CBSE Grade XI

1. 2.4 PARTNERSHIP
Ramu Chataraju
Business Studies Grade XI CBSE

2. 2.4 PARTNERSHIP
 The Indian Partnership Act, 1932 defines
partnership as “the relation between persons who
have agreed to share the profit / losses of the
business carried on by all or any one of them acting
of all.”

3. TYPES OF PARTNERS
A partnership firm can have different types of partners
with different roles and liabilities.
1.Active Partner:
An Active partner is one who contribute capital,
participate in the management of firm, shares its
profits and losses, and is liable to an unlimited
extent to the creditors of the firm.

4.  2.Sleeping or Dormant Partner:
 Partners who do not take part in the day to day
activities of the business are called sleeping
partners.
 They only contributes capital to the firms, shares its
profits and losses, and has unlimited liability.

5.  3.Secret Partner:
A secret partner is one whose association with the
firm is unknown to the general public. Other than
this distinct feature, in all other aspects he is like to
rest of the partners.
He takes part in the management, shares its profits
and losses, and has unlimited liability towards the
creditors.

6.  4.Nominal Partner:
 A Nominal Partner is one who allows the use of
his/her name by a firm, but does not contribute to
its capital.
 He / she does not take active part in managing the
firm, does not share its profits or losses but is liable,
like other partners, to the third parties, for the
repayment of the firms debts.

7.  5.Parter by estoppels:
 A person is considered a partner by estoppel if,
through his / her own initiative, conduct or
behaviour, he / she gives and impression to others
that he / she is partner of the firm.
 Such partners are held liable for the debts of the
firms because in the eyes of the third party they are
considered partners, even though they do not
contribute capital

8.  Partner by holding out:
 A person who by conduct or words represents, or
allows him/herself to be represented, as
a partner in a firm is liable for the credit or loans
obtained by firm on the basis of such
representation. Also called presumption
of partnership. Partner by Holding out
 Such a person becomes liable to outside creditors
for repayment of any debts which have been
extended to the firm on the basis of such
representation.

9. TYPES OF PARTNERSHIP
 Open Text book page No.31 Table 2.1

10. 2.4.2 TYPES OF PARTNERSHIPS
 Partnerships can be classified on the basis of two
factors.
 1.Classification on the basis of duration
 1.Partnership at will
 2.Particular partnership
 2.Classification on the basis if liability
 1.General Partnership
 2.Limited Partnership

11. CLASSIFICATION ON THE BASIS OF DURATION
 Partnership at will:
 This partnership exists at the will of the partners. It can
continue as long as the partners want and is terminate
when any partner gives a notice withdrawal from
partnership to the firm
 Particular partnership:
 Partnership formed for the accomplishment a particular
project say construction of a building or an activity to be
carried on for a specified time period is called particular
partnership.

12. CLASSIFICATION ON THE BASIS OF LIABILITY
 General Partnership
In General partnership, the liability of partners is
unlimited and joint. The partners enjoy the right to
participate in the management of the firm and their
acts are binding on each other as well as on the
firm.
 Limited Partnership:
In limited partnership, the liability of at least one
partner is unlimited whereas the rest my have
limited liability. The limited partnership does not
enjoy the right of management and their acts do not
bnd the firm or the other partners.

13. PARTNERSHIP DEED
 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.
 It has the force of law and is designed to guide the
partners in the conduct of the business. It is helpful
in preventing disputes and disagreements over the
role of each partner in the business and the
benefits which are due to them.

14. ELEMENTS IN PARTNERSHIP DEED
1. Name of the Firm
2. Nature of business and location of business
3. Duration of business
4. Investment made by each partner
5. Distribution of profits and losses
6. Duties and obligations of the partners
7. Salaries and withdrawals of the partners
8. Terms governing admission, retirement and expulsion
of a partner
9. Interest on capital and interest on drawings
10. Procedure for dissolution
11. Preparation of accounts and their auditing
12. Method of solving disputs

15. MINOR AS PARTNER
 Section 30 of the Indian Partnership Act 1932,
provides that though a minor cannot 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 by an
agreement executed through his guardian with the
other partners

16. IMPORTANT RIGHTS AND LIABILITIES OF A MINOR WHO
HAS BEEN ADMITTED IN THE BENEFITS OF PARTNERSHIP
ARE GIVEN BELOW:
 1. The minor is entitled to receive his agreed share
of the property and of the profits of the firm.
 2. The minor has the right of inspecting and taking
copies of the books of accounts of the firm. He has,
however, no such right in respect of books other
than accounts, as they may contain secrets which
should be restricted to real partners alone.

17.  3. The minor is not personally liable to third parties
for the debts of the firm, but his liability is limited
only upto his share in the partnership assets and
profits.
 4. The minor is not entitled to take part in the
conducting of the business as he has no
representative capacity to bind the firm.
 5. The minor cannot bring about any suit against
the partners for an account or payment of his share
of the property or profits of the firm except when he
severs his connection with the firm.

18.  6. On attaining majority or on knowing that he had been
admitted to the benefits of partnership, whichever date
is later, the minor must decide within six months whether
he would or would not like to become a partner in the
firm and give public notice of his decision.
 7. Where the minor becomes a partner either by his own
election or by his failure to give notice within the
specified time, he becomes personally liable to the third
parties for all the debts and obligations of the firm
retrospectively from the date of his admission to the
benefits of partnership. Of course, his share in the
property and profits of the firm shall be the same to
which he was entitled as a minor.

19.  8. Where the minor chooses not to become a partner:
 (a) His rights and liabilities continue to be those of a
minor up to the date of his giving public notice;
 (b) His share is not liable for any acts of the firm done
after the date of the public notice;
 (c) He is entitled to sue the partners for his share of the
properly and profits in the firm.
 9. If after attaining majority but before choosing to
become a partner the minor represents or knowingly
permits himself to be represented as a partner in the
firm, he will be personally liable to anyone who has on
the faith of such representation granted credit to the firm
on the ground of ‘holding out’.