LAW OF PARTNERSHIP Essentials Rights and Duties of

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 company’s 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 firm’s 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.