What is Partnership (Section 4)

Partnership is the relation between persons have

agreed to share the profits of a business carried on
by all or any one of them acting for all.

Essential elements of Partnership:

1. Agreement
2. Between two or more persons.
3. To share the profits of the business.
4. The business must be carried on by all or any one
of them acting for all.


Partnership V/s Joint Stock Company
Sr.
No.
Points of
Difference
Partnership Firm Joint Stock
Company
1 Legal Entity A firm is not a legal
entity
Separate legal
Entity from its
Members.
2 Agency

Every Partner is an
agent of the other
Partners as well as of
the firm
A Member is not
an Agent of the
other Members or
of the Company.
3 Distribution of
Profits

Terms of Partnership
Deed

Prerogative of the
Board of
Directors, who will
recommend and
decided by the
Members.
Partnership V/s Joint Stock Company
Sr. No. Points of
Difference
Partnership Firm Joint Stock Company
4 Extent of Liability Unlimited Limited - ( a. In case of
Limited by Shares - to the
extent of unpaid on the
shares, b. In case of Limited
by Guarantee - to the extent
of amount guaranteed)
5 Property Inseparable from
Partners, (Joint Estate).
Separable from Members
and Company
6 Transfer of
Shares
A share in the
Partnership firm cannot
be transferred without
the consent of all the
partners.
Governed by the Articles of
Association.
Partnership V/s Joint Stock Company
Sr.
No.
Points of
Difference
Partnership Firm Joint Stock
Company
7 Number of
Membership
a. Minimum - 2,
b. Maximum - 20 in
case of business
other than Banking or
in case of Banking
business - 10
a. Pvt Limited -
Minimum - 2,
Maximum - 50.
B. Public
Limited -
Minimum - 7,
Maximum - No
Limit.
8 Conduct of
Business
Partners Board of
Directors /
Members
Partnership V/s H.U.F.
Sr. No. Points of Difference Partnership Firm H.U.F.
1 Creation Agreement Birth in the family.
2 Death Dissolution of
Partnership firm.
Does not lead to Dissolution
of firm.
3 Management of
Affairs of business
Partners. Karta
4 Authority to bind the
firm
Partners. Karta
5 Liability Unlimited Karta UnLimited.
Co-parceners Limited to
the extent of share in the
profits of business.
6 Governing Law Indian Partnership
Act
Hindu Law, Indian
Succession Act.
7 Continuity Unless Dissolved by
death or insolvency
of Partner
Till the family is divided.
Partnership V/s H.U.F.
Sr.
No.
Points of Difference Partnership Firm H.U.F.
8 Minors Capacity Cannot become a
Partner, even
though admitted to
the benefit of
Partnership with
the consent of all
the Partners.
Becomes a member due
to incidence of birth.
TYPES OF PARTNERS
1. Active Partner Becomes a partner by agreement and
who actively participates in the conduct of the partnership.

2. Sleeping or Dormant Partner Does not take active part in
the conduct of the business.

3. Nominal Partner Lends his name to the firm, without
having any real interest in the Firm.

4. Partners by Holding out / Estoppels Represents himself
- Knowingly permits himself, to be represented as a
partner in the firm ( when in fact he is not) he is liable, like
a partner in the firm to anyone who on the faith of such
representation has given credit to the firm.
Rights of Partners
Right to:

(i) Take part in the conduct of the business.

(ii) Be consulted.

(iii) Share Profits.

(iv) Access to Books.

(v) Remuneration.

(vi) Interest on Capital / advances.
Rights of Partners
Right to:
(vii) Be indemnified.

(viii) Stop admission of a new partner.

(ix) Retire.

(x) Not to be expelled.

(xi) Of Outgoing partner to share subsequent profits.

(xii) Of Outgoing partner to carry on competing
business.

(xiii) Dissolve the firm.
Duties of Partners
Duties to:

(i) The greatest common advantage of the firm.

(ii) Be Just and faithful to each other.

(iii) Provide a true account and information of all things
affecting firms.

(iv) Attend diligently to his duties relating to the conduct of
the firms business.

(v) Not entitled to remuneration for participating in the
conduct of the business.
Duties of Partners

(vi) All the partners are liable to contribute equally to the loss
sustain by the firm.

(vii) Liability of Partner to indemnify the firm for the loss caused to it
by willful neglect in the conduct of Business.

(viii) Liability of Partner to indemnify the firm for the damage caused
to it by reason of his fraud in the conduct of Business.

(ix) To account for profit in case the partner derives any profit for
himself from the transaction of the firm.

(x) If a partner carries on business of the same nature as and
competing with that of the firm, then he must account for and pay to
firm all profits made by him in the business.

Partnership Property

Property belonging to the firm as per the
agreement / Partnership deed

In the absence of the agreement:-

All property, rights and interests which partners
may have brought in to the common stock as
their contribution to the common business.

All the property, rights and interests acquired or
purchased by or for the firm or for the purposes
and in the course of the business of the firm and

Goodwill.

Rights & Duties of Partners after a change in the constitution of the
firm.

1. Rights and Duties of the reconstituted firm will remain
same - in case of the following way of change in the
constitution of the firm:

a. New partner coming in.
b. Partners leaving the firm on account of death or
retirement.
c. New line of activity is being carried on other than the
business originally formed.

2. Rights and Duties of the reconstituted firm will remain
same - in case firm is constituted for a fixed term
continuous to carry on the business after the expiry of
the term.

Rights & Duties of Partners after a change in the
constitution of the firm.

Rights and Duties of the reconstituted firm will remain
same - in case firm carry out new venture other than the
venture or undertakings which is being carried out.

Relation of a Partner:
Sr.
no.
Nature of Activity Nature of
Relations
1 Against the Third Party Agent
2 Against the Partners Agent
3 Acting for himself and benefit of the
Partnership firm
Principal
Implied Authority of a Partner:
Act of the Partner in the usual way of
business.

The act of the partner binds the firm.

The act done in the name of the firm.

Intention to bind the name of the firm.


Acts beyond the Implied Authority
Submit a dispute relating to the business of the firm to
Arbitration.

Opening of the bank account on behalf of the firm in his own
name.

Compromise or relinquish any claim or portion of a claim by
the firm against a third party.

Withdraw a suit or proceedings filed on behalf of the firm.

Admit any liability in a suit or proceedings against the firm.

Acquire immovable property on behalf of the firm.
Acts beyond the Implied Authority :

Transfer immovable property belonging to the firm.

Enter in to Partnership on behalf of the firm.
Liability to Third Party:

Contractual Liability.

Liability for tort or wrongful act.

Liability for misappropriation by a Partner.

Right of Outgoing Partner
Sr.
no.
Nature of Activity Right of Outgoing Partner
1 On the Retirement Receive his share of the
property of the firm,
including Goodwill.
2 Non Settlement of Accounts Is entitled to claim from
the firm such share of the
profits made by the firm
even after ceasing to be a
Partner.
3 Option given to the continuing
Partner to purchase the interests of
the outgoing partner.
Outgoing Partner will not
be entitled to any further
share of the profits.
Insolvency of Partner:
Partner adjudicated Insolvent -

A Partner cease to be a partner in the Firm.

Does not lead to Dissolution of firm.
Consequences of Non Registration
(i) cannot bring an action against the third party for
breach of contracts unless the firm is registered and
Persons suing are or have been shown in the
Register of firms.

(ii) If an action is brought against the firm by third
party, the partner / firm cannot claim setoff, if the suit
is valued for more than Rs. 100 or pursue other
proceedings to enforce the rights arising from the
contracts.

(iii) A partner of an unregistered firm is precluded
from bringing legal action against the firm or any
person alleged to be or to have been partner in the
firm.
Dissolution of firm
As a result of any agreement between all the partners.

By the business of the firm becoming unlawful.

By the adjudication of all the partners or of all the partners
but one, as insolvent.

Subject to the agreement between the parties, on happening
of certain contingencies - efflux of time, completion of
venture, death (except more than 2 partners), insolvency of a
partner.

Partnership at Will by giving a notice.

Intervention of the Court Partner becoming unsound mind,
Misconduct of Partner, Willful or persistent breach of
agreement by a Partner.
Consequences of Dissolution

Continuing liability until public notice.

Right to enforce winding up to have property of the firm
applied in payment of the debts of the firm.
to have the surplus
distributed amongst the partners or their representatives
according to their respective rights.

Extent of continuing authority of the partners after
dissolution.

Settlement of Partnership accounts.

Personal profits earned after dissolution.