Q. Define Partnership.

Is sharing of profit conclusive

proof of partnership? Explain - "partners are agents of
each other". What are the mutual rights and liabilities
of the partners? What is implied authority of a
partner? Can it be restricted? Can a partner retire?
What are its consequences? Can a partner be
expelled? If so, when? Can minor be admitted to the
benefits of partnership? If yes, what are the rights and
liabilities of such a minor after attaining majority?

Is the registration of a partnership firm compulsory?

What are the consequences of non-registration? Can a
partner of an unregistered firm bring a suit against a
third party to release the property of the dissolved
firm? What is the procedure for registration? Explain
various modes of dissolution of the Firm. What are the
liabilities of the partners after dissolution?
In common parlance, partnership is a business owned and managed by two or more people. To form a partnership,
each partner normally contributes money, valuable property or labor in exchange for a partnership share, which
reflects the amount contributed. Section 4 of Indian Partnership Act 1932 defines Partnership as follows -

Section 4 - Partnership is the relationship between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all. Persons who have entered into partnership with one another are
individually called partners and collectively called a firm and the name under which their business is carried on is
called firm name.

Examples -

1. A and B buy 100 bales of cotton to sell later on profit which they agree to share equally. A and B are partners
in respect of such cotton.

2. A and B buy 100 bales of cotton together for personal use. There is no partnership between A and B.

3. A, a goldsmith, agrees with B to buy and provide gold to B to work on an ornament and to sell and that they
shall share the profit. A and B are partners.

4. A and B are carpenters working together. They agree that A will keep all the profits and will pay B a wage.
They are not partners.

5. A and B jointly own a ship. This circumstance does not make them partners.
Section 5 of IPA 1932 says that the relation of partnership arises from contract and not from status. Thus, if there is
no specific contract, there can be no partnership. As per Section 6, to determine whether a partnership exists
between a group of persons, we have to look at the real relation between them as shown by all relevant facts taken
together. It further says that sharing of profits or of gross returns arising from a property owned jointly by them does
not by itself makes them partners.

Based on these definitions, in Helper Girdharbhai vs Saiyed M Kadri and others AIR 1987, J Sabyasachi of SC
identified that the following elements must be there in order to establish a partnership - there must be an agreement
entered into by all the parties concerned, the agreement must be to share profits of the business, and the business
must be carried on by all or any of the person concerned for all. These three aspects can be discussed under four
heads -

1. Agreement - There has to be an agreement between two or more people to enter into partnership. The
agreement is the source of the partnership. It is not necessary that the agreement be formal or written. An
agreement can be express or implied. Further, such agreement must follow all the requirements of a valid
contract given by Indian Contract Act 1872. This includes the parties must be competent to contract and the
object of the agreement should be legal.

2. Business - They must intend to start or do a business. A business is a very wide term and includes any
trade, occupation, or profession. Business may not be of long duration or permanent and even a single
activity may be considered a business. Thus, if two persons are not partners, they can engage is a
transaction with an intention to share profits and can become partners in respect of that transaction. For
example, if two advocates are appointed to jointly plead a case and if they agree to divide the profits, they
are partners in respect to that case. Section 8 also mentions that a person may become partner with
another in particular adventures of undertaking.
It is however necessary that a business exists. If a business is simply contemplated and has not been
started, the partnership is not considered to be in existence. In Ram Priya Saran vs Ghanshyam Das AIR
1981 All, two persons agreed that after their tender is passed they will construct the dam in partnership. In
order to deposit earnest money, the plaintiff gave 2000 Rs. The tender was not accepted. It was held that
since a business was only contemplated and not started, there was no partnership and so the plaintiff was
entitled to get 2000 Rs from the defendant.
However, in Khan vs Miah 2000 WLR, two persons obtained loan from the bank to start a restaurant. They
also entered into a contract to purchase equipement and laundary for the restaurant. But their relationship
terminated before the opening of the restaurant. It was held that there is no rule of law that parties to a joint
venture do not become partners untill they actually embark on the activity in question. It is necessary to
identify the venture in order to decide whether the parties have actually embarked upon it but it is not
necessary to attach any name to it. Many business require a lot of investment and activities before the
actual trading begins. This does not mean that the business has not started until the trading begins. It was
held that in this case the activity of the business had begun and so the partnership was in existence.

3. Sharing of profits - Normally, an activity is done in partnership with a goal to make profits. Thus, for a valid
partnership to exist, the partners must agree to share the profits according to their investment. Here, profits
include losses as well.

4. Mutual Agency - The firm must be managed by the partners and thus when any partner acts, he acts on
behalf of the firm and thus on behalf of other partners. Therefore, a partner is considered an agent of others.
In absence of such mutual right of agency, a partnership cannot exist. This was held in Cox vs Hickman
1860. In this case, two person carried on business in partnership. Due to financial crisis they obtained loans.
Having unable to repay the loans they executed a trust deed of properties in favor of the creditors. Some of
the creditors were made trustees of the business. This included Cox and Wheatcroft. They were empowered
to enter into contracts and execute instruments to carry on business and to divide the profits among the
creditors. After the recovery of debts, the property was to be restored to the two original partners. Cox never
acted as trustee and retired, while Wheatcroft acted as a trustee for some time and retired. Other trustee
then became indebted to Hickman and executed a bill of exchange, which was not accepted and paid.
Hickman sued the trustees for recovery of the money for materials supplied. The trustees could be held
liable if they were partners. However, it was held that they were not partners. They observed that in
partnership every partner is an agent of another and in this case this element was absent.
As we can see, a partnership requires all the above ingredients to have legal validity, and so a mere sharing of profits
is not a conclusive proof of a partnership. It must have the other three elements also. As mentioned in Section 6,
merely sharing of profits arising out of a jointly owned property does not necessarily create a partnership. For
example, if two persons own a house and give it on rent, the sharing of the rent does not create a partnership.
Similarly, a payment to a person contingent upon profits also does not necessarily create a partnership until the
element of mutual agency is not present. This is the case when profits is shared with the lender of money for
business. In case of Mollow March Co vs The Court of Wards 1872, a Hindu Raja loaned some money to Watson
& Co. In return, he was to get a % of profit and was to exercise control on some aspects of the business. He was not
empowered to direct the transactions of the company. It was held that although sharing of profits is a very strong test,
yet whether a relation of partnership exists depends on the real intention and conduct of the parties.

Duty/Liabilities of the partners

GIC, BEN, APC
91011, 121313, 151616

1. General Duties - According to section 9, every partner is liable to carry on the business in the best interest
of the firm, to be just and faithful to each other, and to render true accounts and full information affecting the
firm to any partner or his legal representative. During the course of business no partner can do any act
which may be against his duty to work to greatest common advantage.
In Bentlay vs Craven 1853, it was held that if a partner was authorized to purchase goods for the firm and if
he supplies the goods from his own stock and makes a profit, he is liable to give the profit to the firm. This
matter is further clarified in section 16 which says that subject to contract between the partners, if a partner
derives any profit for himself from any transaction of the firm or from the use of the property or business
connection of the firm, he shall pay that profit to the firm. Further, if a partner carries on any business of the
same nature as and competing with that of the firm, he shall pay all such profit to the firm. Subject to
contract means, partners can choose to modify this rule while entering into partnership. For example, the
partnership contract may specify that a partner may be allowed to use firm's property for personal use.

2. Duty to indemnify for loss caused by fraud - According to section 10, every partner shall indemnify the
firm for any loss caused to it by his fraud in the conduct of the business of the firm. For example, a firm of A
and B enter into a contract with the government. Later on, due to B's conduct, the govt. cancels the contract
and gives it to B. Here, the contract obtained by B in his own name will be for the benefit of the partnership.
Further, if the second contract is of the lesser value, B is personally liable to the firm for the difference.

3. Duties imposed by contract - As per Section11 any special rights and duties may be given or imposed by
the contract between the partners.

4. Duty relating to the conduct of business - According to section 12, every partner is bound to attend to
his duties diligently. Thus, if a partner is assigned some task, he must do it to the best of his abilities.
Further, if any difference arises in respect of ordinary business matter, it may be decided by majority.
However, no change in the nature of business can be made without the consent of all the partners.
In Suresh Kumar vs Amrit Kumar AIR 1982, Delhi HC held that majority cannot trample on the opinion of
minority in the key matters of the partnership. Thus, majority cannot replace the managing director of the
firm because it is a key business decision. It can be done only with the consent of all the partners.

5. Duty to contribute equally to the losses - According to section 13(b), partners shall contribute equally to
the losses sustained by the firm.

6. Duty to indemnify for loss caused by his willful neglect - According to section 13 (f), if a partner
neglects the business activity willfully, he must compensate the firm for the loss caused. It has been long
held that if a partner during the course of business commits breach of duty, or fraud, or culpable negligence
and causes harm to the firm, even if he is not liable in law, he must be held liable to indemnify the firm in
equity. This does not mean that a partner, when acting in good faith, makes an error in judgment and causes
loss to the firm, is liable. However, this is subject to the contract among the partners. This means that the
contract may specify that a partner is a sleeping partner and may excuse him from doing any work.
 7. Duty in respect of application of property of the firm - According to section 15, the property of the firm
shall be held and used exclusively for the purposes of the business. If a partner uses it for personal benefits,
he shall account for and pay such profits to the firm.

8. Duty in respect of personal profits - According to section 16(a), if a partner derives any profit for himself
from any transaction of the firm or from any property or business connection of the firm, he shall account for
that profit and pay it to the firm, subject to the contract.

9. Duty not to compete with the firm - According to section 16(b), if a partner engages in a business in
competition of the firm, he should pay the profits to the firm. But if a partner does a private act, which is not
in the scope of the business of the firm, he is not liable to the firm for the profits.

Rights of the partners

The partners of the firm have following rights -
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111212,131313

1. Rights given by contract - As per Section11 any special rights, such as right to remunerationmay be given
by the contract between the partners.

2. Right to take part in the conduct of business - As per section 12(a), subject to the contract between
them, a partner has a right to take part in the conduct of business. Only way to restrain a partner from
getting involved in the business is to specify it in the contract of partnership. Even courts cannot, through an
injunction, restrain a partner.

3. Right to have access to and inspect and copy books of the firm - As per section 12, every partner has a
right to inspect the books and make a copy if he wants.

4. Right to share in profit - As per section 13, subject to contract, a partner is entitled to an equal share of the
profit.

5. Right to receive interest on the capital subscribed - As per section 13, subject to contract, where a
partner is entitled to interest on the capital subscribed by him, such interest shall be payable only out of
profits. Further, if a partner pays any money to the firm, beyond the amount of capital, he is entitled to 6%
interest.

6. Right to indemnity in respect of payments made and liabilities incurred - According to section 13, the
firm shall indemnify a partner in respect of payments made and liabilities incurred by him in the ordinary and
proper conduct of business or in doing such act, in an emergency, for the purposes of protecting firm from
loss as would be done by a person of ordinary prudence in his own case under similar circumstance.

Implied authority of a partner

As held in Cox vs Hickman 1860, if two or more agree to carry on a business, each of them is a principal and each is
an agent for the other. Further, each is bound by the other's contract in carrying on the trade as much as a single
principal would be bound by the act of an agent. This principle has been incorporated in section 18 of IPA 1932. It
says that a partner is the agent of the firm for the purposes of the firm. Its complimentary principle is incorporated
in section 25 which says that every partner is liable jointly with all other partners and also severally for all acts of the
firm done while he is a partner.

This brings us to the implied authority of the partners. Since, a partner is an agent of the firm, his act binds every
other partner and the firm. For example, if a partner A gives a check in the firm's name to a creditor and if the check is
unpaid, partner B is equally liable even though B's signature does not appear on the check. This authority to bind the
firm is called "implied authority". It has been incorporated in section 19 of IPA 1932, which says that the act of the
partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm.
The following essential conditions are required for the exercise of Implied Authority to bind the firm -

1. Usual way - The act must be done to carry on the business in the usual way. Any drastic action, which is out
of ordinary, requires the consent of all the partners. For example, if a firm deals in coal, a partner has the
implied authority to enter into a contract to buy and sell coal, but not gold. The implied authority of partners
is limited to only those acts which are done in usual way and related to the business of the kind carried on
by the firm.

2. Mode of doing act to bind firm - Section 22 specifies that in order to bind the firm, the act must be done in
firm's name or in any manner expressing or implying the intention to bind the firm. For example, if a partner
A obtains a loan in his name without mentioning anything about the firm, it will not bind the firm. It must be
clear from the action that it is intended as being done by the firm.
In Devji vs Magan Lal AIR 1965, a partner had taken a sublease in his own name instead of the firm's
name. Further, there did not seem to be any intention to bind the firm. SC held that the firm was not bound
by the lease as the parties did not intend to bind the firm by this transaction.

Power of implied authority also has the following restrictions -

There are two kinds of restrictions - Statutory restrictions, as imposed by section 19 (2) and Restrictions imposed by
partnership deed and those imposed by the agreement between the partners. Statutory restrictions are binding upon
all the partners whether they know them or not, while the second type of restrictions are applicable only when the
partners have knowledge about them.

Statutory restrictions - In the absence of any usage or custom of trade to the contrary, a partner is not allowed to -

1. Refer a dispute to arbitration.

2. open a banking account on behalf of the firm in his own name.

3. compromise or relinquish any claim or portion of the claim by the firm.

4. withdraw a suit or proceeding filed on behalf of the firm.

5. admit any liability in a suit or proceeding against the firm.

6. acquire immovable property on behalf of the firm.

7. transfer immovable property belonging to the firm.

8. enter into partnership on behalf of the firm.

Contractual Restrictions - As per section 20, Partners may, by contract, put additional restrictions or give additional
powers to the partners. However, any act which falls under the implied authority but is restricted by the contract, will
bind the firm unless certain conditions are satisfied. A firm can avoid its liability in such case, if the person dealing
with the partner knows the restriction or the person dealing with the partner does not know or does not believe that
the partner is a partner in the firm.

In Sanganer Dal & Flour Mill vs F C I AIR 1982, a partner of the firm, who had the implied authority to enter the
contract with FCI to purchase goods, entered in to a contract with FCI to purchase Dal. The contract had an
arbitration clause. In this case, the question was whether the partner had the power to enter into such a contract? It
was held by SC that the partner was within his implied authority to enter into a contract to purchase goods from the
corporation because it was normal for their business and the contract was done in the usual way. Thus, the contract
was valid even if it contained an arbitration clause.

Admission of Partners (Section 23)

Since a partner is an agent of the firm and can bind the firm by his acts, an admission or representation by him
concerning the affairs of the firm, is evidence against the firm. This is incorporated in section 23, which says that an
admission or representation made by a partner concerning the affairs of the firm is evidence against the firm if it is
made in ordinary course of business.
The key factor in this is that the admission or representation must be made in ordinary course of business. This will
also not include the representation by which a partner increases his scope of authority. For example, if a partner
executes a bill of exchange for payment of his personal debts and on inquiry he makes a false statement that the
other partners have authorized him, the said bill of exchange will not bind the firm.

Incoming partners
The mutual relations of the partners is based on the principle that they have to be just and fair to each other and are
bound to carry on the business of the firm to the greatest common advantage. Thus, it is important for each partner to
have trust in each other. Therefore, section 31 lays down a general principle that a partner cannot be introduced into
a firm without the consent of all the existing partners. However, the existing partners may, by contract, authorize a
partner to introduce a new partner. A contract may also be made that upon death of a partner, a new partner may be
nominated in his place. If there are only two partners and one of them dies, there is no question of nominating a new
partner because the partnership ends as soon as the partner dies.
Also, a new partner is not liable for any act of the firm done before he became a partner.

Outgoing partners
In many situations, a partner may have to leave the partnership. A partner may leave in the following ways -
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1. With the consent of all other partners - According to section 32(1) (a), a partner may retire with he
consent of all the other partners.

2. With an express agreement by partners - Section 32 (1)(b) provides that a partner may retire with an
express agreement by partners. This means that if there is a provision in the contract deed of partnership
that allows a partner to retire, a partner can retire using that agreement.
In Vishnu Chandra vs Chandrika Prasad Agarwal AIR 1983, the question before SC was whether a
partner was entitled to retire on the basis of partnership deed. The deed provided that a partner may retire
by giving one month notice and that a partner cannot retire within one year of commencement of business
and if he does so, his capital will not be returned. SC held that it is consistent with the provisions of section
31(1)(b) and the partner can retire according to the deed.

3. By giving notice to all other partners in case of partnership at will - According to section 32(1)(c), a
partner may retire where the partnership is at will, by giving notice in writing to all the other partners of his
intention to retire.

4. By Expulsion (Can a partner be removed? How?) - According to section 33 (1) a partner may not be
expelled by any majority of the partners, save in exercise of good faith of powers conferred by contract
between the partners. Thus, to expel a partner by majority of the partners, the following two conditions must
be satisfied -

1. Such a power must be conferred by contract between the partners. This means, the contract of
partnership must clearly give this power to the partners otherwise, a partner cannot be expelled.

2. The power to expel a partner conferred under the contract must be exercised in good faith. Thus, if
majority of the partners try to expel a partner with evil intention and without any reasonable cause,
it is not possible.

In Carmichael vs Evans 1904, a partner was caught traveling without ticket and was convicted on this
charge. He was expelled by the majority of the partners. It was held that the expulsion was justified.
In Blisset vs Daniel 1953, a partner was expelled by the majority of the partners because he opposed the
appointment of the son of a partner on the post of manager. It was held that the expulsion was invalid.
 5. On insolvency of a partner - According to section 34(1), where a partner in a firm is adjudicated an
insolvent he ceases to be a partner on the date on which the order of adjudication is made, whether or not
firm is thereby dissolved.

6. By Death - Upon death of a partner, his association with the firm ends and he ceases to be a partner. His
estate will not be liable for the acts of the firm after his death. According to section 42(c), subject to the
contract between the partners, a firm is dissolved by the death of a partner. This means that partners may by
contract that by death of a partner the firm will not be dissolved but if there is no such contract, the firm will
be dissolved.

Liability of a retired partner

The liability of a retired partner may be of two types - For acts done before retirement and for acts done after
retirement.

1. Acts before retirement - The general rule is that a partner is liable for all acts done before retirement even
after he is retired. However, a retiring partner may be discharged of his liabilities for act before retirement by
an agreement between the retiring partner and the remaining partners. The agreement should specify that
all such liabilities will be borne by the remaining partners. A notice to this effect must also be given to the
creditors.

2. Acts after retirement - The general principle is that a retired partner is not liable for the acts of the firm
done after his retirement. However, he must give a public notice of his retirement to escape liabilities.

Partnership with a minor

By virtue of section 10 and 11 of Indian Contract Act 1872, a minor is not considered capable of giving consent and
thus any contract with a minor is void ab initio. Therefore, a contract of partnership with a minor is also void. In other
words, a partnership cannot be done with a minor and a minor cannot become a partner of a firm. However, a minor
can be admitted to the benefits of the partnership as per section 30 (1), by the consent of all the partners.
In Venkatarama Iyer vs Balayya AIR 1936, it was held that there must be some positive act of the partners so that
the court may infer that the minors have been admitted to the benefits of the partnership. Merely assuming that the
minors were admitted would be an error in law and is not sufficient.
Further, in Addl Commr. of Income Tax vs Uttam Kumar Pramod Kumar 1975, a partnership deed was not signed
by minor or anybody on his behalf. It was held that to admit the minor to the benefits of partnership it is necessary to
have an agreement between the partners and the minor. Since the property and money of the minor can be used for
the firm, an agreement is necessary between the partners and someone on behalf of the minor.

Rights and Liabilities of a minor

He has the following rights -

1. to such share of the property and of the profits of the the firm as may be agreed upon.

2. to access, copy, and inspect the records of the firm.

3. his share is liable for the acts of the firm but he is not personally liable for them.

4. may sue the partners for his share of profits of the firms when severing his connection with the firm.

5. As per Section 30(5), he has a right of election to become or not to become the partner of the firm after
becoming a major. Upon attaining the age of majority, the minor can, within six months , give public notice
that he has elected to become or not to become a partner of the firm. If he fails to give such notice, he will
be become partner of the firm at the expiry of six months.

Illustration - In Shivganda R Patil vs Chandrakanth Neelkanth Sadalge AIR 1965, C a minor was
 admitted to the benefits of the partnership between A and B. The partnership became indebted and was
dissolved while C was still a minor. Upon majority, C did not exercise the option of election. Later on, the
creditor started insolvency proceedings against the partners and impleaded C as well in the proceedings. It
was held that a minor cannot be impleaded in insolvency proceedings against the firm on the ground that he
had become a major after dissolution of the firm. At the time of his majority the firm had ceased to exist and
thus there was no question of electing to become or not to become a partner.

Registration of a firm
Chapter 7 of IPA 1932 deals with the registration of firms. Under this act, registration of firms is not compulsory.
There is no penalty for not registering. However, the effects of non-registration are so severe that usually firms opt to
register.
Consequences of not registering

1. Suits between partners and Firm - A per Section 69 (1) unless a firm is registered and the party is shown
as a partner, no suit can be filed by or on behalf of any partner against the firm. In Loonkaran Sethia vs Mr
Ivan E John AIR 1977, the firm was not registered and the plaintiff filed the suit to enforce an agreement
entered into by a partner of the firm. The suit was filed on behalf of the firm and was for its benefit. SC
observed that a partner of an unregistered firm cannot bring a suit to enforce a right arising out of a contract
falling within the ambit of section 69. It held that the suit was unmaintainable.

2. Suit between firm and third parties - Until the firm is registered, no suit can be filed by the firm against
third parties. In Ram Adhar vs Rama Kirat Tiwary AIR 1981, the plaintiff sold bricks to the defendant. The
defendant did not pay the price to the partnership firm and so the firm filed the suit. It was held that since the
firm was not registered the suit was unmaintainable.

3. Bar to claim set off and other proceedings - According to section 69(3), suit cannot be filed for claim of
set off or other proceedings to enforce a right arising from a contract.

Exception
According to section 69(3)(a), the provisions of section 61(1) and (2) shall not affect the enforcement of any right to
sue for the dissolution of the firm, or for accounts of the dissolved firm or any right or power to realize the property of
dissolved firm. Thus, a partner of a dissolved firm can sue a third party for releasing the property of the firm.

Procedure for registration

As per section 58, registration of a firm can be done any time by sending a statement in prescribed form by post or
delivering to the registrar of the area in which any place of business of the firm is situated or proposed to be situated.
The form should also be accompanied with the prescribed fee. The form must contain -

1. the firm name

2. place or principal place of the business of the firm.

3. the names of any places where the firm carries on business.

4. the date when each partner joined the firm.

5. the names in full and permanent address of the partners.

6. the duration of the firm.

The statement must be signed by all of the partners or by their agents specially authorized in this behalf. Each person
signing the statement shall also verify it in the manner prescribed. There is a restriction on the name of the firm that it
cannot contain certain words such as Crown, Emperor, Empress, King etc. that give an impression that the firm is
associated with the govt.

When the registrar is satisfied that the provisions of section 58 have been fulfilled, he shall record an entry in the
Register of Firms and shall file the statement.

Dissolution of the firm

As per section 39, the dissolution of the partnership between all the partners of a firm is called the dissolution of the
firm. The firm is dissolved when all the partners stop carrying on the partnership business. It is possible that some
partners may decide to disassociate from the firm while others carry on the business. In this case the partnership is
not dissolved.
After dissolution of the firm, the partnership between the partners does not completely end. It continues for the
purpose of realization of assets or properties of the firm. Also, after the dissolution, the right and power of the partners
of the firm to bind the firm exists as is necessary to wind up the operation and for the acts that started before the
dissolution but have not yet ended.

Modes of dissolution

1. Dissolution by agreement - According to section 40, a firm may be dissolved either with the consent of all
the partners or in accordance with a contract between the partners.

2. Compulsory Dissolution - According to section 41, a firm will be compulsorily dissolved if

1. all the partners or all but one of the partners become insolvent - This happens because if a partner
becomes insolvent, he becomes incompetent to contract and so he ceases to be a partner as per
section 34(1). Thus, if all or all but one partners become insolvent the firm will compulsorily
dissolved because for a partnership, at least two partners are required.

2. If the business of the firm becomes unlawful - It is possible that due to legislation, the business may
become unlawful. For example, liquor sales may become unlawful in a particular state. In such a
case, a partnership that sells liquor will be dissolved.
3. Dissolution upon contingencies - According to section 42, subject to the contract, a firm is dissolved on
the happening of following contingencies -

1. By Expiry of fixed term - A firm is dissolved, if it is constituted for a fixed term, which that term
expires.

2. On completion of adventures or undertakings - In many cases, a partnership is started with a

specific goal to accomplish or for a particular task. Upon completion of such task, the partnership
gets dissolved.

3. By the death of a partner - Subject to the contract between the partners,a partnership gets
dissolved if a partner dies.

4. By the adjudication of a partner as an insolvent - If a partner becomes insolvent and if there is

no provision in the contract to keep the partnership alive in such case between the solvent
partners, the partnership is dissolved.

4. Dissolution by notice of partnership at will - According to section 43, a partnership at will can be
dissolved any time by any partner by giving a notice of such intention to other partners.

5. Dissolution by court - According to section 44, the court may dissolve a partnership if -

1. a partner becomes of unsound mind - In such a case, the next friend of the person with unsound
mind may request the court to dissolve the firm.

2. a partner becomes permanently incapable - At the suit of a partner, the court may dissolve the
firm on the ground that a partner other than the one suing has become permanently incapable of
performing the duties of partnership.

3. a partner is guilty of conduct likely to affect prejudicially the carrying on of business - At the
suit of a partner the court may dissolve a firm on the ground that a partner other than the one suing,
is guilty of conduct which is likely to affect the business prejudicially. For example, in partnership of
doctors, if one doctor is guilty of immorality towards some patients, it is possible for the court to
dissolve the partnership upon suit of other partners.
In Carmichael vs Evans 1856, a partner was convicted of traveling without ticket and the court
dissolved the firm on this ground.

4. willful or persistent breach of agreements relating to the business or management of the

affairs of the firm - If a partner willfully or persistently commits breach of the agreements related
to the firm, or the conduct of its business, or conducts such that it is not reasonably practical for
other partners to carry on the business, the court may dissolve the firm upon suit by other partners.

5. transfer of the whole interest in the firm by a partner to a third party - At the suit of a partner
the court may dissolve a firm on the ground that a partner other than the one suing, has in any way
transferred the whole of his interest in the firm to a third party.

6. perpetual loss - At the suit of a partner, the court may dissolve the firm on the ground that the
business of a firm cannot be carried on without incurring loss. It is indeed impractical to run a
business that is continuously going in the loss. Thus, if a partner of such a business desires, he can
request the court to dissolve the firm.

7. Just and Equitable cause - As per section 44(g), the court may dissolve the firm on any just and
equitable ground upon request by a partner. This gives very wide powers to the court because the
court has to decide whether there is a just and equitable ground for dissolving a firm.
Consequences of Dissolution

1. Liabilities of the partners for acts done after dissolution - As per section 45, until public notice is given
of the dissolution, partners remain liable for their acts as they were before dissolution. It is therefore
essential to give notice of dissolution if the partners want to escape liability for the acts of the firm.

2. Right of partners to have business wound up after dissolutions - Upon dissolution of the firm, every
partner is entitled, as against other partners, to have the property of the firm applied in payments of debts
and other liabilities of the firm and to have the surplus distributed to the partners as per the contract.

3. Continuing authority of partners for purpose of winding - Each partner continues to enjoy implied
authority but for the acts done in the process of winding up of the business.

4. Settlement of accounts - Upon dissolution, the accounts of the firm will be settled as per the agreement of
the partners.

5. Payment of debts - where there are any joint debts, the property of the firm will be first applied to clear
those debts and then it will be applied to any separate debts due to a partner.

6. Restrain the use of name of the firm - Every partner has a right to restrain another from using the name of
the firm, subject to any contract between them. However, if the goodwill of the firm is sold, the buyer may
use the name of the firm for his business.

7. Restrain in trade - Subject to contract, the partners of the firm may be restrained from doing the same
business as the firm after the dissolution as long as the conditions of the restrain do not violate section 27 of
ICA 1872.