LAW OF PARTNERSHIP

Essentials, Rights and Duties

of Partners, Settlement of
Accounts

LAW OF PARTNERSHIP
Definition
A partnership is a voluntary
association of two or more
persons, who contribute, money,
property, time, care or skill, to
carry on, as co-owners, a lawful
business for profit and to share the
profits and losses of the business.

ESSENTIALS OF PARTNERSHIP
1. Agreement: a partnership is the result
of an agreement between persons
who want to form a partnership. An
agreement may be written or oral.
2. Number of partners: according to
section 14 of companys ordinance,
1984 a partnership consisting of more
than 20 persons for carrying on any
business is illegal.

ESSENTIALS OF PARTNERSHIP
CONT - - 3. Existence of business: the partners
must agree to carry on a business. If
the purpose is to carry on some
charitable work, it will not be a
partnership.
4. Sharing of profits: the agreement
between the parties must be to share
the profits of a business. The profit
will be distributed among the partners
according to their agreement.

ESSENTIALS OF PARTNERSHIP
CONT - - 5. Duration: the partnership continues at
the will of the partners. It comes to an
end if any of the partners retires, dies
or becomes insolvent. However, if the
remaining partners agree to continue
the business, the firm will not dissolve.

KIND OF PARTNERS
1. Active partner: a partner who takes
an active part in the management of
the firm is called active partner.
2. Sleeping partner: one who does
not take an active part in the
management of the firm is called
sleeping.

KIND OF PARTNERS cont - - 3. Nominal partner: one who lends

his name and reputation to the
firm is called nominal partner. He
does not invest in business. He
does not get share in profits. But,
he is regarded as partner in the
eye of law. He is liable to the
outsiders for the debts of the
firm.

KIND OF PARTNERS cont - - 4. Senior partner: a partner who has

made more investment in the firm
and receives more profit is called a
senior partner.
5. Junior partner: a junior partner is
the one who has a small investment
in the business and receives a
nominal share in the profits.

KIND OF PARTNERS cont - - 6. Partner in profits only: he is a

partner who shares the profits of the
firm but is not liable for the losses.
But he is equally liable as other
partners to the outsiders.

TYPES OF PARTNERSHIP
1. Partnership at will: where no
provision is made in the contract
regarding the duration of partnership.
2. Particular partnership: where
partnership is formed to do a
particular business. Such partnership
is dissolved immediately after the
completion of that business.

RIGHTS OF PARTNERS
1. Right to take part in business: it
is not essential for every partner
to take part in business but the
right of participation should be
available to every partner.
2. Right to inspect books.
3. Right to share profits.

RIGHTS OF PARTNERS
cont - - 4. Right to give consent.
5. Right to retire: a partner can retire
with the consent of other partners
or according to the agreement or
by giving notice to all the
partners.

DUTIES OF PARTNERS
1. Duty to carry on Business: it is the
duty of every partner to carry on the
business of the firm for the common
advantage.
2. Duty to be just and faithful: the
partners should be faithful and just
towards the firm and towards other
partners in their actions specifically in
maintaining the firms accounts.

DUTIES OF PARTNERS cont

3. Duty to indemnify: every partner is
bound to indemnify the firm for any
loss caused to it by his conduct like
fraud or misrepresentation.
4. Duty not to transfer his shares
without the consent of other partners.

DISSOLUTION OF PARTNERSHIP
1. A firm may be dissolved with the
consent of the partners.
2. A firm is compulsorily dissolved if all
the partners except one, become
insolvent
3. If a firm is constituted for a certain
term, then it stands dissolved after
the expiry of the term.

DISSOLUTION OF PARTNERSHIP
cont
4.

a.
b.
c.
d.

A firm may be dissolved by the order

of the court if any of the partners
files a suit for the same on any of the
following grounds:
A partner has become of unsound
mind.
A partner has become insolvent
A partner has committed breach
The firm is running on losses

DISSOLUTION OF PARTNERSHIP
cont
5. Where the partnership is at will, any
partner giving notice in writing to all
the other partners may dissolve the
firm.

SETTLEMENT OF ACCOUNTS
ON DISSOLUTION
1. The partners shall pay losses, first
from their profits, next out of capital
and lastly if necessary by the partners
individually according to the
proportion of their expected profits.

SETTLEMENT OF ACCOUNTS
ON DISSOLUTION cont
2. The assets of the firm shall be applied
to pay the debts of third parties, to
pay each partner what is due to him,
the rest if any to be divided among
the partners according to the
proportion in which they were to
receive profits.