The Indian Partnership Act,
Assistant Professor of Law
BBA 3RD SEMESTER
• According to Section 4 of the Partnership Act,1932
• Partnership : “A relation between persons who have agreed to share
the profits of a business carried on by all or any one of them acting
for all” .
• ESSSENTIAL ELEMENTS OF A PARTNERSHIP FIRM :
• 1) There must be a contract .
• 2) Association of two are more persons .
• 3) Carrying on business : includes trade, occupation or profession.
Cannot be a charitable work or divide goods purchased among
• 4) Business must be carried on : continuity, not future date.
• 5) Sharing of profits.
• 6) Mutual agency : carried on by all or acting for others.
•FORMATION OF PARTNERSHIP FIRM
• Basic facts of partnership:
• 1) Mutual Confidence and Utmost Good Faith .
• 2) All Essential elements of Valid Contract is must .
• 3) Mutual Rights and Obligations of Partners in form of Partnership
• 4) Partnership firm must be registered, otherwise the firm will not be
able to enforce its legal remedies against outsiders .
• PARTNERSHIP DEED : “ The document in writing containing the
important terms of partnership as agreed by the partners between
themselves”. Drafted, stamped & signed .
• HANDLING OF PARTNERSHIP DEED :
• a) It should be drafted with care and be signed by all the partners .
• b) It must be stamped according with Indian stamp act .
• c) Each partner should have a copy of deed .
• d) The firm should be registered and a copy of the deed should be
filled at the time of registration with register of firms .
• THE PARTNERSHIP DEED SHOULD COVER : The contents of the
partnership deed .
• 1) Name, name of firm, addresses of partners .
• 2) Nature of business, town, place carried it .
• 3) Date commencement of partnership .
• 4) Duration of partnership (may /may not ) .
• 5) Amount of capital by partners and method of raising finance in
• 6) Ratio of sharing profits or loss .
• 7) Salaries, commission e.t.c if any payable to partners .
• 8) Interest on partners, partners loan and interest .
• 9) The method of preparing accounts and arrangement of audit and
safe custody of cash .
• 10) Division of tasks and responsibility i.e. the duties, powers, and
11) Rules to be followed incase of retirement, death and admission
of partners .
• 12) Expulsion of partners in case of gross breach of duties and fraud .
• 13) Clearly provides that the deed may provide that a partner shall
not carry on any business other than that of the firm while he is a
partner . But agreement is restrain of trade are void .
• DURATION OF PARTNERSHIP : Which may be classified as follows:
• 1) Partnership for a firm term .
• 2) Particular partnership : Adventure or undertaking .
• 3) Partnership at will .
• CLASSES OR KINDS OF PARTNERS:
• 1) Active, Actual or Real Partners :Partner under agreement .
• 2) Sleeping or Dormant : Name not appear or not active,
• but liable .
• 3) Silent partners : By agreement _ no say in management .
• 4) Partnership in profits only : But liable to third parties .
• 5) Sub Partners : Share his profits with an outsider is called Sub
• 6) Nominal partner : But liable for all acts of firm .
• 7) Partner By Estoppel or Holding Out : “Any one who by words
spoken or written or by conduct represent himself, or knowingly
permit himself to be represented to be a partner in a firm is liable as
a partner in that firm to anyone.
• CONSEQUENCE OR EFFECTS ON NON_REGISTRATION :
• 1) No suit can be filled by a partner against the firm or other
• 2) No suit by the firm against third parties .
• 3) The firm or its partners cannot make a claim of set off or other
• EXCEPTIONS : * Unregistered firm is not an illegal firm, optional.
• * Can file a suit for dissolution .
•RIGHTS , DUTIES AND LIABILITIES :
•RIGHTS OF A PARTNER :
• Right to participate in the conduct of business (Section
12(a)): each partner has a right to participate in the conduct of the
business. A partner right to participate in business is curtailed in a
case where some of them only participate in the business affairs of
the firm. this right can be curtailed only when the partnership deed
• Rights to access and inspect books and accounts (Section
12(d)): This right is also given to the active and dormant partner.
Each partner has a right to access and inspect the book of
account of the firm. In case of death of a partner, his legal heir can
inspect the copies of accounts.
• Right to be indemnified: The partners have a right to be
indemnified for the decision taken in the course of the business.
But such a decision is to be taken in the case of urgency and
should be of such nature that the ordinarily prudent person would
• Rights to express his opinion (Section 12(c)): Each
partner has a right to express his opinion with regard to the
business affairs. They also have the right to participate in the
• Rights to get interested on capital or advances:
Generally, partners are not entitled to get any interest on the
capital that they invest .but when they agree to give interest,
then such interest would be paid from the capital. They are
also entitled to 6%interest on the advances made towards
the business of the firm.
• Right to share profit and loss: The partners share the
profit and losses equally in the absence of any deed. But
when there is a partnership deed prescribing the ratio of
profit and losses it will be shared in accordance with the
•DUTIES OF A PARTNER : Duties of a partner can be classified in to
two heads .
• A) ABSOLUTE DUTIES :
• B) QUALIFIED DUTIES :
•A) ABSOLUTE DUTIES :
• 1) Duty to carry on the business to the greatest common advantage .
• 2) Duty to be just & faithful .
• 3) Duty to render true accounts .
• 4) Duty to provide full information .
• 5) Duty to indemnify for loss caused by fraud .
• 6) Duty to be liable jointly & severally .
• 7) Duty not to assign his interest .
• B)QUALIFIED DUTIES :
• 1) Duty to attend diligently .
• 2) Duty to work without remuneration .
• 3) Duty to contribute losses .
• 4) Duty to indemnify the willful neglect .
• 5) Duty to use firms property exclusively for the firm .
• 6) Duty to account the personal profits derived .
• 7) Duty not to compete with the business of the firm .
• LIABILITIES OF PARTNERS TO THIRD PARTIES :
• 1)The liabilities of partners of third parties are divided into three
• 1) Liability of a partner for acts of firm .
• 2) Liability of the firm for wrongful acts of a partner .
• 3) Liability of the firm for misapplication by partners .
•LIABILITY OF A RETIRING PARTNER : This can be discussed in
two heads :
• A partner is said to retire when the surviving partners continue to
carry on the business. A public notice is given of retirement.
•1) Liability Before Retirement : A retiring partner continue to be
liable for all the acts of the firm done before his retirement or acts
pending at the time of his retirement unless he is discharged from his
•2)Liability After Retirement : A retired partner is not liable for
the act of the firm done after his retirement. But he continues to be
liable till the public notice of retirement is given
• DISSOLUTION OF FIRM :
• A) Dissolution by the court .
• B) Dissolution without the court order.
• B) Dissolution Without The Court Order: partnership firm may be
dissolved in any one of the following :
• 1) Dissolution by agreement .
• 2) Dissolution by notice.
• 3) Dissolution on the happening of certain contingencies :
a) By the expiry of the term fixed .
• b) By the completion of the adventure or undertaking .
• c) By the death of a partner . &
• d) By the insolvency of a partner .
• 4) Compulsory Dissolution : A firm is compulsorily dissolved :
• a) Business becomes Unlawful . b) one or all insolvent .
•B) Dissolution by the court : Dissolution of a firm by the court is
necessitated when there is a difference of opinion between the
partners regarding the matter of dissolution. The court may order to
dissolve the firm in the following ground.
•i) When a partner become unsound mind.
•ii) Permanent Incapacity of a partner.
•Iii) Partner’s misconduct towards court and other
• iv) Persistent Breach of Agreement:
• V) Transfer of interest partner without consent of other partners.
• Vi) Continuous loss in the business:
• Vii) When the court considers Just and Equitable: e.g. deadlock in the
• CONSEQUENCES FOLLOWING DISSOLUTION OF FIRM: Can be studied under
•A) Rights and Liabilities of partners after
•B) Mode of settling Accounts upon
•C) Rules as Regard Sale of Goodwill.
• A) Rights and Liabilities of Partners after Dissolution of the firm: are as
• 1) Right to an equitable Lien: “Partner’s Lien”
• 2) right to return of premium on premature dissolution:
• 3) Right where partnership contract is rescinded for fraud etc.
• 4) right to restrain use of the firm’s name or property: except where the
partner has purchased goodwill.
• B) Mode of Settling Accounts Upon Dissolution:
• The partnership Act incorporates various sections laying
down the rules for the settlement of the accounts:
•1) Losses: losses suffered by the firm shall be paid first out of
Profits, next out of Capital and lastly by the partners
•2) Application of Assets: Assets distributed in the following
•Paying debt due to third parties>Advances made by
partners>Capital due to partners> Surplus if any divided as
per their ratio.
• Garner Vs Murray:
•In case a partner is insolvent and he is not in a position to
contribute towards deficiency of his capital account the
solvent partners should contribute to the deficiency of
•Facts of the case; garner ,Murray and Wilkin were partners
•Sharing profit s equally, but the capital contributed by by
garner is than Murray’s capital. After dissolution of the
firm, the assets are insufficient to pay capital in full.
•It was held that the principle of division was for each
partner to be treated as liable to contribute an equal third
share, even though capital contribution is unequal but
profit sharing ratio was equal.
• C) SALE OF GOODWILL AFTER DISSOLUTION: Goodwill of a firm is the
whole advantage whatever it may be, of the reputation and
connection of the firm which may have been built up by
years of honest work.
•Lord Macnavghten “ Goodwill is the advantage which is
acquired by a business beyond the mere value of capital,
Stock, Fund and property employed there in, in
consequences of general public patronage and
encouragement which it receives from constant and habitual
• Rules relating to sale of Goodwill:
• i) Goodwill can be included in the Assets , and it may be sold either separately or
along with other property of the firm.
• ii) after the goodwill has been sold any partner of the dissolved firm can a) carry
on competing business and b0 advertise such business.
• Iii) In absence of any contract , the seller of goodwill , that is partners of the
dissolved firm cannot a0 Use the firm name; b) represent themselves as carrying
on the business of the dissolved firm; and c) cannot solicit the customers of the
• Public Notice:
• The partnership Act require the giving of public notice in each of the following
• a) when a minor is admitted to benefit of partnership.
• b) When a partner retires from a partnership firm.
• c) When a partner is expelled from a partnership firm.
• d) When a partnership firm is dissolved.
• If public notice is not given the parners shall continue to be liable for any act
done by any of them before the dissolution.
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