The Indian Partnership Act, 1932 - Part I.pptx

This presentation on “The Indian Partnership Act – Part I” provides a comprehensive overview of the key concepts and principles governing partnerships in India. It explains the meaning and definition of partner, partnership, firm, and firm name, along with the essential elements of a valid partnership. The PPT also highlights the differences between partnership and other forms of business organizations such as Joint Stock Company, Hindu Undivided Family (HUF), and Clubs/Associations.

Designed for commerce, management, and law students, the presentation simplifies complex legal ideas through clear points, practical examples, and comparison tables, making it ideal for classroom learning or self-study.

Key Highlights:

Overview of the Indian Partnership Act, 1932

Meaning and definition of partner, partnership, and firm

Essentials of a valid partnership

Comparison with Joint Stock Company, HUF, and Clubs/Associations

Illustrative examples and summary slides

1. The Indian Partnership Act, 1932 By Ms. C. Keerthana Assistant Professor Department of Commerce RM Sri Ramakrishna College of Arts and Science

2. Background and Introduction The Indian Partnership Act, 1932 governs partnership firms in India. Before 1932, provisions relating to partnerships were included in the Indian Contract Act, 1872 (Sections 239–266). Due to the growing importance of partnership as a form of business organization, a separate legislation was enacted – The Indian Partnership Act, 1932 . The Act came into force on 1st October, 1932 . It extends to the whole of India except the erstwhile state of Jammu & Kashmir (before 2019).

3. Partnership Essence: It is an agreement-based relationship between two or more persons to run a business together with the intention of earning profit. Key Ingredients: Agreement (not by status, but by contract) Business (trade, occupation, profession with continuity) Profit-sharing (not necessarily loss-sharing, but usually implied) Mutual agency – any partner can bind the firm and the others.

4. Partners Persons who enter into a partnership with one another are individually called partners . Each partner is both: A principal (for his own acts), and An agent (for the acts of other partners).

5. Firm and Firm name Collectively, partners are called a firm . Example: If A, B, and C are in partnership, the partnership as a whole is referred to as a firm . The name under which the business of the firm is carried on is called the firm name . It may be: Based on partners’ names (e.g., Shah & Mehta & Co. ), or A trade name (e.g., Bright Traders ). Note: Unlike a company, a firm is not a separate legal entity — it has no existence apart from its partners.

6. Term Definition (as per Act) Explanation / Key Point Example Partnership “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.” It is the relationship created by contract among persons to do business together, share profits, and accept mutual agency. A, B, and C agree to start a textile business and share profits. Partner Persons who have entered into partnership with one another are individually called partners. Each member of the partnership is a partner . They act as both agents and principals for each other. A, B, and C are the partners in the textile business. Firm The collective name for the partners in a partnership. A firm is not a separate legal entity (unlike a company). It is simply all the partners together. A, B, and C together are known as ABC Traders (the firm). Firm Name The name under which the firm carries on its business. A trade/business name chosen by the partners. Can be descriptive, based on names, or a brand name. ABC Traders is the firm name under which the business operates.

7. Elements of Partnership The definition of partnership under Section 4 contains several essential elements . Unless all these are present, there is no valid partnership. 1. Agreement between Persons Partnership arises only from contract , not from status. Example: A Hindu Undivided Family (HUF) or co-ownership of property is not a partnership because it is not based on agreement. The agreement may be oral or written (usually written in a Partnership Deed).

8. 2. Minimum and Maximum Number of Persons Minimum: Two persons are required. Maximum: 10 persons in case of banking business 20 persons in case of other businesses (beyond this, it must be registered as a company under the Companies Act). 3. Existence of Business There must be a business activity – trade, occupation, or profession. The objective should be to carry on continuously and not just a one-time venture. Example: Two people jointly purchasing property for personal use is not a partnership.

9. 4. Sharing of Profits The agreement must provide for sharing of profits among the partners. Loss-sharing may not be explicitly mentioned, but is generally implied. Mere sharing of profits does not automatically create partnership (e.g., lenders or agents receiving commission linked to profit are not partners). 5. Mutual Agency (True Test of Partnership) The real test of partnership. Each partner is both: A principal (for his own acts), and An agent (for acts of other partners). If one partner can bind the firm by his acts in the ordinary course of business, mutual agency exists. Example: In Cox v. Hickman (1860) , the court held that sharing of profits is not sufficient – mutual agency must exist.

10. 6. Lawful Business The purpose of the partnership must be a lawful business . Any partnership for unlawful purposes (smuggling, gambling, drug trafficking) is void. 7. Partnership Deed (Not Mandatory but Common) While not an element by law, in practice, the partnership agreement (deed) contains all terms and ensures clarity on profit sharing, duties, capital, etc. Registration is optional but highly recommended.

11. Partnership vs Joint Stock Company Basis Partnership (Indian Partnership Act, 1932) Joint Stock Company (Companies Act, 2013) Legal Status No separate legal entity; firm = partners collectively. Separate legal entity distinct from its members. Creation By agreement between partners. By registration under the Companies Act. Number of Members Min: 2; Max: 10 (banking), 20 (others). Min: 2 (private co.), 7 (public co.); Max: no limit. Liability Unlimited, joint and several. Limited to unpaid value of shares held. Transfer of Interest Not transferable without consent of all partners. Freely transferable (esp. in public companies). Continuity Dissolves on death, insolvency, or retirement (unless reconstituted). Perpetual succession – unaffected by changes in membership. Management Every partner has a right to participate. Managed by Board of Directors elected by shareholders. Audit Not compulsory (except under Income Tax rules). Statutory audit is compulsory.

12. Partnership vs Hindu Undivided Family Basis Partnership HUF Business Creation Arises from agreement among partners. Arises by status (birth in the family), not by contract. Membership Voluntary – one may choose to become or not become a partner. Automatic – membership by birth. Management All partners may take part; or some may be chosen. Managed by the Karta (head of family). Liability Unlimited liability of all partners. Liability of Karta is unlimited; liability of coparceners is limited. Continuity Ends on death/insolvency unless agreement to continue. Continuous so long as family exists. Maximum Members 10 (banking), 20 (other business). No maximum limit. Regulation Governed by Indian Partnership Act, 1932. Governed by Hindu Law.

13. Partnership vs Club / Association Basis Partnership Club / Association Objective To carry on business and share profits . To promote non-profit activities (social, cultural, recreational, charitable). Legal Status No separate legal entity from partners. May or may not be registered; but generally treated as a separate entity once registered under Societies Registration Act, 1860. Membership Limited (10 in banking, 20 in other business). No such restriction – may have large number of members. Profit Motive Profit is the primary objective. Not-for-profit; any surplus is used for objectives, not distributed. Liability Partners’ liability is unlimited. Members’ liability is generally limited. Transfer of Interest Not transferable without consent of all partners. Membership not transferable (except as per rules of club/association).

14. Kinds of Partnership 1. On the Basis of Duration (a) Partnership at Will (Section 7) When the partnership agreement does not specify: Duration , or Particular venture/business purpose Any partner can dissolve the firm by giving notice to other partners. Most common type in India. Example : A, B, and C start a trading firm without mentioning period → Partnership at will. (b) Particular Partnership (Section 8) Formed for a specific venture or for a fixed period . Automatically dissolves: On completion of venture, or On expiry of period. Example : Two engineers form a firm to build a bridge → Partnership ends after bridge is completed.

15. 2. On the Basis of Liability (a) General Partnership The most common form under the Partnership Act, 1932. Liability of partners is unlimited – their personal property can be used to satisfy firm’s debts. Every partner is an agent of the firm. (b) Limited Liability Partnership (LLP) Governed separately under the LLP Act, 2008 , not by the 1932 Act. Combines features of partnership and company. Partners’ liability is limited to their contribution. LLP is a separate legal entity .

16. 3. On the Basis of Legality of Continuity (a) Partnership for a Fixed Term Formed for a specific period (e.g., 5 years). Dissolves automatically after expiry of term. (b) Partnership for Particular Adventure Similar to particular partnership but linked to one single undertaking/project. Ends when project is completed. 4. On the Basis of Registration (a) Registered Partnership Registered with the Registrar of Firms. Enjoys legal rights such as right to sue third parties, enforce rights against partners, and claim set-off. (b) Unregistered Partnership Not compulsory under the Act. But suffers from disabilities under Section 69 (cannot sue third parties, partners, or claim set-off).

17. Basis Kind of Partnership Features Duration Partnership at Will No fixed term; dissolved by notice Particular Partnership For specific venture/period Liability General Partnership Unlimited liability LLP (separate Act) Limited liability Continuity Fixed Term Partnership Ends after fixed period Particular Adventure Partnership Ends after project completion Registration Registered Partnership Legal rights protected Unregistered Partnership Suffers legal disabilities

18. Thank you