PARTNERSHIP

ORGANISATION
 MEANING & NATURE
• Meaning : Section 4 of the Indian Partnership Act, 1932 defines partnership as
“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.”
• Persons entering into partnership agreement are known as ‘partners’ and
collectively as ‘firm’ or ‘partnership firm’. The name in which the business is
carried on is called ‘firm name’.
• The partners provide the capital and share the responsibility for running the
business of the firm on an agreed basis.
• In some cases, however, one partner provides whole or most of the capital and
other contributes technical or managerial skill with or without some portion of
capital.
• The terms and conditions of partnership are usually mentioned in the
Partnership Agreement known as the Partnership Deed.
FEATURES
Two or More Persons
Contractual Relation
Lawful Business
Sharing of Profit
Agency Relationship
Unlimited Liability
Non-Transferability of Interest
 • Partnership-at-Will
KINDS OF • Particular Partnership
PARTNERS • Limited Partnership
HIP FIRMS
• Limited Liability Partnerships
 • Active or Actual Partner
• Nominal Partner
• Sleeping or Dormant Partner
KINDS OF • Partner in Profits Only
PARTNER • Sub-Partner
• Partner by Estoppel
S • Minor as a partner
 Good Faith

IDEAL Common Approach

PARTNERS
Written Agreement
HIP
REQUISITE Registration
S
Adequate Capital

Skills and Talents

Stability
 MERITS OF
PARTNERSHIP
• Ease of Formation
• Larger Resources
• Combined Abilities and Judgment
• Flexibility
• Quick Decisions
• Cautious Operations
• Survival Capacity
• Better Human or Public Relations
• Protection of Minority Interest
DEMERITS OF
PARTNERSHIP
FIRM
• Lack of Harmony
• Limited Resources
• Instability of Business
• Lack of Public Confidence
• Risk of Implied Authority
• Unlimited Liability
• Non-Transferability of Interest
• Social Losses
 PARTNERSHIP DEED
A written agreement setting out all the terms and conditions of
partnership is known as Partnership Deed.
• The usual contents are;
• Name of the firm
• Nature of the proposed business to be carried on by the partnership.
• Duration of the partnership business whether is to be run for a fixed
period of Time or whether it is to be dissolved after completing a
particular venture.
• The capital to be contributed by each partner. It must be
remembered that capital Contribution is not necessary to become a
partner for, one can contribute his organizing power business
acumen, managerial skill etc. instead of capital.
• The amount that can be withdrawn from the firm by each partner.
• The ratio in which the profits or losses are to be shared. (If the profit
sharing ratio is not specified in the Deed, all the partners must share
the profits and bear the losses equally)
• Whether any interest is to be allowed on capital and if so, the rate of
interest.
• Rate of interest on drawings, if any.
• Whether loans can be accepted from the partners and if so the rate
of interest Payable thereon.
• Amount of salary or commission payable to partners for their
services. (Unless this is specifically provided, no partner is entitled
to any salary)
• Maintenance and audit. (xii) Matters relating to admission of a new
partner. (xiii) Matters relating to retirement of a partner. The
arrangement to be made for paying out the amount due to a retired
or deceased partner must also be stated. (xiv) Method of valuing
goodwill on the admission death or retirement of a partner. (xv)
Distribution of managerial responsibilities. The work that is
entrusted to each partner is better stated in the deed itself.
• (xvi) Procedure for dissolution of the firm and the mode of
settlement of as thereafter. (xvii) Arbitration in case of disputes
among partners. The deed should provide the method for settling
disputes or difference of opinion. This clause will avoid costly
litigations.
 DISSOLUTION

• When the relation between all the partners of the

firm comes to an end, this is called dissolution of
the firm. Section 39 of the Indian Partnership Act,
provides that “the dissolution of the partnership
between all the partners of a firm is called the
dissolution of a firm.” It implies the complete
break down of the relation of partnership between
all the partners.
Dissolution of partnership is different
from the dissolution of firm.

• Dissolution of a partnership firm merely involves a change in

the relation of partners; whereas the dissolution of firm
amounts to a complete closure of the business.
• When any of the partners dies, retires or become insolvent
but if the remaining partners still agree to continue the
business of the partnership firm, then it is dissolution of
partnership not the dissolution of firm.
• Dissolution of partnership changes the mutual relations of
the partners. But in case of dissolution of firm, all the
relations and the business of the firm comes to an end.
• On dissolution of the firm, the business of the firm ceases to
exist since its affairs are would up by selling the assets and
by paying the liabilities and discharging the claims of the
partners. The dissolution of partnership among all partners
of a firm is called dissolution of the firm.
 Dissolution of a Partnership
firm may be effected in the
following ways:

• Dissolution without the intervention of

the Court.
• Dissolution by Court
 Dissolution without the
intervention of Court:-

1. By Agreement (S.40):- A partnership firm can be dissolved

any time with the consent of all the partners whether the
partnership is at will or for a fixed duration. A partnership
can be dissolved in accordance with the terms of the
Partnership Deed or of the separate agreement.
2. Compulsory Dissolution (Sec.41):- In case, any of the
following events take place then it becomes compulsory for the
firm to dissolute:
• Insolvency of Partners:- In case all the partners or all the
partners except one become insolvent
• Unlawful Business:- In case the firm’s business become
unlawful on the happening of a subsequent event. e.g.
trading with alien country
3. Dissolution on the happening of contingent event (S.42) A firm
may be dissolved on the happening of any of the following
contingent event:-
• Expiry of Fixed Period:- If the firm is constituted for fixed
period, then the firm is dissolves automatically.
• On achievement of specific task:- If the firm has been
constituted for the achievement of specific task, on
achievement of that task, firm ceases to exist, unless there is
an agreement to the contrary.
• Death of Partner:- Death of any of the partner dissolves the
partnership.
• Insolvency of Partner:- in the absence of a contract to the
contrary, the insolvency of any of the partner may dissolve
the firm.the rule shall apply even though the partnership has
been constituted for a fixed term and the term has not yet
expired or has been constituted for particular venture and
the same has yet not been completed.
• Resignation of Partner:- Resignation by any of the partners
dissolves the partnership
4. Dissolution by notice (S.43) :-In case of partnership at will, a partner can dissolve it by giving

written notice of dissolution to other partners duly signed by him. Notice must be very clear and

certain. A notice once given cannot be withdrawn without the consent of other partners.
 Dissolution by Court:-
• Insanity of Partner:- On the application of any of the partner, court
may order for the dissolution of the firm if a partner has become of
an unsound mind. Lunacy of a partner does not itself dissolve the
partnership but it will be a ground for dissolution at the instance of
other partners. It is not necessary that the lunacy should be
permanent. In the case of a dormant partner the court may not
order dissolution even on the ground of permanent insanity, except
in special circumstances.
• Incapacity of Partner:- If a partner has become permanent in
capable of discharging his duties and obligations then court may
order for the dissolution of firm on the application of any of the
partner. where a partner is imprisoned for a long period of time the
court may dissolve the partnership.
• Misconduct of Partner:- If any partner other than partner suing is
responsible for any loss to the firm, which amounts to misconduct
and prejudicially affects the carrying on of business then the court
may order for the dissolution of the firm.
• Constant breach of agreement by partner:- The court may order for
the dissolution of the firm if the partner other than the suing
partner is found guilty for constant breach of agreement regarding
the conduct of business or the management of the affairs of the firm
and it becomes impossible to continue the business with such
partner.
• Transfer of Interest:- When any of the partner other than the suing partner
transfers whole of its share to the third party for permanently.
• Continuous Losses:- The court may order for dissolution if the firm is
continuously suffering losses and there is no more capital available for the future
growth of the firm.
• Just and Equitable:- The court may order for dissolution on any other ground
which court think is just, fair and equitable. e.g. loss of total confidence between
the partners.
Registration of Firms: The Indian partnership Act does not make registration of a
partnership compulsory. But the disabilities of non-registration virtually make it compulsory.
• Procedure for Registration: A partnership firm can be registered whether at the time of
its formation or even subsequently. You need to file an application with the Registrar of
Firms of the area in which your business is located.
• • Application for partnership registration should include the following information: –
Name of your firm – Name of the place where business is carried on – Names of any other
place where business is carried on – Date of partners joining the firm – Full name and
permanent address of partners. – Duration of the firm
• • Every partner needs to verify and sign the application
• • Ensure that the following documents and prescribed fees are enclosed with the
registration application :
• – Application for Registration in the prescribed Form – I
 Contd.
• Duly filled Specimen of Affidavit – Certified copy of the Partnership deed
• – Proof of ownership of the place of business or the rental/lease agreement
thereof It may be noted here that the name of your partnership firm should not
“contain any words which may express or imply the approval or patronage of the
government except where the government has given its written consent for the
use of such words as part of the firm’s name”. Once the Registrar of Firms is
satisfied that the application procedure has been duly complied with, he shall
record an entry of the statement in the Register of Firms and issue a Certificate of
Registration.