8. HINDU UNDIVIDED FAMILYHINDU UNDIVIDED FAMILY: A : A
Karta of the Hindu undivided family Karta of the Hindu undivided family
can become a partner in a can become a partner in a
partnership in his individual capacity, partnership in his individual capacity,
provided the member has provided the member has
contributed his self acquired or contributed his self acquired or
personal skill and labour personal skill and labour
11. NUMBER OF PARTNERSNUMBER OF PARTNERS
The number of partners in a firm The number of partners in a firm
shall not exceed 20 and a shall not exceed 20 and a
partnership having more than 20 partnership having more than 20
persons is illegal. persons is illegal.
If the partnership is between the If the partnership is between the
karta or member of Hindu undivided karta or member of Hindu undivided
family the members of the joint family the members of the joint
Hindu family will not be taken into Hindu family will not be taken into
account.account.
12. ESSENTIALS OF AESSENTIALS OF A
PARTNERSHIPPARTNERSHIP
AGREEMENTAGREEMENT - The relationship - The relationship
between partners arises from between partners arises from
contract and not status. If after the contract and not status. If after the
death of sole proprietor of a firm, his death of sole proprietor of a firm, his
heirs inherit firm they do not become heirs inherit firm they do not become
partners, as there is no agreement partners, as there is no agreement
between them between them
13. SHARING OF PROFITSSHARING OF PROFITS – The – The
partners may agree to share profits partners may agree to share profits
out of partnership business, but not out of partnership business, but not
share the losses. Sharing of losses is share the losses. Sharing of losses is
not necessary to constitute the not necessary to constitute the
partnership. The partners may agree partnership. The partners may agree
to share the profits of the business in to share the profits of the business in
any way they like. any way they like.
15. RELATION BETWEEN PARTNERSRELATION BETWEEN PARTNERS– –
The partner while carrying on the The partner while carrying on the
business of the partnership acts a business of the partnership acts a
principle and an agent. He is a principle and an agent. He is a
principal because he acts for himself, principal because he acts for himself,
and he is an agent as he and he is an agent as he
simultaneously acts for the rest of simultaneously acts for the rest of
the partners.the partners.
16. GENERAL DUTIES OF AGENERAL DUTIES OF A
PARTNERPARTNER
Subject to a contract to the contrarySubject to a contract to the contrary
between the partners the following are thebetween the partners the following are the
duties of a partner.duties of a partner.
To carry on the business of the firm to theTo carry on the business of the firm to the
greatestgreatest common advantagecommon advantage. Good faith. Good faith
requires that a partner shall not obtain arequires that a partner shall not obtain a
private advantage at the expense of theprivate advantage at the expense of the
firm.firm.
17. Where a partner carries on a rivalWhere a partner carries on a rival
business in competition with thebusiness in competition with the
partnership, the other partners arepartnership, the other partners are
entitled to restrain him.entitled to restrain him.
18. To beTo be just and faithfuljust and faithful. Partnership. Partnership
as a rule is presumed to be based onas a rule is presumed to be based on
mutual trust and confidence of eachmutual trust and confidence of each
partner, not only in the skill andpartner, not only in the skill and
knowledge, but also in the integrity,knowledge, but also in the integrity,
of each other partnerof each other partner
19. To renderTo render true accounts and fulltrue accounts and full
informationinformation of all things done byof all things done by
them to their co-partners.them to their co-partners.
ToTo indemnify for loss caused byindemnify for loss caused by
fraudfraud. Every partner shall indemnify. Every partner shall indemnify
the firm for loss caused to it by histhe firm for loss caused to it by his
fraud in the conduct of the businessfraud in the conduct of the business
of the firm.of the firm.
20. Not to carry on businessNot to carry on business
competing with the firmcompeting with the firm. If a. If a
partner carries on any business ofpartner carries on any business of
the same nature as and competingthe same nature as and competing
with that of the firm, he shallwith that of the firm, he shall
account for and pay to the firm allaccount for and pay to the firm all
profits made by him in that business.profits made by him in that business.
21. ToTo indemnify the firm for willfulindemnify the firm for willful
neglectneglect of a partner. A partner shallof a partner. A partner shall
indemnify the firm for any lossindemnify the firm for any loss
caused to it by his willful neglect incaused to it by his willful neglect in
the conduct of the business of thethe conduct of the business of the
firm.firm.
22. ToTo carry out the dutiescarry out the duties created bycreated by
the contract. The partners are boundthe contract. The partners are bound
to perform all the duties created byto perform all the duties created by
the agreement between the partners.the agreement between the partners.
23. RIGHTS OF THE PARTNERSRIGHTS OF THE PARTNERS
Subject to a contract to theSubject to a contract to the
contrary a partner has thecontrary a partner has the
following rights.following rights.
To take part in the conduct andTo take part in the conduct and
management of the businessmanagement of the business
To express opinion in mattersTo express opinion in matters
connected with the business. He hasconnected with the business. He has
a right to be consulted and heard ina right to be consulted and heard in
all matters affecting the business ofall matters affecting the business of
the firmthe firm
24. To have free access to all theTo have free access to all the
records, books of account of the firmrecords, books of account of the firm
and take copy from them.and take copy from them.
To share in the profits of theTo share in the profits of the
business. Every partner is entitled tobusiness. Every partner is entitled to
share in the profits in proportionshare in the profits in proportion
agreed to between the parties.agreed to between the parties.
25. To get interest on the payment ofTo get interest on the payment of
advance. Where a partner makes for theadvance. Where a partner makes for the
purpose of the business, any payment orpurpose of the business, any payment or
advance beyond the amount of capital headvance beyond the amount of capital he
has agreed to subscribe, he is entitled tohas agreed to subscribe, he is entitled to
interest thereon at the rate of 6% perinterest thereon at the rate of 6% per
annum.annum.
To be indemnified by the firm againstTo be indemnified by the firm against
losses or expenses incurred by him for thelosses or expenses incurred by him for the
benefit of the firm.benefit of the firm.
26. RESTRICTIONS ON AUTHORITY OFRESTRICTIONS ON AUTHORITY OF
A PARTNER -A PARTNER -Restrictions are governedRestrictions are governed
byby ContractContract and by theand by the PartnershipPartnership
Act .Act .
The partners may by contract extend orThe partners may by contract extend or
restrict the implied authority of anyrestrict the implied authority of any
partner.partner.
27. Under the Partnership Act in theUnder the Partnership Act in the
absence of any usage of trade to theabsence of any usage of trade to the
contrary, the implied authority of acontrary, the implied authority of a
partner does not empower him to dopartner does not empower him to do
the following acts:the following acts:
Submit a dispute relating to theSubmit a dispute relating to the
business of a firm to arbitrationbusiness of a firm to arbitration
Open a bank account in his ownOpen a bank account in his own
namename
28. Compromise or relinquish any claimCompromise or relinquish any claim
of the firmof the firm
Withdraw a suit or proceeding onWithdraw a suit or proceeding on
behalf of the firmbehalf of the firm
Admit any liability in a suit orAdmit any liability in a suit or
proceeding against the firmproceeding against the firm
29. Acquire immovable property onAcquire immovable property on
behalf of the firmbehalf of the firm
Transfer immovable propertyTransfer immovable property
belonging to the firm, orbelonging to the firm, or
Enter into partnership on behalf ofEnter into partnership on behalf of
the firm.the firm.
30. RIGHTS OF A MINORRIGHTS OF A MINOR
A person who is a minor accordingA person who is a minor according
to the law to which he is subjectto the law to which he is subject
may not be a partner in a firm, but,may not be a partner in a firm, but,
with the consent of all the partnerswith the consent of all the partners
for the time being, he may befor the time being, he may be
admitted to the benefits ofadmitted to the benefits of
partnership.partnership.
31. Such minor has a right to such shareSuch minor has a right to such share
of the property and of the profits ofof the property and of the profits of
the firm as may be agreed upon, andthe firm as may be agreed upon, and
he may have access to and inspecthe may have access to and inspect
and of the accounts of the firmand of the accounts of the firm
32. Such minor’s share is liable for theSuch minor’s share is liable for the
acts of the firm, but the minor is notacts of the firm, but the minor is not
personally liable for any such act.personally liable for any such act.
Such minor may not sue the partnersSuch minor may not sue the partners
for an account or payment of hisfor an account or payment of his
share of the property or profits of theshare of the property or profits of the
firmfirm
33. At any time within six months of hisAt any time within six months of his
attaining majority, or of his obtainingattaining majority, or of his obtaining
knowledge that he had been admitted toknowledge that he had been admitted to
the benefits of partnership, whichever datethe benefits of partnership, whichever date
is later, such person may give public noticeis later, such person may give public notice
that he has elected to become or not tothat he has elected to become or not to
become a partner in the firm, and suchbecome a partner in the firm, and such
notice shall determine his position asnotice shall determine his position as
regards the firm, provided that, if he failsregards the firm, provided that, if he fails
to give such notice, he shall become ato give such notice, he shall become a
partner in the firm on the expiry of thepartner in the firm on the expiry of the
said six months.said six months.
34. Where any person has been admittedWhere any person has been admitted
as a minor to the benefits ofas a minor to the benefits of
partnership in a firm, the burden ofpartnership in a firm, the burden of
proving the fact that such personproving the fact that such person
had no knowledge of such admissionhad no knowledge of such admission
until a particular date after theuntil a particular date after the
expiry of six months of his attainingexpiry of six months of his attaining
majority shall lie on the personmajority shall lie on the person
asserting that factasserting that fact
35. Where such person becomes aWhere such person becomes a
partner-partner-
his rights and liabilities as a minorhis rights and liabilities as a minor
continue upto the date on which hecontinue upto the date on which he
becomes a partner, but he alsobecomes a partner, but he also
becomes personally liable to thirdbecomes personally liable to third
parties for all acts of the firm doneparties for all acts of the firm done
since he was admitted to the benefitssince he was admitted to the benefits
of the partnership, andof the partnership, and
36. his share in the property and profitshis share in the property and profits
of the firm shall be the share toof the firm shall be the share to
which he was entitled as a minorwhich he was entitled as a minor
37. Where such person elects not toWhere such person elects not to
become a partner-become a partner-
his rights and liabilities shall continuehis rights and liabilities shall continue
to be those of a minor upto the dateto be those of a minor upto the date
on which he gives public notice,on which he gives public notice,
his share shall not be liable for anyhis share shall not be liable for any
acts of the firm done after the dateacts of the firm done after the date
of the notice, andof the notice, and
he shall be entitled to sue thehe shall be entitled to sue the
partners for his share of the propertypartners for his share of the property
and profits.and profits.
38. DISSOLUTION OF A FIRMDISSOLUTION OF A FIRM
A firm may be dissolved in theA firm may be dissolved in the
following mannerfollowing manner
Dissolution by CourtDissolution by Court
Dissolution by agreementDissolution by agreement
Dissolution by operation of lawDissolution by operation of law
Dissolution on the happening ofDissolution on the happening of
certain contingenciescertain contingencies
Dissolution by noticeDissolution by notice
39. DISSOLUTION BY COURTDISSOLUTION BY COURT
The court may dissolve a firm at the suitThe court may dissolve a firm at the suit
of any partners on any of the followingof any partners on any of the following
grounds namely :grounds namely :
INSANITY OF A PARTNERINSANITY OF A PARTNER: that a partner: that a partner
has become of unsound mind. The insanityhas become of unsound mind. The insanity
of a partner does not ipso facto dissolveof a partner does not ipso facto dissolve
the firm and the next friend or continuingthe firm and the next friend or continuing
partners has to file suit foe dissolution.partners has to file suit foe dissolution.
40. PERMANENT INCAPACITY OF A PARTNERPERMANENT INCAPACITY OF A PARTNER::
that a partner has become permanentlythat a partner has become permanently
incapable of performing his duties asincapable of performing his duties as
partner.partner.
CONDUCT AFFECTING PREJUDICIALLY THECONDUCT AFFECTING PREJUDICIALLY THE
BUSINESSBUSINESS : that a partner is guilty of: that a partner is guilty of
conduct, which is likely to affectconduct, which is likely to affect
prejudicially the carrying on the businessprejudicially the carrying on the business
of the firm.of the firm.
41. BREACH OF PARTNERSHIP AGREEMENTBREACH OF PARTNERSHIP AGREEMENT
that a partner willfully or persistentlythat a partner willfully or persistently
commits breach of agreements relating tocommits breach of agreements relating to
the management of the affairs of the firmthe management of the affairs of the firm
or the conduct of it’s business or otherwiseor the conduct of it’s business or otherwise
conducts himself in matters relating to theconducts himself in matters relating to the
business, that it is not reasonably practicalbusiness, that it is not reasonably practical
for the other partners to carry on thefor the other partners to carry on the
business with him.business with him.
42. TRANSFER OF INTEREST OF A PARTNER :TRANSFER OF INTEREST OF A PARTNER :
that a partner has in any way transferredthat a partner has in any way transferred
the whole of his interest in the firm to athe whole of his interest in the firm to a
third party.third party.
LOSSLOSS: that the business of the firm cannot: that the business of the firm cannot
be carried on save at a lossbe carried on save at a loss
JUST AND EQUITABLEJUST AND EQUITABLE : on any other: on any other
ground that renders it just an equitableground that renders it just an equitable
that the firm should be dissolvedthat the firm should be dissolved
43. DISSOLUTION BY AGREEMENTDISSOLUTION BY AGREEMENT
A firm may be dissolved with theA firm may be dissolved with the
consent of all the partners or inconsent of all the partners or in
accordance with the contractaccordance with the contract
between the partners. Thebetween the partners. The
partnership agreement may containpartnership agreement may contain
a proviso that the firm will bea proviso that the firm will be
dissolved on the happening of certaindissolved on the happening of certain
contingencycontingency
44. DISSOLUTION BY OPERATION OFDISSOLUTION BY OPERATION OF
LAWLAW
A firm is compulsorily dissolved onA firm is compulsorily dissolved on
the following groundsthe following grounds
Insolvency of partnersInsolvency of partners
By the happening of any event whichBy the happening of any event which
makes it unlawful for the business ofmakes it unlawful for the business of
the firm to e carried on.the firm to e carried on.
45. DISSOLUTION ON THEDISSOLUTION ON THE
HAPPENING OF CERTAINHAPPENING OF CERTAIN
CONTINGENCIESCONTINGENCIES
Subject to contract between theSubject to contract between the
partners a firm is dissolved on thepartners a firm is dissolved on the
happening of the followinghappening of the following
contingencies.contingencies.
If constituted for a fixed term, by theIf constituted for a fixed term, by the
expiry of that termexpiry of that term
46. If constituted to carry out one orIf constituted to carry out one or
more adventures or undertakings, bymore adventures or undertakings, by
its completion.its completion.
By the death of a partnerBy the death of a partner
On insolvency of a partnerOn insolvency of a partner
47. DISSOLUTION BY NOTICEDISSOLUTION BY NOTICE
If the partnership is at will, the sameIf the partnership is at will, the same
may be dissolved by service of amay be dissolved by service of a
notice by one partner to dissolve thenotice by one partner to dissolve the
firm.firm.
48. REGISTRATIONREGISTRATION
It is not compulsory to register theIt is not compulsory to register the
firm. However there are seriousfirm. However there are serious
effects of non-registration.effects of non-registration.
49. No suit to enforce a right arisingNo suit to enforce a right arising
from a contract or conferred by thefrom a contract or conferred by the
Indian Partnership Act shall beIndian Partnership Act shall be
instituted in any court by or oninstituted in any court by or on
behalf of any person suing as partnerbehalf of any person suing as partner
in a firm against the firm or anyin a firm against the firm or any
person alleged to be or to have beenperson alleged to be or to have been
a partner in the firm, unless the firma partner in the firm, unless the firm
is registered and the person suing isis registered and the person suing is
or has been shown on the Register ofor has been shown on the Register of
firms as a partner in the firmfirms as a partner in the firm
50. Similarly, no suit to enforce a rightSimilarly, no suit to enforce a right
rising from a contract shall berising from a contract shall be
instituted in any court by or oninstituted in any court by or on
behalf of a firm against any thirdbehalf of a firm against any third
party unless the firm is registered.party unless the firm is registered.
51. PROCEDURE FOR REGISTRATIONPROCEDURE FOR REGISTRATION TheThe
registration of a firm may be effected atregistration of a firm may be effected at
any time by sending by post or deliveringany time by sending by post or delivering
to the Registrar of Firms of the area into the Registrar of Firms of the area in
which any place of business of the firm iswhich any place of business of the firm is
situated or proposed to be situated, asituated or proposed to be situated, a
statement in the prescribed form andstatement in the prescribed form and
accompanied by the prescribed fee,accompanied by the prescribed fee,
stating :stating :
the firm namethe firm name
52. the place or principal place ofthe place or principal place of
business of the firm;business of the firm;
the names of any other places wherethe names of any other places where
the firm carries on business;the firm carries on business;
the date when each partner joinedthe date when each partner joined
the firm;the firm;
53. the names in full and permanentthe names in full and permanent
addresses of the partners; andaddresses of the partners; and
the duration of the firm.the duration of the firm.
54. The statement shall be signed by allThe statement shall be signed by all
the partners or by their agentsthe partners or by their agents
specially authorised in this behalf.specially authorised in this behalf.
Each person signing the statementEach person signing the statement
shall also verify in the mannershall also verify in the manner
prescribed.prescribed.
55. A firm name shall not contain any ofA firm name shall not contain any of
the following words viz. "Crown",the following words viz. "Crown",
‘Emperor", "Empress", "Empire",‘Emperor", "Empress", "Empire",
"Imperial", "King", "Queen", "Royal","Imperial", "King", "Queen", "Royal",
or words expressing or implying theor words expressing or implying the
sanction, approval or patronage ofsanction, approval or patronage of
Government, except when the StateGovernment, except when the State
Government signifies its consent toGovernment signifies its consent to
the use of such words as part of thethe use of such words as part of the
firm name by order in writing.firm name by order in writing.
56. All the States have framed rulesAll the States have framed rules
prescribing the forms, fee forprescribing the forms, fee for
registration and verification of theregistration and verification of the
statement. The application forstatement. The application for
registration has to be made to theregistration has to be made to the
Registrar of Firms in the prescribedRegistrar of Firms in the prescribed
formform
57. When the Registrar is satisfied thatWhen the Registrar is satisfied that
the provisions have been compliedthe provisions have been complied
with, he shall record and entry of thewith, he shall record and entry of the
statement in a register called thestatement in a register called the
Register of Firms and shall file theRegister of Firms and shall file the
statement. The Registrar is thestatement. The Registrar is the
competent authority and if he actscompetent authority and if he acts
bona fide and follows the procedure,bona fide and follows the procedure,
his satisfaction cannot be challenged.his satisfaction cannot be challenged.
58. CHECKLIST FOR DRAFTING ACHECKLIST FOR DRAFTING A
PARTNERSHIP DEEDPARTNERSHIP DEED
A partnership deed should containA partnership deed should contain
the following clausesthe following clauses
Name of the partiesName of the parties
Nature of businessNature of business
59. Duration of partnershipDuration of partnership
Name of the firmName of the firm
CapitalCapital
Share of partners in profits andShare of partners in profits and
losseslosses
Banking, Account firmBanking, Account firm
Books of accountBooks of account
60. Powers of partnersPowers of partners
Retirement and expulsion of partnersRetirement and expulsion of partners
Death of partnerDeath of partner
Dissolution of firmDissolution of firm
Settlement of disputesSettlement of disputes
