship between partners.
Maybe registered or not. Not compulsory
Registered firms have the advantage of tax and
consequences of litigation.
Favoured over corporate structure (companies) as no
dividend is levied.
But partners exposed to greater personal liability than
the shareholders of a company.
PARTNERSHIP LAW IN PAKISTAN

PARTNERSHIP ACT 1932


Originally it was contained in and formed part of the
Contract Act,1872 (Chap.XI) which was repealed and in
its place was passed a comprehensive law.
Is the law governing regulation of partnerships in
Pakistan.
Law passed by the Indian Legislature in 1932.
The Governor General of India gave assent on
April 8, 1932.
No.IX of 1932
Adopted and followed by the Government of Pakistan
PARTENERSHIP ACT²Contd.

SCHEME OF LAW:
Divided into 8 Chapters
Sections 74
Schedule 1
CHAPTERS:
1. Preliminary
2. The Nature of Partnership
3. Relations of Partners to One Another
4. Relations of Partners to Third Parties
PARTNERSHIP ACT²Contd.

5. Incoming and Outgoing Partners


6. Dissolution of a Firm
7. Registration of Firms
8.Supplemental

SCHEDULE:

Fees Prescribed
DEFINITIONS

Intention to economise words


Does not lay down general principles
With reference to the whole Act and with reference to the
content

ë  
Binds every one of the partners
An act in which every one of them had actually
participated
Gives rise to a right enforceable by or against the firm
DEFINITIONS²Contd.

µBUSINESS¶:
Includes every trade, occupation and profession.

and not 

An 
and not  definition
General and vague
Broadly, any activity which, if successful, would
result in profit
Must be in existence
May be temporary or permanent (indefinite)
DEFINITIONS²Contd.

PARTNERSHIP:
 



 
 
  

! 

Persons who have entered into partnership with
one another are individually called µpartners¶ and
collectively a µfirm¶ and the name under which their
business is carried on is called the µfirm name¶
A voluntary act between two or more persons.
PARTNERSHIP---Contd.

Placing their money, effects, labour and skill, or


some or all of them
In lawful commerce or business
Understanding that there shall be communion of
profits or thereof between them.
Contains the following  !
"
 
PARTNERSHIP---Contd.

ESSENTIALS:
Association of two or more persons to carry on a
business
An agreement entered into by all concerned
Agreement must share the profits
Business must be carried on.
Carried on by all or any of the persons concerned
acting for all.
PARTNERSHIP--- Contd.

All elements must be present before a group of persons


can be called partners. Only then a partnership can be
said to come into existence.
Elements may appear to overlap but are distinct
Existence of partnership is a question of fact.
 
!
:
There must be at least two persons who should join
together to constitute a partnership.
A group of persons with no legal relations (no mutual
rights and liabilities) not a partnership
No existence or responsibility separately from its
partners.
ESSENTIALS OF PARTNERSHIP²Contd.


 !
#
Entered into by all persons concerned
Partnership arises only as a result of an agreement,
express or implied
Created by a contract, it does not arise by operation of
law e.g. joint operation (heirs on death )
Voluntary contractual
Lawful agreement; founded on good faith, for lawful
object between competent persons. Fulfill all the
essentials of a valid contract.
Can even come into being upon an oral agreement
ESSENTIALS OF PARTNERSHIP²Contd.

‘
$#
Must be an agreement to share profits arising out of
the business
An essential element of partnership agreement
Different from clubs, societies, charitable
associations etc
How to be shared left to the parties themselves
Sharing of losses not essential.
Profits refer to net profits.
ESSENTIALS OF PARTNERSHIP---Contd.

 
% 
#
µBusiness¶ as defined i.e. any trade, occupation or
profession.
May be temporary or permanent (indefinite).But must be
in existence.
Agreement to carry on business at a future time does not
result in present partnership.
Must be carried on by all or by any concerned acting for
all
Business must be lawful
Mutual agency
True test of partnership.
CARRYING ON BUSINESS²Contd.

Partnership based on the idea of mutual agency.


Every partner assumes a dual role i.e. that of a
principal and agent.
Action of each partner is binding on the other; agent
and principal.
Liable to account for all.
Contract in the name of the firm.
PARTNERS

Can be entered into by every competent person


Attained age of majority
Of sound mind
Disqualified from any law to which he is subject
Unsound mind
Married woman is competent
Minor cannot become a partner but can be admitted
to benefits of partnership.
PARTNERS--- Contd.

WORKING PARTNER:
Not necessarily a partner in business
Maybe only an employee
Gets a share in the net profits
Remuneration for services rendered.
FIRM

!#
Persons who have collectively entered into
partnership with one another is collectively called a
firm
Name under which business is carried is Firm Name.
Business under any name or style
Taking care of rules like trade name, goodwill etc.
ILLEGAL PARTNERSHIP

Object of partnership is unlawful. Section 23 of


Contract Act
Number of persons entering into partnership exceed
the permitted. Section 4 of Companies Act.1913:
1. Business of banking²more than 10
2. Any other business²more than 20
With an alien enemy (alien friend); enjoys civil and
personal rights as a citizen
Against international comity.
PARTNERSHIP---DISTINGUISHED

CO-OWNERSHIP
Akin but different
Partnership result of an agreement
Mutual rights and obligations different
Consent of all trade/business: Examples
Transfer of interests
PARTNERSHIP---DISTINGUISHED

COMPANY:
1. Person---Legal
2. Creation± Legal formalities/agreement
3. Transfer of interest
4. Agents of others
5. Liability to debts
6. Contract
7. Private arrangements
8. Number
PARTNERSHIP DISTINGUISHED--Contd.

9.Death²Dissolution
10. Property
11. Restrictions
12. Sue and be sued
13. Decree
14.Registration
15. Shareholder
PARTNERSHIP & COMPANY²
DISTINGUISHED.

1.PARTNERSHIP is not a an agreement need not


distinct legal person, but even be in writing.
is made of the persons Creation of COMPANY
composing it. involved elaborate legal
COMPANY is a distinct formalities
legal person
2. Creation of
PARTNERSHIP is purely
a matter of agreement
between the parties such
PARTNERSHIP & COMPANY--
DISTINGUISHED

3. In a FIRM partner can and can bind them by his


transfer his interest with contract made in the
the consent of other course of business of the
partners. partnership.
Shares in a COMPANY Shareholders in a
(especially Public) are COMPANY are not the
generally freely agents of one another.
transferable.
4.Each partner is prima
facie the agent of others,
CONTD.

5. Each PARTNER is liable COMPANY can contract


in full for the debts of the with the COMPANY.
firm
The liability of the
Company¶s shareholders
is limited by shares or
guarantee.
6. A PARTNER cannot
contract with the firm.
A shareholder in a
CONTD.

7. PARTNERS may make maximum number of


any private arrangements members is restricted
among themselves e.g In COMPANY no
buy others¶ shares. maximum number.
Arrangements in Minimum is prescribed
COMPANY are regulated
by law e.g Company
cannot buy its member¶s
shares
8.In PARTNERSHIP
CONTD.

9. Death of a partner dissolves a PARTNERSHIP


Death or retirement of shareholder does not dissolve the
COMPANY.
10. Property may be the common property of PARTNERS.
Property belongs to the COMPANY and not its members
11. Restrictions contained in partnership deed will not
effect third parties, who are not aware of it
Restrictions in Articles of Association effect third parties
also.
12. A FIRM cannot sue or be sued.
A COMPANY can in its own name.
PARTNERSHIP/DISTINGUISHED---Contd.

CLUB:
Entirely different
Club members not liable for acts of other members
Not liable to be creditor of club
Liability²extent of Club¶s regulations
No implied authority i.e. bind other members of the
club.
CONTD.

13. Decree against the FIRM can be executed against


the partners.
Decree against the COMPANY cannot be executed
against its shareholders.
14.For a PARTNERSHIP registration is optional
For a COMPANY it is compulsory
15 A FIRM cannot be a shareholder. in a company
A COMPANY can be a shareholder in another
company.
PARTNERSHIP DISTINGUISHED²Contd.

TRADE ASSOCIATION:
Mutual agency does not exist
PARTNERSHIP---EXISTENCE

HOW TO DETERMINE:
Real relation between the partners
Mainly a question of fact
Onus to prove on the appellant
PARTNERS²RELATIONS TO ONE ANOTHER

Relations between partners defined


Freedom to arrange their own affairs among
themselves
Mutual rights and duties regulated by contract

Duties and liabilities on a partner:


1. Duty of good faith and common advantage
Carry on business to the greatest common
advantage
Just and faithful to each other
PARTNERS²RELATIONS TO ONE
ANOTHER²Contd.

Use knowledge and skill for benefit of firm


Not personal advantage
In case of loss to firm by fraud of a partner---
indemnify firm (make good the loss)

2. Duty to render true accounts and full information:


Not to mix with personal business
Disclose full facts.
PARTNERS---RELATIONS TO ONE
ANOTHER²Contd.

Rights and duties of partners determined by contract


between them.
Contract varied only by consent of all partners
In conduct of business every partner has right to:
1. Take part in conduct of business
2. Access, inspect and copy books of account
3. Express opinion. Majority opinion
PARTNERS²RELATIONS TO ONE
ANOTHER²Contd.

Mutual rights and liabilities. Subject to contract:


1. Not entitled to any remuneration
2. Entitled to share equally
3. Advance by partner to firm (over and above capital)
entitled to profit (interest)
PARTNERS²RELATIONS TO ONE
ANOTHER²Contd.

PROPERTY OF FIRM:
Inclusive definition
1. All property and rights 
 brought to the
stock of the firm
2. Acquired by purchase or otherwise during the
  of the business
& ' of the business
4. Rights and interests acquired with money
belonging to the firm. Deemed.
PARTNERS²RELATIONS TO ONE ANOTHER--
-Contd.

GOODWILL:
Not defined
³The whole advantage, whatever it may be, of the
reputation and connection of the firm´
Intangible
Easy to describe, difficult to define
It is benefit and advantage of the good name,
reputation and connection of a business
GOODWILL---Contd.

No independent existence
Cannot subsist by itself
Attached to business
Attribute of a business, trade or profession.

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