Indian Partnership Act 1932

Business Law

1. Aji R Lal
ChinduRaj
Rahul R G
Indian Partnership Act,1932
Indian Partnership Act,1932

2. Meaning & Definition
PARTNERSHIP
AccordingtoTheIndian
PartnershipAct1932
“Partnership
istherelationbetween
twoormorepersonswho
haveagreedtosharethe
profitsofabusiness
carriedonbyallofthem
oranyofthemactingfor
all”.
Definition
Simply speaking, a
partnership is an
association of persons who
conduct some business
activity and agree to share
profits earned out of it.
Meaning
21

3. ‘Partner’ ‘Firm’ and ‘Firm Name
PARTNERS’are
collectively
‘FIRM
Firm
1
Partner
The name under
which their
business is carried
on is called the
‘FIRM NAME’
Firm Name
Persons who
have agreed into
partnership with
one another are
called individually
PARTNER
32
Section 4 of Indian Partnership Act, 1932 provides that

4. Thepartnershipisaresultofacontractoran
agreementthatisenteredintobetweenthepartners.It
doesnotarisefrombirth,statusorinheritanceor
succession.Theagreementbetweenthepartnersismaybe
inoralorwritten,theore;agreementisknownas
PartnershipDeed
The contract or agreement between the persons may be oral or
written. But usually, the contract is in writing.
Thepersonswhoformapartnershipmustbe
competentormusthavethecapacitytoenterintocontract.
Personswhodonothavethecapacitytoenterintocontract
suchasminors,insolvents,lunatics(personswithunsound
mind)cannotbecomepartners.
Characteristics of a Partnership firm
Competence to
enter into
contract
Nature of
agreement
Agreement

5. Toformapartnershipatleasttwopersonsare
required.Themaximumnumberofpartnersis
limitedto20,incaseofgeneraltypeofbusiness
and10,incaseofbankingbusiness.
Theagreementbetweenpartnersmustbetocarryon
somebusinesswhichincludesalllawfultrade,
occupationorprofession.Hence,thepresenceofa
businessisamustanditdoesnotcoveranyclubor
charitableassociation
Theagreementbetweenthepartnersmustbefor
makingprofitsandsharingtheprofitsamong
themselves.
Thepartnerssharetheprofitsintheagreed
proportions.
Characteristics of a Partnership firm
Sharing of
profits
Presence of
business
Number of
partners

6. Eachpartneractsintwocapacities,i.e.heisbotha
principalandagent.Asanagent,hecanbindtheother
partnersbyhisactsandasaprincipal;heisboundby
theactsofotherpartners.
Thepartnershipbusinesscanbecarriedonby
allthepartnersorbyanyoneormoreacting
forall.
Theliabilityofpartnersisunlimited.Ifthefirmfails
tosatisfyitsdebt,eachpartnerisliabletorepayout
ofhispersonalassets.
Characteristics of a Partnership firm
Unlimited
liability
Management
Principal-
Agent
relationship

7. Apartnercannot,withouttheconsentof
otherpartners,transferhisinterestinthe
firmtoanoutsider.
Each partner is a joint owner of the property of the firm and
hence, in the eyes of law the firm and the partners are
considered to be one and the same. Partnership has no
separate existence apart from the partners composing it.
The essence of partnership is based on the spirit of co-
operation. Hence there should be mutual trust and
mutual co-operation among partners.
Characteristics of a Partnership firm
Team
spirit
Joint
ownership
Non-transfer
ability of
interest

8. Kinds of Partners
3
Anominalpartnerisonewhodoesnothaveanyrealinterestinthebusinessbutlendshisname
tothefirm,withoutanycapitalcontributions,anddoesn’tsharetheprofitsofthebusiness.He
alsodoesnotusuallyhaveavoiceinthemanagementofthebusinessofthefirm,butheisliable
tooutsidersasanactualpartner.
Nominal Partner
Apersonwhotakesactiveinterestintheconductandmanagementofthebusinessofthefirmis
knownasactiveormanagingpartner
Active partner
1
Asleepingpartnerisapartnerwho‘sleeps’,thatis,hedoesnottakeactivepartinthe
managementofthebusiness.Suchapartneronlycontributestothesharecapitalofthefirm
Sleeping partner
2
4
If a person, by his words or conduct, holds out to another that he is a partner, he will be
stopped from denying that he is not a partner. The person who thus becomes liable to third
parties to pay the debts of the firm is known as a holding out partner.
Partner by estoppel or holding out

9. Cont….
3
Inpartnershipfirms,severalothertypesofpartnersarealsofound,namely,secretpartner
whodoesnotwanttodisclosehisrelationshipwiththefirmtothegeneralpublic.Outgoing
partner,whoretiresvoluntarilywithoutcausingdissolutionofthefirm,limitedpartnerwho
isliableonlyuptothevalueofhiscapitalcontributionsinthefirm
Other Partners
When a partner agrees with the others that he would only share the profits of the
firm and would not be liable for its losses, he is in own as partner in profits only.
Partner in profits only
1
Apartnershipiscreatedbyanagreement.Andifapartnerisincapableofenteringintoa
contract,hecannotbecomeapartner.Thus,atthetimeofcreationofafirmaminor(i.e.,a
personwhohasnotattainedtheageof18years)cannotbeoneofthepartiestothecontract.
Minor as a Partner
2

10. Kinds of Partnership

11. Whenthereisnoprovisioninpartnershipagreement(knownas
partnershipDeed,ifinwriting)for:
–Thedurationoftheirpartnership,or
–Thedeterminationoftheirpartnership,
thenthepartnershipiscalled‘PartnershipatWill’.
Specialfeatureof‘Partnershipatwill’isthatsuchpartnershipmaybe
dissolvedbyanypartnerbygivinganoticeinwritingtoallother
partnersofhisintentiontodissolvethepartnership.
Thepartnershipwillbedissolvedfromthatdatewhichismentionedin
thenoticeasthedateofdissolutionandifnodateismentionedthen
fromthedateofcommunicationofnotice.
Partnership at Will
[Sec.7 read with Sec.43)]

12. Whenapartnershipisformedfora
•Specificventureorundertaking,or
•Particularperiod(fixedterm)
thensuchpartnershipiscalleda‘particularpartnership’.
Suchpartnershipcomestoanendonthecompletionoftheventureor
theexpiryoftimeperiod.
Ifsuchpartnershipiscontinuedaftertheexpiryoftermorcompletion
ofventure,itisdeemedtobeapartnershipatwill.
Aparticularpartnershipmaybedissolvedbeforetheexpiryoftheterm
orcompletionoftheventureonlybythemutualconsentofallthe
partners.
Particular Partnership
[sec. 8]

13. Partnershipdeed
Apartnershipisformedbyanagreement.Thisagreement
maybeinwritingororal.thoughthelawdoesnotexpressly
requirethatthepartnershipagreementshouldbeinwriting,it
isdesirabletohaveitinwritinginordertoavoidanydispute
withregardtothetermsofthepartnership.Thedocument
whichcontainsthetermofapartnershipasagreedamongthe
partnersiscalled“Partnershipdeed”.
ThePartnershipDeedistobedulystampedasperthe
IndianStampAct,anddulysignedbyallthepartners.

14. Books of account
Nature of business
Name of the firm
Share of partners in profits and losses
Duration of partnership
Capital
Bank Account firm
Apartnershipdeedmaycontainanymatterrelatingtothe
regulationofpartnershipbutallprovisionsinthedeedshouldbewithin
thelimitsofIndianPartnershipAct,1932.
Contents of Partnership Deed
1
2
3
4
5
6
7

15. 1
2
3
4
5
6
7
Settlement of disputes
Dissolution of firm
Death of partner
Retirement and expulsion of partners
Powers of partners

16. Registration of
Partnership

17. Registration of Partnership
Obtaining prescribed form
Preparing statement in the prescribed form
Signing the statement
Verifying the statement
Submitting the statement with fee
Registration
Issue of certificate of registration

18. Right And Duties of Partners Subject to
Contract
(Between the Partners)

19. Right to prevent admission of a new partner
Right to take part in business
Right to access to books
Right in emergency
Right to be consulted
Right to share the profits
Right as an agent of the firm
1
2
3
4
5
6
7
8
Right not to be expelled

20. To be liable for the act of the firm
To be faithful
To give full information
Duty to share losses
To render true accounts
To indemnify for fraud
To act within authority
16
To carry on business to the greater advantage
15
14
13
12
11
10
9

21. DISSOLUTION OF A FIRM

22. Dissolution of Partnership
and Dissolution of Firm

23. Thedissolutionofpartnershipbetweenallthe
partnersofafirmiscalledthedissolutionofthe
firm.[section39].Thus,ifsomepartneris
changed/added/goesout,the‘relation’betweenthem
changesandhence‘partnership’isdissolved,butthe
‘firm’continues.However,completebreakage
betweenrelationsofallpartnersistermedas
‘dissolutionoffirm’.Aftersuchdissolution,thefirm
nomoreexists.
Cont…

24. Thus,‘Dissolutionofpartnership’is
differentfrom‘dissolutionoffirm’.
‘Dissolutionofpartnership’isonly
reconstructionoffirm,while‘dissolutionof
firm’meansthefirmnomoreexistsafter
dissolution.
Cont…

25. DissolutionofaFirm-Apartnershipfirmisan‘organization’
andlikeevery‘organ’ithastoeithergroworperish.Thus,
dissolutionofafirmisinevitablepartinthelifeofpartnershipfirm
sometimeortheother.
Cont…

26. Mode of Dissolution of Firm

28. Dissolution without the order of Court (Sec 40-43)
Dissolution by Agreement -[section 40].
Compulsory dissolution in case of insolvency -[section
41]
Dissolution on the happening on certain contingencies
[section 42]
Dissolution by notice of partnership at will[section 43(2)]
Cont…

29. Apartnermayapplytothecourtforgettingthefirmdissolved.Ongettingsuchapplication
byanyofthepartnerthecourtmayproceedtoorderthedissolutionofthefirminthefollowing
circumstances:
1)Ifanyofthepartnerbecomesofunsoundmind
2)Ifapartner,otherthanthepartnerfilingthesuitisguiltyofintentionallyandpersistently
committingabreachofthepartnershipagreement.
3)Ifapartner,otherthanthepartnerfilingthesuithastransferredwholeofhisinterestinthefirm
toathirdpartywithouttheconsentoftheotherpartners.
4)Ifapartner,otherthanthepartnerfilingthesuitisguiltyofmisconduct.
5)Ifapartner,otherthanthepartnerfilingthesuithasbecomedisabledtoperformhisdutiesasa
partner.
6)Ifthecourtissatisfiedthatthebusinessofthefirmcannotbecarriedonexceptaloss.
7)Ifthecourtconsidersitjustandequitabletodissolvethefirmduetosomeotherreasons
By the Order of the Court

30. 1) If all the partners are willing and hereby agree to dissolve the
firm.
2) In the following circumstances:
a) On the death of any partner.
b) If any partner becomes insolvent.
c) On the expiry of the duration of the firm.
d) On the completion of the venture.
Without the Intervention of the Court.