Module IV

• The Indian Partnership Act 1932 – The limited

Liability Partnership act 2008 , Sole proprietorship
• Partnership laws were contained in Chapter XI
of the Indian Contract Act

• These were inadequate

• Redrafted on 1st October 1932.

• Registration of firms are its special feature

 Definition of Partnership
• Sec 4 of the Act defines partnership as
“the relation between the persons who have
agreed to share the profits of a business carried
on by all or any of them acting for all”
 Partners
• Two essential conditions to become a partner

1. There must be an agreement to share the profits

of a business

2. The business must be carried on by all or any of

the partners acting for all.
 Terms of partnership
• Partnership
• Partner
• Firm
• Firm name
– It must not select a name which implies that their
business is the same as that of competing concern
– Do not use the word like “President, Royal etc
 Essentials of Partnership
1. Association of two or more persons
– Minimum no: 2, Maximum :10 in case of banking
business and 20 in other business
2. Agreement
– An agreement expressed or implied
3. Business
4. Profits
5. Mutual agency
6. Competency for becoming partner
Difference
Points of difference
between
PARTNERSHIP
Partnership
HUF
and HUF
1. Creation Created by an agreement Created by operation of
law

2.Management Every partner can Only Karta or manager

participate in management

3. Death of a member Dissolves the firm Does not dissolve the firm

4. Liability Each partner is personally Only Karta is personally

liable for the debts of a liable
firm

5. Books of accounts A partner can demand A co-parcener cannot

accounts of a firm demand an account of past
dealings

6.Capacity to become A minor cannot become a A minor becomes a co-

member partner parcener by birth
 Partnership property
1. Property brought in by the partners
2. Property acquired by purchase
3. Property acquired by partners on behalf of
business
4. Goodwill of the firm
 Partnership deed
• The written document in which the terms of partnership are
incorporated

• The matters included in the Deed are

– Name and address of partners

– Firm name, place and address

– Nature of business and duration

– Mode of dissolution

– Amount of capital contributed by each partner

– Share of profit

– The mode of management

– Powers of partner

– Terms on which a partner can retire

– Expulsion of partners,

– introduction of new partners

 Types of partnership
1. Partnership for a fixed term

2. Partnership at will

3. Particular partnership

4. General Partnership
 Registration of Firms
1. Mode of Registration (Sec 57 to 67)
– It is very simple

– By posting or delivering to the Registrar of Firms, a statement in

prescribed form and fee stating
• Firm name
• Place of business
• Name and address of partners
• Duration of firm

– On receipt of this statement and fees if all the provisions are duly
complied ,registrar will make an entry in the Register of firms

– Registrar then issues a certificate of registration

 Consequences of non-registration of firms

1. A partner of an unregistered firm cannot file a suit

against the firm or any partner

2. No suit can be filed on behalf of unregistered firm

against any third party

3. An unregistered firm cannot claim a setoff in a suit.

 Rules of Partnership
A. Rules for determining mutual relations

B. Rules relating to rights of partners

C. Rules relating to duties of partners

D. Rules determining relation of partners to third parties

E. Rules relating to the liability of partners to third

parties
 A. Rules for determining mutual relations

1. Partners are bound to carry on business of the

firm to the greatest common advantage,

2. to be just and faithful to each other and to render

true accounts

3. Every partner shall indemnify the firm for any loss

caused to it by his fraud
 B. Rules relating to rights of partners

1. To take part in the conduct of business

2. No change in the nature of business can be made

without the consent of all the partners

3. Right to inspect books of the firm

4. Not entitled to receive interest on capital but entitled

to receive interest on loans provided by him

5. Equal share of profits if there is no agreement

6. Entitled to indemnify

7. Property of the firm is the property of partners

8. No new partners can be introduced into the firm without the

consent of all partners

9. A partner has the right to retire from the firm with the
consent of all partners

10.A partner cannot be expelled except in special circumstances

 C. Rules relating to duties of a partner

1. To carry on business to greatest common

advantage
2. Every partner should be just and faithful to each
other
3. Every partner has to render true accounts
4. Every partner is required to make full disclosure
5. Every partner is bound to indemnify the firm for
any loss caused to it by his act
D. Duties determining relation of partners to third
parties
• Any act done by a partner binds the firm
E. Rules relating to the liability of partners to
third parties

1. Liability of a partner for acts of the firm

2. Liability of a firm for wrongful acts of a partner

3. Liability of firm for misapplication by partners