Indian Partnership Act - Part I

AN UNDERSTANDING ABOUT PARTNERSHIP

Definition in Indian Law # Section 4 of the Partnership Act

  • Partnership = the relation between persons - agreed to share the profits of a business carried on by all.

  • Partners = Persons entered into partnership - collectively called a firm

  • Firm Name = The name under which their business is carried on is called the firm name.

Definition under English Law : The relation which subsists between persons carrying on business in common with a view of profit.

Essential elements of partnership:

1. There must be at least two persons.

2. That must be result of an agreement.

3. It it is organised to carry on a business.

4. Agreed to share the profits of the business.

5. The business is to be carried on by all or anyone of them acting for all.

FORMATION OF PARTNERSHIP

Basic requirement - all the elements of a valid contract must be present.

Form of partnership agreement : It may be oral or writing or it may be implied or inferred from the conduct of the parties. The deed must be stamped according to Stamp Act. Although registration is not compulsory, firm may be registered to enjoy certain rights.

Registration of partnership : Relevant provision : Section .58 # The registration should be made in the form of a Statement signed by all the partners

Details to be mentioned : Firm name, place of business, other places of business , date of joining of partners, names & address of partners , duration of firm # Furthermore, every change must be informed.

REGISTRATION OF A FIRM

Effect of Non-registration of a Firm: Registration is optional but unregistered firm cannot do the following :

1. A partner of an unregistered firm cannot file a suit against any firm or partner # S.69(1).

2. Cannot file a suit against any third party to enforce a right arising from a contract # S. 69(2).

3. Cannot claim a set off above Rs.100 in a suit # S.69(3).

Rights non- affected by non-registration : Relevant Provision: Section 69 .

1. The right of a third party to sue the firm or any partner .

2. The right of a partner to sue for dissolution of the firm or for settlement of

accounts if the firm is already dissolved or for his share of the assets of the

dissolved firm.

3. The right of an unregistered firm to sue to enforce a right arising otherwise

than out of contract

4. The power of an Official Assignee or Official Receiver to realise the property of

an insolvent partner.

5. A suit or set-off not exceeding Rs. 100 in amount.

Registration Time: An unregistered firm can be registered anytime before dissolution.

Caution ! It should be registered before filling a suit or the court will reject such suit.

Remedy ! The firm can subsequently get itself registered and file the suit again .

Duration of Partnership: The parties may fix duration or say nothing about it.

Partnership with fixed Time : decide to do business for certain period = partnership for a fixed period” # Implication: When period over, partnership ends.

Partnership with particular purpose : Formed for particular venture= “particular partnership” # Implication : Ends on the completion of the venture.

Partnership with no limit : agree to carry on till they wish= “Partnership at will”.

Implication: Continued till will of the partners .

PARTNERSHIP PROPERTY

Partnership Property: The property of the firm includes

  1. all property originally brought into stock of the firm + subsequently added.

  2. property acquired in course of business with firm money.

  3. the goodwill of the business

PARTNERSHIP DEED

Partnership Deed = agreement creating partnership

# Contents = nature, principal place of business, firm name, names and addresses of the partners, firm duration, profit sharing ratio, interest on capital and drawings, valuation of goodwill on the death or retirement of partner, management, accounts, arbitration, etc.

Stamping ! The Indian Stamp Act, 1889, requires that the Deed must be stamped.

Eligibility ! Any person who is competent to contract can enter into partnership agreement.

PERSONS OF SPECIAL CONSIDERATION

Persons of special consideration :

1. Minor: Can be only admitted to benefits of firm.

2. Alien- cannot be partner in an Indian firm.

3. Person of unsound mind: cannot be partner.

4.Company: If authorized by its articles of association can enter into partnership .

5.Firm: A firm cannot enter into partnership contract.

MINOR POSITION DISCUSSED !

Legal Status of Minor : Minor contract void abinitio

Partnership as an exception : If all the partners agree a minor may be admitted to the benefits of an already existing partnership firm.

Rights and liabilities of Minor # Relevant Provision : - Section 30.

1. The minor has a right to such share of property + profits .

2. Right to access +inspect + get copy any of the accounts of the firm.

3. The minor not personally liable for debts but his share in profits + assets of the firm will be liable for the same.

4. Minor can file s suit for share after he severe his connection with the firm.

5. Within six months of his attaining majority minor can elect to become partner or not .

Implication of election : If he stay quiet he shall become a partner in expiry of the said six months.

6. Result of minor electing to be partner : A minor who thus becomes a partner will become personally liable for all debts and obligations of firm incurred since date of his admission to benefits of partnership.

7. Result of minor electing not to be partner :

  • His rights and liabilities continue to be those of a minor upto the date on which he gives public notice to not to become its partner.

  • His share will not be liable for any act of the firm done after the date of the notice.

  • He can sue for his share of the property and profits of the firm.

DISSOLUTION OF PARTNERSHIP

SECTIONS 39 TO 47# 'dissolution' =discontinuation.

DISSOLUTION OF PARTNERSHIP = the change in the existing relations of the partners.

Effect ! Firm continues its business after being reconstituted.

When it occurs ? This may happen on admission, retirement or death of a partner or change in profit sharing ratio in the firm

DISSOLUTION OF FIRM - dissolution of partnership between all the partners of a firm.

Effect of dissolution of firm : Business of firm is discontinued.

DISSOLUTION OF PARTNERSHIP

DISSOLUTION OF FIRM

Old partnership ends- new partnership starts

  • Old partnership ends but no new partnership

  • The business continues

  • The business ends

  • Revaluation account is prepared

  • Realization account is prepared.

  • Dissolution of firm involves dissolution of partnership

  • Here it dissolves the entire firm

Modes of Dissolution of a Firm : Relevant Provision : Sections 40 to 44 : The dissolution of firm occurs by (1) By the order of the court &(2) Without the order of the court .

Dissolution without the Order of the Court

Relevant provision : Sections 40 to 43

  1. Dissolution by mutual agreement # Section 40: A firm may be dissolved by mutual agreement among all the partners. Even a firm for a fixed duration may be dissolved by mutual agreement.

  2. Compulsory dissolution # Section 41: A firm is compulsorily dissolved in the following two circumstances: (i) If all the partners, or all but one partner o- declared insolvent; (ii) If firm's business becomes unlawful.

When two or more business is carried if any one business is declared unlawful then other lawful business can be carried on.

  1. Dissolution on the happening of certain contingencies #Section 42:

A firm is dissolved on the happening of any of the following four contingencies:

(i) On the expiry of the fixed term for which the firm was constituted;

(ii) On completion of purpose of the firm.

(iii) On the death of a partner; and

  1. On the insolvency of a partner.

Effect of death of all partners / only one partner left alive = firm must be compulsorily dissolved .

  1. Dissolution by notice # Section 43 # Notice in writing by partner must be given to all other partners of his intention to dissolve the firm.

Date of dissolution = date of dissolution mentioned in the notice.

If no date is mentioned ? then date of the communication of the notice.Notice once given cannot be withdrawn without the consent of all other partners # Jones v. Lloyd.

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