Partnership

The Indian
Partnership
Act, 1932
INTRODUCTION
The law of partnership is contained in the Indian
Partnership Act, 1932, which came into force on
1st October, 1932
A contract of partnership is a special contract.

Where the partnership act is silent on any
point, the general principles of the law of contract
apply (Section 3)
This Act extends to whole of India(except the

state of Jammu & Kashmir)
Meaning and Definition of
Section 4 Para 1 of the of the Indian

partnership Act 1932, defines partnership as:
persons who have agreed to share the profits of

a business carried on by all or any of them
Thus, partnership is the name of legal

relationship between or among persons who
have entered into a contract.
Section 4 of Indian Partnership Act, 1932 provides that:
Persons who have agreed into partnership with one

another are called individually and
collectively and the name under which their
business is carried on is called the
is thus Invisibility which binds the

partners together and firm is the visible form of
those partners who are thus bound .
Maximum Limit on Number of
Partners
Section 11 Companies Act provides that the
maximum no. of persons, a firm can have:
If the number of partners exceeds the aforesaid

limit, the partnership firm becomes an illegal
association.
Real test of partnership [Sec. 6]
The true test of partnership is the existence of
relationship, i.e. the capacity of a partner to bind other partners by
his acts done in name and be bound by the acts of other
partners.
Sharing of profit is an essential element of partnership but it is not a

conclusive proof of partnership.
Sharing of profit is Prima facie evidence.
Thus partnership can be presumed when

a. There is an agreement to share the profits of
business and
b. The business is carried on by all or by any of them
acting for all.
Meaning of Mutual Agency
Mutual agency refers to the relationship of
principal and agent Among partners
Example in case of
firm of A,B and C
Types of PARTNERS
Kinds of Partnership
Kinds of Partnership
Partnership at will :- According to SECTION-7 of the act, it is a partnership
when:-
1. No fixed period has been agreed upon for the duration of the partnership and
2. There is no provisions made as to the determination of the partnership.
Partnership for a fixed period :- Where a provision is made by a contract
Particular partnership :- a partnership may be organized for the prosecution

of a single adventure as well as the conduct of a continuous business.
General partnership :- where a partnership is constituted with respect to

the business in general, it is called a general partnership.
Partnership deed
A partnership is formed by an agreement. This agreement
may be in writing or oral. though the law does not expressly
require that the partnership agreement should be in writing,
it is desirable to have it in writing in order to avoid any
dispute with regard to the terms of the partnership. The
document which contains the term of a partnership as
agreed among the partners is called .
The partnership Deed is to be duly stamped as per the

Indian Stamp Act, and duly signed by all the partners.
Contd.
Contents of partnership Deed
A partnership deed may contain any matter relating to the regulation of
partnership but all provisions in the deed should be within the limits of
Indian Partnership Act, 1932. However, A Partnership Deed should contain
the following clause:-
Nature of business
Duration of partnership
Name of the firm
Capital
Share of partners in profits and losses
Bank Account firm
Books of account
Powers of partners
Retirement and expulsion of partners
Death of partner
Dissolution of firm
Settlement of disputes
Advantages of Partnership Firm
Easy to form: Like sole proprietorships, partnership
businesses can be formed easily without any compulsory
legal formalities. It is not necessary to get the firm
registered. A simple agreement or partnership deed, either
oral or in writing, is sufficient to create a partnership.
Availability of large resources: Since two or more

partners join hands to start a partnership business, it may be
possible to pool together more resources as compared to a
sole proprietorship. The partners can contribute more
capital, more effort and more time for the business.
Contd.
Advantages contd.
Better decisions: The partners are the owners of the
business. Each of them has equal right to participate in the
management of the business. In case of any conflict, they can
sit together to solve the problem. Since all partners participate
in the decision-making process, there is less scope for reckless
and hasty decisions.
Flexibility in operations: A partnership firm is a flexible

organization. At any time, the partners can decide to change
the size or nature of the business or area of operation.
There is no need to follow any legal procedure. Only the
consent of all the partners is required.
Disadvantage of Partnership Firm
Unlimited liability: All the partners are jointly liable for the debt of
the firm. They can share the liability among themselves or any one can be
asked to pay all the debts even from his personal properties depending on
the arrangement made between the partners.
Uncertain life: The partnership firm has no legal existence separate

from partners. It comes to an end with death, insolvency, incapacity or
the retirement of a partner. Further, any unsatisfied or discontent partner
can also give notice at any time for the dissolution of the partnership.
No transferability of share : If you are a partner in any firm, you

cannot transfer your share or part of the company to outsiders, without the
consent of other partners. This creates inconvenience for the partner who
wants to leave the firm or sell part of his share to others.
Contd.
Lack of harmony: In a partnership firm every partner
has an equal right to participate in the management.
Also, every partner can place his or her opinion or
viewpoint before the management regarding any matter
at any time. Because of this, sometimes there is a
possibility of friction and discontent among the
partners. Difference of opinion may lead to the end of
the partnership and the business.
Limited capital: Since the total number of partners

cannot exceed 20, the capital to be raised is always
limited. It may not be possible to start a very large
business in partnership form.
Implied Authority Of Partners
The word implied authority denotes the authority to

bind the firm which arises by implication of law from
the fact of partnership. With the presence of implied
authority, a partner binds the firm with any of his act
done in connection with the business.
Section 18 lays down that every partners is an agent of
the firm for the purpose of the business of the firm, a
partner is both a principal and an agent.
Every partner embraces the character both of principal
and agent. But A partner is agent only for the business
of the firm.
Section 19(1) and 22 defines the scope of implied authority of a
partners .
Section 19(1) lays down that subjects to provisions of sections
22,the acts of a partner which is done to carry on in the usual
way business of the kind carried on by firm binds the firm.
Acts within implied authority

Every partner within the scope of his implied authority may bind the
firm by the following acts
1. He may sell goods of the firm, but he cannot sell the immovable property of
the firm without the consent of other partners.
2. He may purchase such goods on the credit of the firm as are necessary for
carrying on the business of the firm.
3. He may engage servants to perform the business of the firm.
4. He can receive payments of the debts due to the firm. But in the case of non
trading a partner cannot issue a post dated cheque.
Extension and restriction of partners
implied authority
Section 20 lays down that the implied
authority of any partners may be extended or
restricted by an agreement between all partners
Section 21 provides that a partners has
authority in an emergency to do all such acts
for the purpose of protecting the firm from
loss, as would be done by a persons of
ordinary prudence in his own case, under
similar circumstance .
Effects of admissions by a partners (section 23)
Admissions made by a partners concerning
the affairs of the firms if made in the ordinary course of
the partnership business are evidence against the firm
.such admissions made by partners will bind the firm .
An admissions by a person before he became a partner
in the firm is not evidence against the firm.
Effects of notice to acting partners (Section 24)

Notice to one partners relating to the business
of the firm ,operating as notice to the firm . The
partners to whom such notice is given must be acting
in the business at that time. so a notice to a dormant or
sleeping partners would not operate as a notice to the
firm.

Partnership

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Partnership

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The Indian

A contract of partnership is a special contract.

This Act extends to whole of India(except the

Section 4 Para 1 of the of the Indian

persons who have agreed to share the profits of

Thus, partnership is the name of legal

Persons who have agreed into partnership with one

is thus Invisibility which binds the

If the number of partners exceeds the aforesaid

Sharing of profit is an essential element of partnership but it is not a

Sharing of profit is Prima facie evidence.

Thus partnership can be presumed when

Partnership for a fixed period :- Where a provision is made by a contract

Particular partnership :- a partnership may be organized for the prosecution

General partnership :- where a partnership is constituted with respect to

The partnership Deed is to be duly stamped as per the

Availability of large resources: Since two or more

Flexibility in operations: A partnership firm is a flexible

Uncertain life: The partnership firm has no legal existence separate

No transferability of share : If you are a partner in any firm, you

Limited capital: Since the total number of partners

The word implied authority denotes the authority to

Acts within implied authority

Effects of notice to acting partners (Section 24)

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