The Indian Partnership Act 1932

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 The Indian Partnership Act 1932
The law of partnership is contained in the Indian Partnership Act which came
into force on 1st October 1932.

I. Definition
“Partnership is the 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”.

II. Essential Elements

 There must be a contract.
 Between two or more persons.
 Who agree to carry on a business.
 With the object of sharing profits and
 The business must be carried on by all or any of them acting for all
(mutual agency).

III. Test of Partnership

IV. Partners, firm and firm name
V. Distinction
BASIS PARTNERSHI CO- HINDU JOINT
P OWNERSHIP UNDIVIDED STOCK
FAMILY COMPANY
Regulating Partnership By common Hindu Law Companies
Act Act 1932 interest Act 1956
Number of Min.-2 No such limit No such limit Private
Members Max.-10 for Company-2
banking to 50
business, Public
20 for others company-
7 to unlimited
Entity No legal No legal Karta is the Separate
entity entity legal entity legal entity
Liability Unlimited Limited Karta and Liability
Liability Liability adult limited to the
members extent of
have capital
unlimited invested
liability
Authority of Agent Can ask for Can demand Mutual
members Principal partition of partition agency
relationship joint property

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 Share in Partners can No sharing No such As per the
interests claim for rights rights articles of
profits association
Motive Profit making May not No profit Profit
result in motive making
profit
Death of a Firm is No effect Coparcener Continues to
partner dissolved becomes exist
authorized

VI. Formation of Partnership

 Mutual confidence and utmost good faith among partners
 Essential elements of a valid contract
 Mutual rights and obligations must be discussed and enclosed in
‘Partnership Deed’
 Firm must be registered with the Registrar of Firms of the area.

VII. Partnership Deed and its contents

“Document containing the respective rights and obligations of
the members of Partnership”.
It must be signed by all partners, stamped and registered. It must
contain the following:
 Name of the firm
 Date of commencement
 Duration of partnership
 Amount of capital contributed
 Profit sharing ratio
 Interests charged on capital, loan and drawings
 Salaries, commission, etc. payable to partners
 Methods of preparing accounts and arrangement of audit
 Division of task and responsibility
 Rules to be followed in case of retirement
 Expulsion of partners in case of breach of duty
 Can a partner carry on any other competing business
 Circumstances for dissolution
 Arbitration in case of dispute among partners

VIII. Duration
 Partnership at will

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  Particular Partnership

IX. Kinds of partners

 Active Partners
 Sleeping/Dormant Partners
 Silent Partners
 Partners in Profit only
 Sub Partners
 Partner by estoppels or holding out (Section 28)

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 DISSOLUTION
Distinction between dissolution of partnership &
dissolution of firm:
(1) Dissolution of partnership: When one or more partners ceaseto be partners of
the firmbut others continue the business of partnership, it is called
“dissolution of partnership”. In this case, the firm is reconstituted without
any dissolution.

(2) Dissolution of firm: (sec.39) Dissolution of partnership between all the

partners of the firm is called the “dissolution of the firm”.

(3) The dissolution of the firm necessarily involves the dissolution of

partnership as well, but the dissolution of partnership may or may not
involve the dissolution of the firm. B

Eg.  Part
ner
(A died, insolvent or can’t continue) XYZ
firm

A C

Modes of dissolution of Partnership:

(1) By the expiry of term: ( in case of ‘for the fixed term’)

(2) By the completion of adventure: (in case of for ‘a particular adventure’)

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 (3) By the death of a partner

(4) By the insolvency of a partner: (sub. To contract)

(5) By the retirement of a partner

Modes of dissolution of firm:

(1) By mutual consent

(2) By the insolvency of all the partners but one: (automatic or compulsary)

(3) By business becoming illegal: (under operation of law)

(4) By notice of dissolution: ( only in ‘Partnership at will’)

Modes of dissolution through court:

(1) When a partner becomes of unsound mind

(2) Permanent capacity of a partner

(3) Misconduct of a partner affecting the business

(4) Persistent disregard of partnership agreement by a partner

(5) Transfer of interest or share by a partner

(6) Business working at loss

(7) Where just & equitable

Consequences of dissolution:

(1) Continuing liability of partners after dissolution: (sec.45, Act done before
dissolution)

(2) Continuing authority of partner for purpose of winding up: (sec.47)

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 (3) Right of partners to enforce winding up: (sec. 46)

(4) Liability to share personal profit: (sec.50)

Mod e of settling accounts upon dissolution: (sec.48)

(1) For
losses, including deficiencies of capital: manner & order- (out of profits
 out of capital  by partners)

(2) Assetsof the firm: manner & order (in paying the debts of firm in paying
partners for advancedivide the residue)

Loss arising from insolvency of partner: ( capital loss) shared by partners.

Sale of goodwill after dissolution: (sec. 55)

(1) Treated as asset & sold well as.

(2) Follow the agreement if any ( carry on business or in geographical territory)

(3) Seller of goodwill cannot use the firm name or represent as carryin out old
business.