Business Law

Submitted to: Brig. (R) Muhammad Saleem

Submitted by: Hashim Khan
Roll no: L-21203
Class: MBA-4 (Morning)

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Introduction
A partnership is a single business in which two or more people share ownership. Each partner
contributes to all aspects of the business, including money, property, labor, or skill. In return,
each partner shares in the profits and losses of the business.
Because partnerships entail more than one person in the decision-making process, it’s important
to discuss a wide variety of issues up front and develop a legal partnership agreement. This
agreement should document how future business decisions will be made, including how the
partners will divide profits, resolve disputes, change ownership (bring in new partners or buy out
current partners), and how to dissolve the partnership. Although partnership agreements are not
legally required, they are strongly recommended, and it’s considered extremely risky to operate
without one.

Partnership
A partnership is a form of business where two or more people share ownership, as well as the
responsibility for managing the company and the income or losses the business generates. That
income is paid to partners, who then claim it on their personal tax returns the business is not
taxed separately, as corporations are, on its profits or losses.

Creation of a firm
The formation of a partnership requires a voluntary "association" of persons who "coown" the
business and intend to conduct the business for profit. Persons can form a partnership by written
or oral agreement, and a partnership agreement often governs the partners' relations to each other
and to the partnership. The term person generally includes individuals, corporations, and other
partnerships and business associations.
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, Section 4, Partnership Act, 1932.
o The persons who have entered into partnership are individually called ‘partners’
o and collectively a ‘firm’.
o The name under which they carry on the business is called ‘the firm name’
To form a general partnership at common law, nothing more than an agreement between two
people is needed. Typically, most people put this into a written agreement for legal and
operational purposes. To form any other partnership
you must file paperwork to register your business with the state, generally done through the
Secretary of State's office. Additionally, you will need to establish and register a business name
along with complying with all state regulations. Taxation issues become increasingly

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complicated as more people are added to a business, making it essential to do legal research on
the financials of a partnership to comply with federal/state law.

Features of Partnership:
Following are the few characteristics of a partnership:

 Contract or Formation
A firm having multiple owners must have a legal agreement between all the partners. So,
it is compulsory to have a partnership contract to establish a partnership firm.
 Unlimited Liability
All the partners are liable for the payment of the debts, even if they have to liquidate their
personal assets.
 Continuity
In the context of death, bankrupt, and retirement of any partners, etc., the partnership will
be dissolved and the remaining partners must make a fresh agreement amongst each
other. Similarly, a son cannot inherit his father’s partnership, but with the agreement of
other partner members, he can be added as a new partner.
 Number of Members
There is no specific number as to the maximum number of members a partnership firm
can have. However, according to the Companies Act, 2013, for banking only 10 members
are allowed. For companies, the maximum member should not exceed more than twenty.
 Mutual Agency
This means all the partners should take responsibility for a company’s operation. But
sometimes one partner on behalf of the rest of the partners can supervise or take actions.

Types of Partnerships
A partnership is divided into different types depending on the state and where the business
operates. Here are some general aspects of the three most common types of partnerships.
 General partnership
 Limited partnership
 Limited liability partnership
 Partnership at will

General Partnership
A general partnership comprises of two or more owners to run a business. In this partnership,
each partner represents the firm with equal right. All partners can participate in management
activities, decision making, and have the right to control the business. Similarly, profits, debts,
and liabilities are equally shared and divided equally.

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In other words, the general partnership definition can be stated as those partnerships where rights
and responsibilities are shared equally in terms of management and decision making. Each
partner should take full responsibility for the debts and liability incurred by the other partner. If
one partner is sued, all the other partners are considered accountable. The creditor or court will
hold the partner’s personal assets. Therefore, most of the partners do not opt for this partnership.

Limited Partnership
In this partnership, includes both the general and limited partners. The general partner has
unlimited liability, manages the business, and the other limited partners. Limited partners have
limited control over the business (limited to his investment) and are not associated with everyday
operations of the firm.
In most of the cases, the limited partners only invest and take a profit share, and they do not have
any interest in participating in management or decision making. This noninvolvement means
they don’t have the right to compensate the partnership losses from their income tax return.

Limited Liability Partnership

In Limited Liability Partnership (LLP), all the partners have limited liability. Each partner is
guarded against other partners legal and financial mistakes. A limited liability partnership is
almost similar to a Limited Liability Company (LLC) but different from a limited partnership or
a general partnership.

Partnership at Will
Partnership at will can de be defined as when there is no clause mentioned about the expiration
of a partnership firm. Under section 7 of the Indian Partnership Act 1932, the two conditions that
have to be fulfilled by a firm to become a Partnership at Will are:
 The partnership agreement should have not any fixed expiration date.
 No particular determination of the partnership should be mentioned.
Therefore, if the duration and determination are mentioned in the agreement, then it is not a
partnership at will. Also, initially if the firm had a fixed expiration date, but the operation of the
firm continues beyond the mentioned date that it will be considered as a partnership at will.

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Advantages of Partnership:
 Easy Formation
An agreement can be made oral or printed as an agreement to enter as a partner and
establish a firm.
 Large Resources
Unlike sole proprietor where every contribution is made by one person, in partnership
firm partners can contribute more capital and other resources as required.
 Flexibility
The partners can initiate any changes if they think it is required to meet the desired result
or change circumstances.
 Sharing Risk
All loss incurred by the firm is equally distributed amongst each partner.
 Combination of different skills
The partnership firm has the advantage of knowledge, skill, experience, and talents of
different partners.
Partnership Examples:
Few co-branding partnership examples are listed below:
 Red Bull and GoPro
 Spotify and Uber
 Levi’s & Pinterest
 Maruti Suzuki

Partner
A person who shares or is associated with another in some action or endeavor; sharer; associate.

Types of Partners in a Business Partnership

Partners are of different kinds in a business partnership. They are as working partner, sleeping
partner, nominal partner, partner by estoppel, limited partner, secret partner, partner by holding
out, sub-partner, partner in profit. They are briefly explained below

 Working Partner
A Working Partner is one who contributes capital to the business and takes active part in its
management. Hence, he is called active partner.

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 Sleeping Partner
A Sleeping Partner is one who contributes only capital to the business, but does not take
part in its management. He is also called dormant partner or financing partner.
 Nominal Partner
A Nominal Partner does not contribute capital. Neither does he take active part in the
management. His contribution in a partnership is limited to allowing the other partners to
make use of his name.

 Partner by Estoppel
Partner by Estoppel is not a partner of the firm but by his words and conduct he leads the
outsiders to believe that he is also a partner of the firm. Usually this arises, when the
outgoing partner fails to give notice about his retirement.
 Limited Partner
In foreign countries like U.K., the law of the land permits the admission of partners with
limited liability. But in India, no one can be a limited partner. There is only one
exception. The liability of a minor admitted for the benefits of partnership is limited to
the extent of his capital contribution
 Secret Partner
A Secret Partner is actually a partner of the firm. But he does not hold out to the public as
a partner of the firm but keeps his existence as secret. His liability is also unlimited.

 Partner by Holding Out

Though a Partner by Holding Out is not a partner, he knowingly permits himself to be a
partner of the firm by his activities.
 Sub – Partner
A Sub-Partner has no direct contact with the firm. He is only next to a partner.
 Partner in Profit
A Partner in Profit becomes a partner whenever the firm earns profit. His liability is also
unlimited

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Right of partner
The rights of partner in partnership are given below:
o Right to manage business.
o Right to express views and ideas.
o Right to inspect books account.
o Right to share profit.
o Right to be indemnified.
o Right to proper use of property.
o Right to join ownership.
o Right to get retirement

Duties of partner
o Loyalty and Good Faith
o Obedience
o Reasonable Care
o Compensation
o Payment of Loans
o Contribution and Indemnity Distribution of Capital
o Nature and Extent of Partners Liability
o Liability for Breach of Duty
o To work for common advantage
o To be faithful Render true account
o To indemnify for fraud
o Not to claim remuneration
o To share profits and losses
o To act within authorities given

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