‘© Partnership = relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for al. ‘+ Persons, who have entered into partnership with one another are called individually ‘partners ‘+ Firm’ is the collective of the partners. ‘©The ‘firm name’ is the name under which the business is carried on, Important Points on firm’s name. Y_ The name of the firm should not be such which will misled or confuse the people with the name of the firm which is already in existence. Y The name of the firm should not show patronage (connection) with the government. Partnership firm cannot use the word “Limited” as a part of its name. ‘+ Atleast 2 parties. Persons must be competent to enter into a contract, Parties may be natural or artificial ‘Agreement between the parties. Agreement may be oral or in writing. It may be express or implied. ‘*Agreement must be to share the profits of the business; and ‘* Business must be carried on by all or any of them acting for all; important Members of HUF carrying on family business together are not partners. Burmese Buddhist Husband and wife doing business together are not partners. ‘Sharing of Profits is not the only evidence for partnership —‘This means that of two person are only sharing profit then it does not means that they both are partners. Example 1) Ajoint owner of a property sharing its return with the other owner does not make joint owners partner. 2) “Arnab” a trader, owed money to X, Y&Z. He agreed to pay XY8Z out of the profits of his. business. Even ifX, Y and Z will get their money from the property of Arnab, it does not make them partner of Arnab 1) Minor can become partner for the benefits of the partnership with the consent of all the partners 2), For admitting minor as a partner, an agreement shall be executed through his guardian ‘© Right to share profits of the firm ‘* Minor is not personally liable ‘© Right to share property of the firm ‘+ However, share of minor in the firm '* Right to inspect accounts of the firm istiable + Right to take copy of the accounts Election on majority — a) On attaining majority, or his obtaining knowledge that he had been admitted to the benefits of partnership; whichever date is later, minor may within six months from such date give public notice that he has elected to a partner in the firm or not b) Ifa minor fails to give such notice, he shall become a partner in the firm on the expiry of the said six months. f Election on majority ff Ifa minor elects to become a partner Gf Ifa minor does not elect to become a partner- His rights and liabilities will be similar 1) his rights and liabilities shall continue to to those of a full-fledged partner. be those of a minor up to the date on which He will be personally liable for all the he gives public notice; acts ofthe firm, done since he was first 2) his share shall not be liable for any acts of admitted to the benefits of the ‘the firm done after the date of the notice; partnership. and His share of profits and property 3) he shall be entitled to sue the partners for remains the same as was before, unless. his share of the property. ) altered by agreement. )1) 2) 3) 4) 5) Written document which contains the mutual rights and obligations of partners is known as partnership deed. Partnership Deed is not mandatory. However, itis advisable to have partnership deed in writing, If there is partnership deed then each partner should have 1 copy. If the firm is to be registered then a copy of the deed should be filed with the Registrar of Firms. ‘What are the contents of partnership deed? Partnership deed should contain the following details ~ Firm name; Names and addresses of partners; Details of business of partnership; Address of business place; Profit sharing ratio Date of commencement of partnership firm; Duration of partnership firm; Amount of capital contribution; Salaries, commission and remuneration to partners; Rights of the partners; Liabilities of the partners; Details of retirement of partners; Provision for expulsion of a partner; Arbitration clause for the settlement of disputes. Ttarises from agreement Ttimay or may not arise from agreement Purpose of partnership is to carry business it may or may not involve carrying business | It involves profit and loss Itmay or may not involve profit or loss Partners have mutual agency Co-owners do not have mutual agency Persons who form partnership are called as Persons who own property jointly are called as partners co-owner ‘A partner has a lien on the firm property. ‘A co-owner has no lien on the propertyParticular Partnership - Partnership at willis a partnership formed for an indefinite period. Time period of partnership is not fixed nor specified. 1)Such type of partnership can continue for any period of time depending upon the will of the partners, 2)It can be dissolved by any partner by giving a notice to the other partners of his desire to quit the purpose. achieved, it cease to exist Particular Partnership is a partnership formed for a specific time or for a specific Once the time is over or purpose is 1) Working partner or Active partner — - Active partner contributes capital and also takes active part in the management of the firm. = He bears an unlimited liability for the firm’s debts. = Heis known to outsiders. = He shares profits of the firm. - Heisa full-fledged partner. 2), Sleeping or dormant partner — = Only contributes capital; = Does not take active part in the business; = He shares in the profits or losses of the firm; ity is unlimited; = Hes not known to the outsiders. - Asleeping partner can retire from the firm without giving any public notice 3) Secret partner - = Secret partner contributes capital; - Takes active part in the business; = He shares in the profits or losses of the firm; = His liability is unlimited; - his connection with the firm is not known to the outside world, 4) Limited partner - = The liability of such a partner is limited to the extent of his share in the capital and profits of the firm. = He does not take active part in the business; = The firm is not dissolved in the event of his death, lunacy or bankruptcy. 5) Partner in profits only ~ = Partners in profit only share in the profits of the firm but not in the losses; = His liability is unlimited;= He is not allowed take active part in the business; - Such a partner is associated for his money and goodwill Nominal Partner — = Nominal partner only lends his name and reputation for the benefit of the firm. = He represents himself or knowingly allows himself to be represented as a partner = Such type of partner neither contributes capital nor takes part in the management of business. - He does not share in the profits or losses of the firm. = He becomes liable to outsiders for the debts of the firm. Nominal partner can be of two types i Partner by estoppels ‘Apartnerby estoppelis someone who is nota partner of a firm, but allows others to think that he is a partner, through his behaviour or conduct Example — § Jalal, isnot a partner but he tells Ramu that he is a partner in a firm called Alpha Enterprises. On this impression, Ramu sells g00d worth * 20,000 to the firm. Later on the firm is unable to pay the amount, Ramu can recover the amount from Jalal. Here, Jalal is a partner by estoppels. i Partner by holding out. Apartnerby holding out is someone ‘who is not a partner of a firm, but knowingly allows the firm to project to others that he is a partner of the firm u Alpha tells Ramu in the presence of Jalal that Jalal isa partner in the firm of Alpha Enterprises. Jalal does not deny it. Later on Ramu gives a loan of * 20,000 to Alpha Enterprises on the basis of the impression that Jalal is a partner in the firm. The firm fails to repay the loan to Ramu, Jalal iss liable to pay * 20,000 to Ramu. Here, Jalal isa partner by holding out. ‘+ Partnership is created out of contract and not by status. ‘* The members of a Hindu Undivided Family carrying on a family business or a Burmese Buddhist husband and wife, carrying on business as such, are not partners in such business.BASIS FOR COMPARISON Meaning, PARTNERSHIP FIRM ‘When two or more persons agree to carry on a business and share the Profits & losses mutually, itis known as a Partnership firm, COMPANY ‘Acompany is an association of persons who invests money towards a common stock, for carrying on a business and shares the profits & losses of the business, Governing Act How itis created? Indian Partnership Act, 1932 Partnership firm is created by mutual, agreement between the partners. Indian Companies Act, 2013 ‘The company is created by incorporation under the Companies Act. Registration Management of the concern Liability Contractual capacity Use of word limited Voluntary Partners itself Unlimited A partnership firm cannot enter into contracts in its own name No such requirement. Compulsory Directors Limited ‘Accompany can sue and be sued in its Must use the word ‘limited! or ‘private limited’ as the case may be. Legal formalities in dissolution / winding up Separate legal entity Mutual agency No No Yes Yes Yes No Audit Number of members Audit is not compulsory Minimum required is two. Maximum, number is 100 subject to some exceptions Various types of audit are compulsory Minimum number of members for a private company is 2 and maximum. 200. Minimum number of members for a public limited company is 7 and there is no limited for maximum.BASIS FOR COMPARISON PARTNERSHIP LIMITED LIABILITY PARTNERSHIP (LLP) Meaning. Partnership refers to an arrangement Wherein two or more person agree to carry on a business and share profits & losses mutually, Limited Liability Partnership is a form of business operation which combines the features of a partnership and a body corporate. Governed By Registration Indian Partnership Act, 1932 Optional Limited Liability Partnership Act, 2008 Mandatory Charter document, Liability Contractual capacity Legal Status Partnership deed Unlimited It cannot enter into contract in its name, Partners are collectively known as firm, so there is no separate legal entity. UP Agreement Limited to capital contribution, except in case of fraud It can sue and be sued in its name. Ithas a separate legal status. Maximum, 100 partners No limit partners Property Cannot be held in the name of firm. Can be held in the name of the LLP. Perpetual No Yes Succession Relationship Partners are agents of firm and other Partners are agents of LLP only. partners as well, BASIS FOR Partnership Hindu undivided family COMPARISON Relationship Relation subsists between the Tris single person and it cannot have a partners. partnership by itself Management | All of the partners may involve in the Karta of HUF is managing the business management Share of profit __| Partners can share profit as per the No such sharing of profits in HUF agreement Property| The properties even though in the This business is a species of ancestral name of partnership firm belongs to all partners joint property in which every member of a family acquires‘Authority Each partner is the agent of others thas implied authority to contract debts and pledge the properties and credit of ‘the family for the ordinary purposes of the family business Dissolution Firm can be dissolved on the eve of death of partner, retirement of partner etc., unless otherwise than agreed to in the agreement The death of Karta will not lead to the dissolution of the HUF business Duties of partners - Section 9 KA Every partner has a right to take part in the conduct of the business; Every partner , has aright of free access to all records, books and accounts of the business. the partners are entitled to share equally in the profits earned and shall contribute equally to the losses sustained by the firm (however, this is subject to the contract) where a partner is entitled to interest on the capital subscribed by him, such interest shall be payable only out of profits; < the business of the firm, KANN a partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of ‘Appartner has power to act in an emergency for protecting the firm from loss Every partner has @ right to retire by giving notice where the partnership is at will Every partner has a right to continue in the partnership and not to be expelled from it Any difference, arising as to ordinary matters connected with the business, may be decided by a majority of the partners, and every partner shall have the right to express his opinion before the matter is decided. < No change may be made in the nature of the business without the consent of all the partners; 1) The property of the firm cludes all property and rights and interests in property, inally brought into the stock of the firm or acquired by purchase for the firm and includes the goodwill of the business ~ Section 14