Presented By

Kumar Shekhar Azad

Abhishek Verma
Ankur Jaiswal
Shailesh Kumar Yadav
Vishal Prakash

(MBA 4th Sem 2008-10)

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

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)

SSec 6 of the Act provides that in determining whether a

group of persons is or is not a firm or whether a person is
or is not a partner in a firm, regard shall be had to the real
relation between the parties, as shown by all relevant facts
taken together. Thus all incidents of relations of the
partnership are to be examined as shown in written
agreement, verbal agreement or conduct.
EExample
AA & B jointly buy a mine and lease it out. They make a
partnership agreement that they will divide the lease rent in
a ratio of 50:50 between themselves. In this case A&B are
having understanding that they are partners but in the eyes
of law it is not partnership.

The persons who enter into such relationship are

called PARTNERS
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

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

A partnership agreement put to writing is termed as the Partnership deed.

The partnership deed must contain the following clauses:1. Name and address of the firm and nature of business to be carried on.
2. Name and address of the partners
3. Date of commencement and duration of partnership
4. The capital and any other contribution made by partners.
5. The ratio to share profit and losses amongst the partners.
6. Rules as to interest on loans and capital, their salary, commission, etc.
7. Method and arrangement of keeping accounts
8. Division of task and obligation of partners
9. Rules to be followed in case of admission, retirement or death of a partner.
10. Whether a partner is allowed to carry competing business.
11. The circumstances under which the partnership will stand dissolved.
12. In case of dispute which course of action shall be followed e.g. Court,
arbitrations etc.

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

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.

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.

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

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

Sub -Partner
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.

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

It is said that minor is not capable of entering into a contract

so an agreement by or with a minor is said to be void.
Since partnership is formed by an agreement ,a minor
cannot enter into a partnership agreement.
On the basis of general rule that minor cannot be a promisor
but can be a promisee or a beneficiary.
As per section30 of the Indian partnership act 1932,with the
consent of all the partners for the time being ,a minor may
be admitted to the benefits of partnership.

1. To Share Profit- a minor has a right to share of the

property and of the profits of the firm.
2. To Have Access To Accounts - a minor partner
may have access to and inspect and copy any of
the accounts of the firm.
3. To Sue - minor has a right to sue the partners of
the firm for payment of his share of the property
or profit of the firms.
4. To Elect To Become A Partner - a minor has a right
to elect to become a partner on attaining majority.

An agreement with a minor is void. It does not create any

legal rights and obligation . It is well explained by the
following case :
A minor mortgaged his house in favor of a moneylender.
To secure a loan of Rs. 20000, the moneylender
advanced a part of the amount Rs.8000 to the minor.
Subsequently, the minor sued for cancellation of the
mortgage on the plea that he was a minor when he
executed the contract.
Where else the moneylender pleaded for refund of the sum
of Rs.8000 paid by him. The privy council held that a
minors agreement was void hence the question of
refunding money wont arise.

REGISTRATION
OF
FIRMS

Time of registration
Procedure of registration

When the Registrar is satisfied that the provisions of

section 58 have been duly complied with, he shall
record an entry of the statement in a register called the
Register of Firms, and shall file the statement.

1. Obtain a statement in the prescribed form

2. Fill in the form with requested details
3. Verification and signed by partners
4. File the statement with prescribed fees with
registrar of firms
5. Obtain certificate from registrar

No suit in civil court by a partner against

the firm or other copartner.
No suit in a civil court by firm against
third parties.
The firm or its partners can not make a
claim of set-off or other proceeding
based upon a contract.

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)

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.

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.

1.General duties of Partners(section 9)Partners are bounda) To carry on the business of the firm to the greatest common advantage.
b) To be just and faithful to each other.
c) And to render true accounts and full information of all things affecting the firm to
any partner or his legal representative.

2.Duty to indemnity for loss caused by fraud(section 10)

Every partner shall indemnify the firm for any loss caused to it by his fraud in the
conduct of the business of the firm.

3.Agreement to restraint of trade(section 11(2))

If restrained by an agreement with other partners ,a partner has a duty not to carry
on any business other than that of the firm while he is a partner.

4.To indemnify the firm for his willful neglect(section(13f))

It is the duty of partner of firm that he shall indemnify the firm for any loss caused to it
by his willfull neglect in the conduct of the business of the firm .

5.Attend diligently to his duty (section 12b)

Every partner is bound to attend diligently to his duties in the conduct of the
business.
6.Duties without any remuneration(sec.13a)
It is the duty of partners to attend diligently to his duties in the conduct of the
firms business without any remuneration.
7.Firms property proper use(sec.16a)
Every partner of the firm is under a duty to use the property of the firm only
for the purpose of business of the firm.
8.Duty not to compete(sec.16b)
It is the duty of the partners not to carry on business similar to or in
competition with the business of the firm and if any partner does any such
business , he shall account for any pay to firmall profits made by him in that
business.

1.Right to take in business(sec12a)

Every partner has a right to take part in the conduct of the business.
2.Majority Rights(sec.12c)
Every partner has a right to express his opinion on any matter but in case of
any difference arising as to ordinary matters related to the business he is bound
by majority decision.
3.Access to Books(sec.12b)
Every partner has a right to have access to and to inspact and copy any of the
books of the firm.
4.Right to indemnify(sec13e)
The firm shall indemnify a partner in respect of payment made and liabilities
incurred by him--a) In the ordinary and proper conduct of the business and
b) In doing such act in an emergency for the purpose of protecting the firm loss
as would be done by a person of ordinary prudence,in his own case,under similar
circumstances.

5.Right to profits(sec.13b &c)

If there is no otherwise agreement every partners is entitled to share
equally in the profit earned by the firm.
6.Right to interest (sec.13a)
When a partner has advanced some money beyond the amount of
capital that he agreed to subscribe for promoting the business of firm ,
he is entitled to claim intrestat the rate of 6%per annum.
7.Right to remuneration(sec.13a)
Agreement of partnershipmay provide remuneration to working partner.

1.Change in the constitution of the firm.

Where a change occur in the constitution of the firm,rights and duties
of the partner remains the same.
2.After expiry of term.
Where a firm constituted for a fixed term but continues to carryon
business after the expiry of the term , the mutual rights and duties will
remain the same , but only in so far as they are consistent with a
partnership at will.
3.Where additional undertakings are carried out.
the mutual rights and duties will remain the same where a firm carried
out other adventures or undertaking which was previously constituted
for one or more adventures.

a)The minor has the right to receive his agreed share of the property
and of the profits of the firm.
b)He may have access to and inspect and copy any of the account of
the firm.
c)He is not personally liable for any act of the firm during his minority.
d)On attaining majority it is depend upon him to decide that he shall
remain in the firm or leave it within the period of six months.

(1) Subject to contract between the

partners and to the provisions of section
30, no person shall be introduced as a
partner into a firm without the consent
of all the existing partners.
(2) Subject to the provisions of section
80, a person who is introduced as a
partner into a firm does not thereby
become liable for any act of the firm
done before he became a partner.

(1) A partner may retire

(a) with the consent of all the otter
partners,
(b) in accordance with an express
agreement by the partners, or
(c) where the partnership is at will,
by giving notice in writing to all the
other partners of his intention to
retire.

SECTION32 RETIREMENT OF A PARTNER

(CONT)
(2) A retiring partner may be
discharged from any liability to any
third party for acts of the firm done
before his retirement by an agreement
made by him with such third party and
the partners of the reconstituted firm,
and such agreement may be implied by
a course of dealing between such third
party and the reconstituted firm after
he had knowledge of the retirement.

SECTION32 RETIREMENT OF A
PARTNER (CONT)

(3) Notwithstanding the retirement of a partner

from a firm, he and the partners continue to be
liable as partners to third parties for any act
done by any of them which would have been an
act of the firm if done before the retirement,
until public notice is given of the retirement
Provided that a retired partner is not liable to
any third party who deals with the firm without
knowing that he was a party.
(4) Notices under sub-section (3) may be given
by the retired partner or by any partner of the
reconstituted firm.

SECTION33 EXPULSION OF A
PARTNER.

(1) A partner may not be expelled

from a firm by any majority of the
partners, save in the exercise in
good faith or powers conferred by
contract between the partners.
(2) The provisions of sub-sections
(2), (3) and (4) of section 32 shall
apply to an expelled partner as if
he were a retired partner.

SECTION34 INSOLVENCY OF A
PARTNER.

(1) Where a partner in a firm is

adjudicated an insolvent, he ceases to be
a partner on the date on which the order
of adjudication is made, whether or not
the firm is thereby dissolved.
(2) Where under a contract between the
partners the firm is not dissolved by the
adjudication of a partner as an insolvent,
the estate of a partner so adjudicated is
not liable for any act of the firm and the
firm is not liable for any act of the
insolvent, done after the date on which
the order of adjudication is made.

SECTION35 LIABILITY OF ESTATE OF

DECEASED PARTNER.

Where under a contract between

the partners the firm is not
dissolved by the death of a
partner, the estate of a deceased
partner is not liable for any act of
the firm done after his death.

SECTION36 RIGHTS OF OUTGOING

PARTNER TO CARRY ON COMPETING
BUSINESS.

(1) An outgoing partner may carry on a

business competing with that of the firm
and he may advertise such business, but
subject, to contract to the contrary, he
may not

(a) use the firm-name,

(b) represent himself as carrying on the
business of the firm, or
(c) solicit the custom of persons who were
dealing with the firm before he ceased to be a
partner.

SECTION36 (CONT)
(2) AGREEMENT IN RESTRAINT OF TRADE.
A partner may make an agreement with
his partners that on ceasing to be a
partner he will not carry on any business
similar to that of the firm within a
specified period or within specified local
limits; and, notwithstanding anything
contained in section 27 of the Indian
Contract Act, 1872, such agreement shall
be valid if the restrictions imposed are
reasonable.

Where any member of a firm has died or otherwise

ceased to be a partner, and the surviving or continuing
partners carry on the business of the firm with the
property of the firm without any final settlement of
accounts as between them and the outgoing partner or
his estate, then, in the absence of a contract to the
contrary, the outgoing partner or his estate is entitled
at the option of himself or his representatives to such
share of the profits made since he ceased to be a
partner as may be attributable to the use of his share
of the property of the firm or to interest at the rate of
six per cent. per annum on the amount of his share in
the property of the firm :

.Provided that where by contract

between the partners an option is given
to surviving or continuing partners to
purchase the interest of a deceased or
outgoing partner, and that option is duly
exercised, the estate of the deceased
partner, or the outgoing partner of his
estate, as the case may be, is not
entitled to any further or other share of
profits, but if any partner assuming to
act in exercise of the option does not in
all material respects comply with the
terms thereof, he is liable to account
under the foregoing provisions of this
section.

SECTION38 REVOCATION OF
CONTINUING GUARANTEE BY
CHANGE IN FIRM.
A continuing guarantee given to a
firm, or to a third party in respect
of the transactions of a firm, is in
the absence of agreement to the
contrary, revoked as to future
transactions from the date of any
change in the constitution of the
firm.

 The

term dissolution stands for discontinuation.

Under the Indian Partnership Act, 1932, the
dissolution may be either of Partnership or of a Firm.
Dissolution of a Partnership:
Dissolution of partnership refers to the change in the
existing relations of the partners. The firm continues
its business after being reconstituted.
Example:

X,Y & Z are partners in a firm. X retires.

The partnership between X,Y & Z comes to an end
and new partnership between Y & Z comes into
existence. Thus this new partnership is called
reconstituted firm.

This means the dissolution of

partnership between all the partners
of a firm. In such a condition the
business of a firm is discontinued.

Basis of
Distinction

Dissolution of
Partnership

Dissolution of
firm

Termination of old
Partnership

Old Partnership
ends & new
Partnership starts.

Old partnership
ends but no new
partnership starts.

Name of the firm

The business
Does not continues
continues under the under the firms
firms name.
name.

Revaluation Vs
Realization

Revaluation a/c is
prepared.

Realization a/c is
prepared.

1.

2.

By Agreement (Sec 40)- A firm may be dissolved

in accordance with a contract between the
partners. The contract providing for dissolution
may be contained in the partnership deed itself or
in a separate agreement. Thus if the agreement
provides the right then a partner or partners can
dissolve the firm in certain events.
By Consent (Sec 40)- A firm may at any time be
dissolve with the consent of all the partners. The
consent of all the partners may be expressed or it
may be inferred from the conduct of other
circumstances. Dissolution by consent applies to all
cases whether the firm is for a fix period or at will.

3. Compulsory Dissolution(Sec 41)a) Insolvency of partners- If all or all but one of the
partners are adjudicated as insolvent. Because there
must be at least two partners competent to carry on
the business.
b) Business becomes unlawful- When some event
has happened which makes it unlawful for the
business to be carried on in partnership.
4. Contingent Dissolution(Sec 42)- When there is no
contract to the country, then a firm may be dissolved
on the happening of any of following contingencies
a)
If the firm is constituted for a fixed term, on the
expiry of that term.
b)
If the firm is constituted to carry out one or more
adventures or undertakings, when they are complete.

c) By the death of a partner.

d) By the adjudication of a partner as an insolvent.
5) By Notice(Sec 43)
6) Dissolution By Court(Sec 44)
a. Partner unsound mind
b. Permanent Incapability
c. Misconduct affecting the Business
d. Wilful & Persistent breach of agreement
e. Transfer of Interest
f. When business cannot be carried on save at a loss
g. Just and Equitable

 Public

Notice and Liability for acts done after

Dissolution (Sec45)
Despite the dissolution of the form, the partners will
continue to
be liable to third party for their acts, if done before its
dissolution
until public notice is given that the firm is dissolved.
Right of Partners to have business wind up
after Dissolution (Sec 46)
Sec 46 says that every partner or his representative
has a right against the other partner
i. To have the property of firm applied in payments of
the debts and liabilities, and
ii. To have the surplus distributed amongst the partners.

Sec 48 lays down two fundamental principles

relating to the mode of settlement of a/c, First,
as to payments losses, and Second, as to
application of assets.

Losses, including deficiencies of capital, shall be

paid first out of profits, next out of capital, and
lastly, if necessary, by the partners individually in
the proportion in which they were entitled to
share profit.

Where there are joint debts due from, the firm

and also separate debts due from any partner,
the property of the firm shall be applied in the
first instance in payment of the debts of the firm,
and if there is any surplus, then the share of each
partner shall be applied in payments of his
separate debts or paid to him. The separate
property of any partner shall be applied first in
the payment of his separate debts, and the
surplus (if any) in the payments of the debts, of
the firm.

 Liability

to share personal profits(Sec 50)If a partner, after dissolution and before the
affairs of the partnership are wound up, earns
any profit from any transaction connected with
the firm or from any use by him of the firm's
property, name or business connections, he
must share it with the other partners and the
legal representative of the deceased partners
under the principal of sec 16(a).
But where a partner or his representative has
bought the goodwill of the, he will not be bound
to share profits earned by use of the firms
name.

 Where

some one is admitted in to an established firm

for a fixed term as a partner and paid a some of money
to the old as a premium for admission. It is a kind of
compensation to the old partners for the goodwill they
have created and of which the new partner will enjoy
the benefit. If after the premium is paid the firm is
dissolved before the expiration of that term, new
partner shall be entitled to repayment of the premium
or of such part there of as may be reasonable unless,
The dissolution is due to death of partner, or
To his own misconduct, or
The dissolution is in pursuance of an agreement
containing no provision for the return of the premium
or any part of it.

After a firm is dissolved, every partner or his

representative may in the absence of a contract
between the partners to the contrary restrain any
other partner or his representative from carrying on
a similar business in the firm name or from using any
of the property of the firm for his own benefit, until
the affairs of the firm have been wound up.
Provided that where any partner or his
representative has brought the goodwill of the firm,
nothing in this section shall affect his right to use the
firm name.

 Partner

may, upon or in anticipation of the dissolution

of the firm, make an agreement that some or all of
them will not carry on a business similar to that of the
firm. The agreement shall be validi. If it specifies the period or local limits of restraint, and
ii. The restriction imposed is reasonable
This constitutes an necessary exception to the
general rule contained in sec 27 of the contract Act
which renders agreements in restraint of trade void.

Thank
you.