LAW OF PARTNERSHIP

DEFINITION And
CHARECTARISTICS
Definition and Characteristics
Section 4 of the Partnership Act
1932 defines-
“Partnership is the relation between
persons who have agreed to share
the profits of a business carried on
by all or any of them acting for all”
• There are three essential
elements-

There must be an agreement.

The agreement must be to share
the profits of business.
Carried on by all or any of them
acting for all.
The Essential Elements of
Partnership
1. Voluntary Agreement:
 A partnership can only arise as a result of an
agreement, express or implied, between two
or more persons.
 Where there is no agreement there is no
partnership.
 Partnership can not be formed with more than
ten persons in banking,
 And twenty persons in other types of business.

 Persons exceeding the above limits must be registered under

a company Act.
2. Sharing of profits of a business:
 The motives underlying the information
of a business.
 It also lays down that the existence of a
business is essential to a partnership.
 If two or more persons join together to form
a music club it is not a partnership. Because
there is no business. If two or more persons
join together to give musical performance to
the public with a view to earning profit, there
is a business.
3. Mutual agency:
 The business of a firm carried on by all
or by any one or more of them on behalf
of all.
 Every partner has the authority to act on
behalf of all.
 Each partner is the agent of the others in
all matters.
Who can be a
partner?

?
 Section. 11 of Partnership Act 1932
1. Person:
Person may be partner if he has the
capacity to enter into a contract.
Thus a company P can not form a
partnership with a company Q.
Similarly, a firm X can not form a
partnership with firm Y . But all the
partners of firm X and all the partners of
firm Y can form a single partnership
2. Minor:
 A minor can not be a
partner.
 A minor can be
admitted into a firm if
all the partners of the
firm agree.
 Such a minor gets all
benefits of partnership.
3. Woman:
 A woman can be a partner, married or
unmarried.
 Of course a woman can not be a partner if
she is a minor or she is of unsound mind.

4. Person of unsound mind:

A person who is of unsound mind can
not become a partner.
 5. Company:
 The liability of the members of a firm
under the partnership act is
unlimited.
 But a company can not incur
unlimited liability.
Therefore a company can not become
a partner of a firm.
6. An alien:
 Enemy can
not enter into
a contract of
partnership
with a citizen of
Bangladesh.
 PARTNERSHIP DEED

 Partnership firm can be established with an agreement

between the partners. This agreement may be written or
oral. An oral agreement may be the cause of dispute in
future. So, it is better to have a written agreement in
order to avoid future conflicts. The written agreement
duly signed by the partners is known as partnership deed
or agreement or Articles of Partnership.

 A partnership deed, also known as a partnership

agreement, is a document that outlines in detail
the rights and responsibilities of all parties to a
business operation.
 Main Content of Partnership
 (1) Name of the firm andDeed
Its Address: The deed should contain
the name of the firm and place of its business.

(2) Name and Address of Partners: The deed should also
contain the names and address of all partners.

(3) Nature of Firm’s Business: The nature of business proposed
to be carried and its limitation should be included in it.

(4) Duration of Partnership: It the partnership is established
for a fixed duration or for a fixed work, it should be stated in it.

(5) Partners’ Capitals: The deed should contain the total amount
of capital and contributions by each partner.

(6) Interest on Capital: If the partners decide to change interest
on their capitals, the rate should be mentioned in the deed.
 Main Content of Partnership
Deed
 (7) Drawing and Interest on Them: The deed should contain
the limit of drawings by every partner and the rate of interest to be
charged.

(8) Division of Profit: Profit and loss sharing ratio should be
stated in the deed. If it is not mentioned partners are authorized to
share equally according to Partnership Act.

 (9) Partners’ Salary and Commission: If the partners decide to

pay salary and commission to the partners, the deed should contain
the amount of salary or commission payable to any partner for the
services rendered to the business.

(10) Rights and Duties of Partners: If any partner has some
special rights and duties regarding to conducts of business or if the
liability of any partner is limited to the capital invested by him, these
facts should also be mentioned in it.
 Main Content of Partnership
Deed
 (11) Admission and Retirement of Partners: After the
establishment of partnership some new partners may be admitted
and some may retire from the business. If any definite procedure
is to be adopted at the time of admission or retirement of partner,
it should be stated in it.

(12) Death of a Partner: The procedure of calculating the
amount due to a deceased partner and the method of its payment
to his successors should also be decided and stated in the deed.
(13) Valuation of Goodwill: The method of valuation of
goodwill at the time of admission, retirement or death of a partner
should be also be clearly stated in it.

(14) Revaluation of Assets and Liabilities: The method of
revaluation of assets and liabilities on admission, retirement or
death of a partner should also be clearly stated in it.
 Main Content of Partnership
Deed

(15) Accounts and Audit: The procedure of keeping
accounts and their audit should also be stated in it.

(16) Dissolution of Partnership: The deed should
contain the firm and the method of the final
settlement of accounts.

(17) Arbitration Clause: In case of disputes the
method of appointing arbitrators and their rights
should be clearly mentioned.
Formalities of
registration
 The formalities of registration:
1. A statement in the prescribed form and
accompanied by the prescribed fee, stating the
following particulars-

 The 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 joined the firm.
 The names in full and permanent addresses of
the partners and
 The duration of the firm.
2. The statement shall be signed and
verified by all the partners or their
agents specially authorized on this
behalf.

3. On receipt of the statement and the

fees, the registrar records an entry
of the statement in the registrar of
firm and the firm is considered to be
registered.
4. Alterations in any of the above
particulars have to be recorded.

5. The register of Firms can be

inspected and copies of entries
taken by any person on payment
of the necessary fees.
Rights of a Partner
1. Right to take part in management:
Every partner has the right to take part in the
management and conduct of day to day affairs of
Classes of partners
the business of the partnership enterprise.

2. Right to take out copies and inspect the

books of account:
Every partner has a right to inspect the books of
accounts of the partnership enterprise and further take
out the copies of the same.
3. Right to express opinion:
Every partner has right to express his opinion on the
matters relating to business of the partnership
Classes
enterprise. Ordinary of partners
matters during the course of
business are decided by majority votes, but major
business decision of the business are taken by all the
partners.

4. Right to share profits:

In the absence of any contract, every partner
has an equal share in the profits of the
partnership enterprise. Otherwise, they have to
share the profit and loss as per the agreed ratio
stated in the partnership deed.
5. Right to having no liability before
joining the partnership firm:
A partner is not liable for any of the liabilities of
the firm before he has joined the firm. Simply
stated, a new partner joining the firm can’t be
held responsible for the earlier acts of the old
partners.
6. Right to retirement:
Every partner has the righty to retire from the firm with
the consent of all other partners or in accordance with
an express agreement among the partners, or by giving
a notice in writing to all other partners.
Duties of partner
1. Justice, faithfulness, true
accounts, full information:
Partners Classes
are bound to carry on the
of partners
business of the firm to the greatest
common advantages.

2. To pay indemnify:
Every partner shall indemnify the firm for
any loss caused to it by his fraud in the
conduct of the business .
3. To attend diligently:
Every partner is bound to attend
Classes
diligently to hisof partners
duties.

4. Equality of losses:
Subject to any contract to the
contrary, partners are bound to pay
the losses of the firm equally.
5. To pay indemnity for wilful neglect:
Classes
A person shall of partners
indemnify the firm for
any loss caused to it by his wilful in the
conduct of his business.

6. No private benefit:
A partner can not use the partnership
properties directly or indirectly for his own
benefit.
7. To account for secret profit:
If a partner drives any profits for
Classes
himself from anyoftransaction
partners of the
firm or from the use of the
property, he shall account for that
profit and pay it to the firm.
8. Unlimited liability:
Every partner is liable for the acts of the
firm done while he is a partner.
 Classes of partners

Dissolution of firms
 Dissolution of Partnership
firm
 A firm may be dissolved under the
following circumstances:
(a) Dissolution by Agreement (Section 40):
A partnership firm can be dissolved by an
agreement among all the partners. Section 40 of
Partnership Act, 1932 allows the dissolution of a
partnership firm if all the partners agree to
dissolve it. This type of dissolution is known as
voluntary dissolution.
 Dissolution of Partnership
firm
 (b) Compulsory Dissolution (Section 41):
A firm may be compulsorily dissolved under the
following situations:

(i) Insolvency of Partners:

When all the partners of a firm are declared insolvent
or all but one partner are insolvent, then the firm is
compulsorily dissolved.

(ii) Illegal Business:

The activities of the firm may become illegal under the
changed circumstances. If government 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.
 Dissolution of Partnership
firm
 (c) Contingent Dissolution (Section 42):
Partnership firm will be dissolved on the happening of any of the
situations:
(i) Death of a Partner:
A partnership firm is dissolved on the death of any of the partner.
(ii) Expiry of the Term:
A partnership firm may be for a fixed period. On the expiry of that period, the
firm will be dissolved.
(iii) Completion of Work:
A partnership concern may be formed to carry out a specified work. On the
completion of that 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.
(iv) Resignation by a Partner:
If a partner does not want to continue in the firm, his resignation from the
concern will dissolve the partnership
 Dissolution of Partnership
firm

(d) Dissolution by Notice (Section 43):

If a partnership is at will, it can be dissolved by any
partner giving a notice to other partners. The notice for
dissolution must be in writing. A notice once given cannot
be withdrawn without the consent of all the partners.
 Dissolution of Partnership
firm
 (e) Dissolution through Court (Section 44):
A partner can apply to the court for dissolution of the firm on any of
these grounds:
(i) Insanity of a Partner:
If a partner goes insane, the partnership firm can be dissolved on the petition
of other partners.
(ii) Misconduct by the Partner:
When a partner is guilty of misconduct, the other partners can move the
court for dissolution of the firm. The misconduct of a partner brings bad
name to the firm and it adversely affects the reputation of the concern.
(iii) Incapacity of a Partner:
If a partner other than the suing partner becomes incapable of performing
his duties, then partnership can be dissolved.
(iv) Breach of Agreement:
When a partner willfully commits breach of agreement relating to business, it
becomes a ground for getting the firm dissolved
 Dissolution of Partnership
firm
(v) Transfer of Share:
If a partner sells his share to a third party or transfers his share
to another person permanently, other partners can move the
court for dissolving the firm.

(vi) Regular Losses:

When the firm cannot be carried on profitably, then the firm can
be dissolved. 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.

(vii) Disputes among Partners:

Partnership firm is based on mutual faith. If partners do not
trust each other, then it will not be possible to run the business
 Thank
Classes of partners
you