Indian Partnership Act 1932 Essential Elements of Partnership

Indian Partnership Act, 1932

Essential Elements of Partnership a) Two or more b) Agreement persons c) Sharing of d) Business Profits e) Mutual Agency

TEST OF PARTNERSHIP [SECTION 6] Cases where the Partnership Relation does not exist a) Joint owners of some property sharing profits or gross returns arising from the property [Leading case: ; Govind Nair v. Maga] b) Persons sharing the profits but not having mutual agency Mollow March & Co. v. The Court of Wards Ø A widow or child of deceased partner who receives a share of profits Ø A servant or an agent who receives a share of profits as part of his remuneration; and [Munshi Abdul Latif v. Gopeshwar Chattoraj]

Distinction between Partnership And Co-Ownership Basis of distinction 1. 2. 3. 4. 5. Agreement Business Profit and loss Mutual agency Name of the persons involved 6. 7. 8. 9. Maximum Limit Transfer of Interest Right to claim partition Lien on property

Partnership and Hindu Undivided Family (HUF) 1. 2. 3. 4. 5. 6. Agreement Regulating Law Name of the persons involved Maximum Limit Admission of new members Minor members 7. 8. 9. 10. 11. Female members Implied Authority Liability of members Right to demand accounts Effect of death of a member

PARTNERSHIP AND COMPANY Basis of distinction 1. Legal Entity 6. Agency 2. Liability 7. Distribution of profits 3. Tenure 8. Management 4. Number of members 9. Property 5. Transfer of interest 10. Audit

PARTNERSHIP AND CLUB Basis of distinction 1. Objects 2. Number of members 3. Tenure 4. Agency

REGISTRATION Is the Registration of Firm Compulsory? a) No suit by a partner against the firm or the other partner [Section 69(1)] b) No suit by the firm against third parties [Section 69(2)] c) No right to claim set off in excess of Rs. 100 [Section 69(3)]

Rights not Affected by Non-registration a) Rights of unregistered firm or partners thereof Right of a firm or partner of a firm having no place of business in India i. Right to file a suit or claim of set-off if the value of suit does not exceed Rs. 100 [Section 69(4)(b)] ii. Right of a partner to sue a) For the dissolution of the firm b) For the accounts of a dissolved firm c) For claiming share of the assets of a dissolved firm [Section 69(3)(a)] b) Right of a third party to file a suit against the unregistered firm or partners thereof c) Power of an Official Assignee or Receiver or Court to realise the property of an insolvent partner [Section 69(3)(b)]

Types Of Partners Sub-Partner Actual or Ostensible partner Sleeping or Partner by Dormant partner Estoppel Partners in profits only

Partners by Estoppel or Holding out [Section 28(1) He must have represented himself to be a partner by word spoken or written or by his conduct The other person acting on the faith of such representation must have given credit to the firm. It is immaterial whether the person so representing to be a partner, is aware or not that the representation has reached the other person

Position of Minor as a partner Ø Rights He has the right to share the profits and property of the firm in accordance with the agreement. v He has the right to have access to, and inspect and copy, any of the accounts of the firm. v He has the right to file a suit for his share of profits or the property of the firm when he is not given his due share of profits. However, he can exercise this right only when he decides to severe his connections with the firm v

ØLiabilities He is liable only to the extent of his share in his profits and the property of the firm. He is not personally liable to the third parties v He cannot be declared insolvent upon declaration of firm’s insolvency. v His share vests in the official receiver or Official Assignee. v

Absolute duties Of Partner To attend diligently To equally contribute to the losses. To indemnify the firm To hold and use firm’s property for business purposes To account for and pay the personal profits from transactions of firm etc. To account for and pay the personnel profits from a competing business

Rights Of Partner Right to take part Right to express opinion Right to have access to book Right to share profits equally Right to claim interest on advances Right to be indemnified Right to prevent the introduction of a new partner Right to retire

Right not to be expelled Right to carry on competing business Right to share Subsequent profits Right to dissolve the partnership

Liabilities of partner to third parties Liability of a partner for acts of the firm Liability of the firms Liability of the for wrongful acts of firm for partners misappropriation by partners

Authority Implied ü Act should be done for carrying the business ü In the firm name ü In the usual way Express

Implied authority is available for the following acts A. Buying and selling of gods, on behalf of the firm, in which the firm deals; B. Receiving payments of the debts due to the firm and giving valid receipts for them C. Contracting debts and paying debts on behalf of the firm D. Setting accounts with person dealing with the firm.

E. F. G. H. Employing the servants for the partnership firm. Drawing cheques, accepting or endorsing bills of exchange and promissory notes in the name of the firm Pledging movable property of the firm Suing on behalf of the firm and defending suits in the name of the firm

Implied authority is not available for the following A. Submit a dispute relating to the business of the firm to arbitrations B. Open a banking account on behalf of the firm in his own name C. Compromise or relinquish any claim or portion of a claim by the firm. D. Withdraw a suit or proceedings filed on behalf of the firm E. Acquire immovable property belonging to the firm F. Transfer immovable property belonging to the firm or G. Enter into partnership on behalf of the firm

Reconstitution of a firm (or) Dissolution of partnership Introduction of a partner Liability of a incoming partner for firm’s acts done before his admission Retirement of a partner Expulsion of a partner Insolvency of a partner Death of a partner

Dissolution of firm By Agreement By Notice By Court By Contingency By Compulsion Insanity Permanent incapacity Misconduct Persistent breach of agreement Transfer of interest Continuous losses Just and equitable

Public Notice [Section 72] When a public notice is required to be given On the retirement or expulsion of a partner On the dissolution of the firm On the election to become or not to become a partner by a minor on his attaining majority

When a public notice is not to be given A public notice is not to be given in the following two cases On the death of a partner On the insolvency of a partner