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
 Max. limit : 10 for banking; 20 for other business
 Result of an agreement
 Partnership relation based on Contract.
 Implied or Express (Oral or Written)
 Must carry on some 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.