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The Indian Partnership Act, 1932

The Indian Partnership Act, 1932 is an act enacted by the Parliament of India to regulate partnership firms in
India. It received the assent of the Governor-General on 8 April 1932 and came into force on 1 October 1932.
Before the enactment of this act, partnerships were governed by the provisions of the Indian Contract Act. The
act is administered through the Ministry of Corporate Affairs. The act is not applicable to Limited Liability
Partnerships, since they are governed by the Limited liability Partnership Act, 2008.
Business laws:
Business laws Unit-II Partnership Act, 1932

Introduction to Topic:
Introduction to Topic One of the forms in which business can be carried on is ‘partnership’,
where two or more persons join together to form the partnership and run the business. In order
to govern and guide partnership, the Indian Partnership Act, 1932 was enacted. Since public at
large would be dealing with the partnership as customers, suppliers, creditors, lendors ,
employees or any other capacity, it is also very important for them to know the legal
consequences of their transactions and other actions in relation with the partnership.

Features of Partnership Act, 1932:


Features of Partnership Act, 1932 Indian Partnership Act, 1932 is a Central Act. (made by
Parliament This Act deals with special type of contract.( contract of partnership) Provisions
regarding contract of partnership were earlier contained in the Indian Contract Act, 1872. This
Act extends to the whole of India except the state of Jammu and Kashmir. This Act came in to
force on 1.10.1932 ,

Meaning &Definition of ‘Partnership’:


Meaning &Definition of ‘Partnership’ Section 4 of the Partnership Act, 1932 defines the term
‘Partnership’ as under: ‘’PARTNERSHIP IS THE RELATION BETWEEN TWO OR MORE
PERSONS WHO HAVE AGREED TO SHARE THE PROFITS OF A BUSINESS CARRIED ON
BY ALL OR ANY OF THEM ACTING FOR ALL’’. Thus, Partnership is the name of legal
relationship between/among persons who have entered in to the contract.

Meaning of ‘Partner’ ‘Firm’ and ‘Firm Name’ :


Meaning of ‘Partner’ ‘Firm’ and ‘Firm Name’ Section 4 of Indian Partnership Act, 1932 provides
that: Persons who have agreed into partnership with one another are called individually
‘PARTNERS’ and collectively ‘FIRM’ and the name under which their business is carried on is
called the ‘FIRM NAME’ “Partnership is thus Invisibility which binds the partners together and
firm is the visible form of those partners who are thus bound together”.

Maximum Limit on Number of Partners:


Maximum Limit on Number of Partners Section 11 Companies Act provides that the maximum
no. of persons, a firm can have: In case of partnership firm carrying on a banking business 10 In
case of partnership firm carrying on any other business 20 If the number of partners exceeds
the limit, the partnership firm becomes an illegal association. If an association of persons or firm
having members or partners exceeding the Above limit will not be an illegal association if that
firm’s objective is not to earn profit.

PowerPoint Presentation:
Two or more persons An agreement Sharing of profit Business Mutual agency Essential
elements of Partnership For explanation go through the next slides: For forming a partnership
the above elements should be present. Though each element is important, ‘Mutual Agency is
the conclusive proof

Characteristics of Partnership:
Characteristics of Partnership A partnership firm has the following characteristics: Two or more
members Unlimited liability Voluntary registration Restriction on transfer of interest: Based on
agreement Partners are competent to contract Partnership may be only for lawful business.

Advantages of Partnership Firm:


Advantages of Partnership Firm Easy to form : Availability of large resources: Better decisions:
Flexibility in operations : Sharing risks: Benefits of specialization:

Disadvantage of Partnership Firm:


Disadvantage of Partnership Firm Unlimited liability: Uncertain . No transferability of share: Lack
of harmony: Limited capital: Contd.

Partnership deed:
Partnership deed A partnership is formed by an agreement. This agreement may be in writing or
oral.though the law does not expressly require that the partnership agreement should be in
writing, it is desirable t o have it in writing in order to avo8id any dispute with regard to the terms
of the partnership. The document which contains the term of a partnership as agreed among the
partners is called “partnership deed”. The partnership Deed is to be duly stamped as per the
Indian Stamp Act, and duly signed by all the partners. Contd .

Contents of partnership Deed:


Contents of partnership Deed A partnership deed may contain any matter relating to the
regulation of partnership but all provisions in the deed should be within the limits of Indian
Partnership Act, 1932. However, A Partnership Deed should contain the following clause:
Nature of business Duration of partnership Name of the firm Capital Share of partners in profits
and losses Bank Account firm Books of account Powers of partners Retirement and expulsion of
partners Death of partner Dissolution of firm Settlement of disputes

PowerPoint Presentation:
Procedure for registration sending by post /delivering to the Registrar of Firms of the area a
statement in the prescribed form and prescribed fee, Signed by all partners/ agents Required
information; The firm name the place or principal place of business of the firm; the names of any
other places where the firm carries on business; the date when each partner joined the firm; the
names in full and permanent addresses of the partners; the duration of the firm Paying fees,
Filing and certificate Wrong information(punishment) When any changes

PowerPoint Presentation:
Effect of non registration No suit in civil court by a partner against the firm or other partners.( a
partner of an unregistered firm is not paid his share of profits, he cannot claim it through a suit in
the court of law.) 2. No suit in a civil court by a firm against the parties. 3. The firm or its partners
cannot make a claim of set-off or other proceeding based upon a contract.

PowerPoint Presentation:
Registration of firm In maharashtra

Types of Partnership:
Types of Partnership Partnership at Will (Sec.7) Particular Partnership (Sec.8) On the Basis of
Duration
Partnership at Will [Sec.7 read with Sec.43)]:
Partnership at Will [Sec.7 read with Sec.43)] When there is no provision in partnership
agreement (known as partnership Deed, if in writing) for: The duration of their partnership, or
The determination of their partnership, then the partnership is called ‘Partnership at Will’.
Special feature of ‘ Partnership at will’ is that such firm may be dissolved by any partner by
giving a notice in writing to all other partners of his intention to dissolve the firm The firm will be
dissolved from that date which is mentioned in the notice as the date of dissolution and if no
date is mentioned then from the date of communication of notice.

Particular Partnership [sec. 8]:


Particular Partnership [sec. 8] When a partnership is formed for a Specific venture or
undertaking, or Particular period (fixed term) then such partnership is called a ‘particular
partnership’. Such partnership comes to an end on the completion of the venture or the expiry of
time period. If such partnership is continued after the expiry of term or completion of venture, it
is deemed to be a partnership at will. A particular partnership may be dissolved before the
expiry of the term or completion of the venture only by the mutual consent of all the partners.

Contd.:
Contd. Sec. 17 (b) of the Act provides that if a firm ,constituted for a fixed term, continues to
carry on business after the expiry of that term, then the partnership will become partnership at
will AND mutual rights and duties of partners will remain same as they were before the expiry.

Kinds of Partners :
Kinds of Partners Active / actual partners: Sleeping/ dormant partners: Sub partner: Nominal
Partner: In coming partners Outgoing partners Partners in profits only Partner by estoppel
/holding out

MINOR AS A PARTNER (Sec. 30):


MINOR AS A PARTNER (Sec. 30) Agreement with or by a minor: Void special provision for
minors: Partnership is already exist All the partners mutually agree Admitted to the benefits of
the firms

PowerPoint Presentation:
Sec. 30: Rights and Liabilities of minor partners Right to share of the property as agreed Total
access Minor’s share in property and profits of the firm is liable for acts of the firm, minor is not
personally liable. Cannot file a suit against the other partners for accounts or for payment of his
share. Can do so for severing his connection with the firm. He cannot declared insolvant on
declaration of firm’s insolvancy Minor attaining majority.

Minor attaining majority.:


Minor attaining majority. Retrospective effect (remain) Public notice (not) Copy of notice send to
registrar of firm Copy is published in news paper A copy published in the local official gazatte

Property of firm:
Property of firm Originally brought Property acquired with partnership money Property acquired
by purchase Googwill of the firm

GENERAL DUTIES OF A PARTNERS:


GENERAL DUTIES OF A PARTNERS A. Absolute Duties carry on the business with common
advantage just and faithful render true accounts to provide full information To indemnify for loss
caused by fraud liable jointly and severally not to assign his interest

PowerPoint Presentation:
B. Qualified duties Not to carry on business competing with the firm indemnify the firm for wilful
neglect carry out the duties diligently to work without remuneration to contribute to losses
Partners use firms property exclusively for the firm to account for personal profits derived

Rights of Partners :
Rights of Partners Right to take part in the conduct of the business. Right to be consulted. Right
to access the books. Right to share the profits. Right to interest on capital Right to interest on
advances. Right to indemnity .

Rights of Partners:
Rights of Partners 8. No liability for any act of the firm done before one becomes a partner. 9.
Not to be expelled. 10. Right to resist the introduction of a new partner. 11. Right to retire. 12.
Right to carry on competing business after ceasing to be a partner. 13. Right of outgoing partner
to share subsequent profits in certain cases.
Relationship of partners with third parties:
Relationship of partners with third parties Mutual agency refers to the relationship of principal
and agent Among partners Example in case of firm of A,B and C When A acts A- Agent B and
C- Principal When B acts B- Agent A and C- Principal When C acts C- Agent A and B- Principal

Authority of partners :
Authority of partners EXPRESS AUTHORITY (AGREEMENT ) IMPLIED AUTHORITY
(CARRYING ON THE BUSINESS , TRADING) RESTRICTION ON IMPLIED AUTHORITY TO
OPEN BANK A/C TO ACQUIRE IMMOVABLE PROPERTY TO ENTER INTO PARTNERSHIP
ON BEHALF OF THE FIRM TO COMPROMISE CLAIM TO SUBMIT A DISPUTES RELATING
TO THE FIRM’S BUSINESS RESTRICTION ON MUTUAL AGREEMENT PARTNER’ S
AUTHORITY IN ANY EMERGENCY

Re construction of a firm:
Re construction of a firm (a)Incoming partners (b)Outgoing partners Death of a Partner
Insolvency of a partner Expulsion of a Partner Retirement of a Partner: Transfer of partner ‘s
share

Public notice :
Public notice PUBLIC NOTICE IS REQUIRED ON RETIREMENT ON DISSOLUTION OF THE
FIRMS ON EXPULSION ON MINOR PARTNERS PUBLIC NOTICE IS REQUIRED ON ON
DEATH OF PARTNERS ON PARTNER’ S INSOLVANCY

Dissolution of firm:
Dissolution of firm (a) Voluntary/Without the order of the court By agreement Compulsory
dissolution Happening of certain contingencies By notice

Dissolution of firm:
Dissolution of firm (b) Dissolution by Court Insanity Permanent incapacity Misconduct Persistent
breach of agreement 5) Transfer of interest 6) Business working at a loss 7) Any other ground
which renders it just and equitable that the firm should be dissolv ed.

Consequence of dissolution:
Consequence of dissolution Continuing liability of partner Continuing authority of partners for
winding up Liability to share personal profits Return of premium Where contract rescinded for
fraud Right to impose restriction: agreement to goodwill Right to restrain from uses of firm name
or firm property