The Indian Partnership Act 1932

The Indian Partnership Act 1932
Business Legislation
RTMNU MBA Semester - I
Dr. Ambedkar Institute of Management Studies & Research,
Deeksha Bhoomi, Nagpur
Dr. M. J. Siddiqui
INTRODUCTION
In India it is governed by the Indian
Partnership Act, 1932, which extends
to the whole of India except the State
of Jammu and Kashmir. It came into
force on 1st October 1932.
A 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 or all.
DAIMSR /Business Legislation /MBA Semester I / Dr. M. J. Siddiqui
ELIGIBILITY
A partnership agreement can be
entered into between persons who
are competent to contract. Every
person who is of the age of majority
according to the law to which he is
subject and who is of sound mind
and is not disqualified from
contracting by any law to which he is
subject can enter into a partnership.
ELIGIBILITY
The following can enter into a
partnership
INDIVIDUAL
PARTNERS OF A FIRM
HINDU UNDIVIDED FAMILY
COMPANY
TRUSTEES
ELIGIBILITY
1. INDIVIDUAL: An individual, who
is competent to contract, can
become a partner in the
partnership firm. If there are more
than two partners in a firm, an
individual can be a partner in his
individual capacity as well as in a
representative capacity as Karta
of the Hindu undivided family.
ELIGIBILITY
2. FIRM: A partnership firm is not a
person and therefore a firm can not
enter into partnership with any firm
or individual. But a partner of the
partnership firm can enter into
partnership with other persons and
he can share the profits of the said
firm with his other co-partners of
the parent firm.
ELIGIBILITY
3. HINDU UNDIVIDED FAMILY: A Karta
of the Hindu undivided family can
become a partner in a partnership in
his individual capacity, provided the
member has contributed his self
acquired or personal skill and labour
4. COMPANY: A company is a juristic
person and therefore can become a
partner in a partnership firm, if it is
authorized to do so by its objects.
ELIGIBILITY
5. TRUSTEES: Trustees of private
religious trust, family trust and
trustees of Hindu mutts or other
religious endowments are juristic
persons and can therefore enter into
partnership, unless their constitution
or objects forbid
NUMBER OF PARTNERS
The number of partners in a firm
shall not exceed 20 and a partnership
having more than 20 persons is
illegal.
If the partnership is between the
karta or member of Hindu undivided
family the other members of the joint
Hindu family will not be taken into
account.
ESSENTIALS OF A PARTNERSHIP
1. AGREEMENT - The relationship between
partners arises from contract and not status. If
after the death of sole proprietor of a firm, his
heirs inherit firm they do not become partners,
as there is no agreement between them.
2. SHARING OF PROFITS The partners may
agree to share profits out of partnership
business, but not share the losses. Sharing of
losses is not necessary to constitute the
partnership. The partners may agree to share
the profits of the business in any way they like.
ESSENTIALS OF A PARTNERSHIP
3. BUSINESS Business includes every trade,
occupation, or profession. There must be

course of dealings either actually continued or
contemplated to be continued with a profit
motive and not for sport or pleasure.
4. RELATION BETWEEN PARTNERS The
partner while carrying on the business of the

partnership acts a principle and an agent. He is
a principal because he acts for himself, and he
is an agent as he simultaneously acts for the
rest of the partners.
GENERAL DUTIES OF A PARTNER

Section 9 of Partnership Act lays down
that all the partners are bound
To carry on the business of the firm to
the greatest common advantage,
To be just and faithful to each other, and
To render (present) to any partner or his
legal representative the true
accounts and full information of all
things affecting the firm.

1. Duty to indemnify for loss caused by fraud
2. Duty to attend diligently to his duties [Sec. 12 (b)]
3. Duty to work without remuneration [Sec. 13(b)]
4. Duty to contribute (make good) to the losses [(Sec.
13(b)]
5. Duty to indemnify for wilful neglect [Sec. 13 (f)]
6. Duty to use firms property exclusively for the firm.
(Sec. 15)
7. Duty to account for personal profits derived [Sec.
16(a)]
8. Duty not to compete with the business of the firm
[Sec. 16 (b)]
9. Not to assign (transfer) his interest in the firm

Subject to a contract to the contrary between the
partners the following are the duties of a partner.
1. To carry on the business of the firm to the

greatest common advantage. Good
faith requires that a partner shall not
obtain a private advantage at the
expense of the firm.
2. Where a partner carries on a rival
business in competition with the
partnership, the other partners are
entitled to restrain him.

3. To be just and faithful. Partnership as a rule
is presumed to be based on mutual trust and
confidence of each partner, not only in the skill
and knowledge, but also in the integrity, of
each other partner
4. To render true accounts and full
information of all things done by them to
their co-partners.
5. To indemnify for loss caused by fraud.
Every partner shall indemnify the firm for loss
caused to it by his fraud in the conduct of the
business of the firm.

6. Not to carry on business competing with
the firm. If a partner carries on any business of
the same nature as and competing with that of
the firm, he shall account for and pay to the firm
all profits made by him in that business.
7. To indemnify the firm for willful neglect of a
partner. A partner shall indemnify the firm for any
loss caused to it by his willful neglect in the
conduct of the business of the firm.
8. To carry out the duties created by the contract.
The partners are bound to perform all the duties
created by the agreement between the partners.
RIGHTS OF THE PARTNERS

Right to take part in the conduct of the business [Sec. 12(a)]
Right to be consulted [Sec. 12 (c)]
Right of access to books [Sec. 12 (d)]
Right to share the profits [Sec.13 (b)]
Right to interest on capital [Sec. 13 (c)]
Right to interest on advances (Loans) [Sec. 13 (d)]
Right to indemnity [sec. 13 (e)]
Right to prevent the introduction of new partner [Sec.31 (1)]
Right to retire. [Sec. 32(1)]
Right not to be expelled (sec. 33)
Right to carry on competing business after retirement
[sec.36(1)]
Right to dissolve the firm (sec. 43)

Subject to a contract to the contrary a
partner has the following rights:
1. To take part in the conduct and
management of the business
2. To express opinion in matters connected
with the business. He has a right to be
consulted and heard in all matters affecting
the business of the firm.
3. To have free access to all the records,
books of account of the firm and take copy
from them.

4. To share in the profits of the business. Every
partner is entitled to share in the profits in
proportion agreed to between the parties.
5. To get interest on the payment of advance.
Where a partner makes for the purpose of the
business, any payment or advance beyond the
amount of capital he has agreed to subscribe,
he is entitled to interest thereon at the rate of
6% per annum.
6. To be indemnified by the firm against losses or
expenses incurred by him for the benefit of the
firm.
RESTRICTIONS ON AUTHORITY
OF A PARTNER
The Following Restrictions are governed by
Contract Act and Partnership Act.
1. The partners may by contract, extend or
restrict the implied authority of any
partner.
RESTRICTIONS ON AUTHORITY
OF A PARTNER
2. Under the Partnership Act in the absence of any
usage of trade to the contrary, the implied
authority of a partner does not empower him to
do the following acts:
A. Submit a dispute relating to the business of a firm to
arbitration.
B. Open a bank account in his own name
C. Compromise or relinquish any claim of the firm
D. Admit liability in a suit or proceeding against the firm
E. Withdraw a suit or proceeding on behalf of the firm.
F. Acquire immovable property on behalf of the firm
G. Transfer immovable property belonging to the firm.
H. Enter into partnership on behalf of the firm.
STATUS OF MINOR AS A PARTNER

1. A person who is a minor according to the law, to
which he is subject, may not be a partner in a firm,
but, with the consent of all the partners for the time
being, he may be admitted to the benefits of
partnership.
2. Such minor has a right to such share of the property
and of the profits of the firm as may be agreed upon,
and he may have access to and inspect the accounts
of the firm
3. Such minors share is liable for the acts of the firm,
but the minor is not personally liable for any such act.
4. Such minor may not sue the partners for an account
or payment of his share of the property or profits of
the firm

5. At any time within six months of his
attaining majority, or of his obtaining
knowledge that he had been admitted to
the benefits of partnership, whichever date
is later, such person may give public notice
that he has elected to become or not to
become a partner in the firm, and such
notice shall determine his position as
regards the firm, provided that, if he fails to
give such notice, he shall become a partner
in the firm on the expiry of the said six
months.

6. Where such person elects to become
a partner:
A. his rights and liabilities as a minor
continue upto the date on which he
becomes a partner, but he also becomes
personally liable to third parties for all acts
of the firm done since he was admitted to
the benefits of the partnership, and
B. his share in the property and profits of the
firm shall be the share to which he was
entitled as a minor

7. Where such person elects not to
become a partner:
A. his rights and liabilities shall continue
to be those of a minor upto the date on
which he gives public notice,
B. his share shall not be liable for any acts
of the firm done after the date of the
notice, and
C. he shall be entitled to sue the partners
for his share of the property and profits.

8. Where any person has been admitted as
a minor to the benefits of partnership in a
firm, the burden of proving the fact,
that such person had no knowledge of
such admission until a particular date
after the expiry of six months of his
attaining majority,
shall lie on the person asserting that
fact.
REGISTRATION (Sec 56 to 71)

It is not compulsory to register the firm. However there are
serious effects of non-registration.
No suit to enforce a right arising from a contract or
conferred by the Indian Partnership Act shall be instituted
in any court by or on behalf of any person suing as partner
in a firm against, the firm or any partner in the firm, unless
the firm is registered and the person suing is or has been
shown on the Register of firms as a partner in the firm
Similarly, no suit to enforce a right rising from a contract
shall be instituted in any court by or on behalf of a firm
against any third party unless the firm is registered.
PROCEDURE FOR REGISTRATION

The registration of a firm may be effected at any time
by sending by post or delivering to the Registrar of
Firms of the area in which any place of business of
the firm is situated or proposed to be situated, a
statement in the prescribed form and accompanied
by the prescribed fee, stating :
1. The firm name
2. The place or principal place of business of the firm;
3. The names of any other places where the firm
carries on business;
4. The date when each partner joined the firm;
5. The names in full and permanent addresses of the
partners; and
6. The duration of the firm.

The statement shall be signed and verified in the
manner prescribed by all the partners or by their
agents specially authorised on their behalf.
A firm name shall not contain any of the following
words viz. "Crown", Emperor", "Empress", "Empire",
"Imperial", "King", "Queen", "Royal", or words
expressing or implying the sanction, approval or
patronage of Government, except when the State
Government signifies its consent to the use of such
words as part of the firm name by order in writing.
All the States have framed rules prescribing the
forms, fee for registration and verification of the
statement. The application for registration has to be
made to the Registrar of Firms in the prescribed form.

All the States have framed rules prescribing the
forms, fee for registration and verification of the
statement. The application for registration has to
be made to the Registrar of Firms in the
prescribed form.
When the Registrar is satisfied that the
provisions have been complied with, he shall
record and entry of the statement in a register
called the Register of Firms and shall file the
statement. The Registrar is the competent
authority and if he acts bona fide and follows the
procedure, his satisfaction cannot be challenged.
DISSOLUTION OF FIRM
Dissolution of firm:
It involves closing down of the business as
the partnership between all the partners
comes to an end.
Dissolution of Partnership:
It involves a change in the relationship
amongst the partners due retirement,
expulsion etc., and the business of the
firm does not necessary come to an end.
It leads to reconstitution of firm
DISSOLUTION OF FIRM
A firm may be dissolved in the following
manner
1. By agreement (sec.40)
2. By Compulsory Dissolution (Sec.41)
3.
Dissolution on the happening of
Certain Contingencies (Sec.42)
4. Dissolution by notice (Sec.43
5. Dissolution by the Court: (Sec.44).
MODES OF DISSOLUTION OF FIRM

1. By agreement (sec.40) :
A firm may be dissolved any time with the
consent of all the partners of the firm.
Partnership is created by contract, it can
also be terminated by contract.
2. By Compulsory Dissolution (Sec.41) :
A firm is dissolved(a) by the adjudication of all the partners or
of all the partners but one as insolvent, or
(b) by the happening of any event which
makes the business of the firm unlawful.

3. Dissolution on the happening of Certain
Contingencies (Sec.42) :
Subject to contract between the partners, a firm is
dissolved(a) if constituted for a fixed term, by the expiry of that term;
(b) if constituted to carry out one or more adventures of
undertakings, by the completion thereof,
(c) by the death of a partner, and
(d) by the adjudication of a partner as an insolvent.
The partnership agreement may provide that the firm
will not be dissolved in any of the aforementioned
cases. Such a provision is valid.

4. Dissolution by notice (Sec.43):
Where the partnership is at will, the firm may
be dissolved by any partner giving notice in
writing to all other partners of his intention to
dissolve the firm.
The firm is dissolved as from the date
mentioned in the notice as the date of
dissolution, or, if no date is mentioned, as
from the date of communication of the notice.

5. Dissolution by Courts (Sec.44):
The court may dissolve a firm at the suit

of any partners on any of the following
grounds namelyA. INSANITY OF A PARTNER:
That a partner has become of unsound
mind. The insanity of a partner does not
ipso facto dissolve the firm and the next
friend or continuing partners has to file
suit foe dissolution
B. PERMANENT INCAPACITY OF A
PARTNER: that a partner has become
permanently incapable of performing
his duties as partner.
C. GUILTY CONDUCT AFFECTING
BUSINESS : That a partner is guilty of
conduct, which is likely to affect
prejudicially the carrying on the
business of the firm.

D. BREACH OF PARTNERSHIP AGREEMENT :
That a partner willfully or persistently

commits breach of agreements relating to
the management of the affairs of the firm
or the conduct of its business or
otherwise conducts himself in matters
relating to the business, that it is not
reasonably practical for the other
partners to carry on the business with
him.

E. TRANSFER OF INTEREST OF A PARTNER
: that a partner has in any way transferred the
whole of his interest in the firm to a third party.
F. LOSS: That the business of the firm cannot
be carried on save at a loss
G. ANY JUST AND EQUITABLE GROUND :
On any other ground that renders it just an
equitable that the firm should be dissolved
CONSEQUENCES OF DISSOLUTION
Rights & liabilities of partners on dissolution (Sec.45
to 55 ).
1. Right to have the business wound up (Sec.46 )

2. Continuing authority of partners for purpose of
winding up (Sec.47)
3. Right to share in personal profits earned after
dissolution (Sec.50 )
4. Right to have premium returned on premature
dissolution (Sec.51)
5. Rights where partnership contract is rescinded
for fraud or misrepresentation (Sec.52)
6. Right to restrain the use of firm name or firm
property (Sec.53)
CONSEQUENCES OF DISSOLUTION
Liabilities of partners on dissolution :
1. Continuing liability until public notice
(Sec.45)
2. Liability for continuing authority of
Partners for purpose of winding up
(Sec.47)
Difference Between Partnership and Company
PARTNERSHIP
COMPANY
Legal Status :
No existence
A separate legal entity
Mutual Agency:
Every partners is an agent
A member of the
Of the other partners
Company is not an
Agent
of other members
Liability of Members:
Liability of Partner is unlimited Limited to unpaid
share.
Transfer of Interest
CHECKLIST FOR DRAFTING A PARTNERSHIP

A DEED
partnership deed should contain the
following clauses
1. Name of the parties
2. Nature of business
3. Duration of partnership
4. Name of the firm
5. Capital
6. Share of partners in profits and losses
7. Banking, Account firm
8. Books of account
CHECKLIST FOR DRAFTING A PARTNERSHIP

ADEED
partnership deed should contain the
following clauses
9. Powers of partners
10.Retirement and expulsion of partners
11.Death of partner
12.Dissolution of firm
13.Settlement of disputes

The Indian Partnership Act 1932

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The Indian Partnership Act 1932

DAIMSR /Business Legislation /MBA Semester I / Dr. M. J. Siddiqui

occupation, or profession. There must be

partner while carrying on the business of the

GENERAL DUTIES OF A PARTNER

DAIMSR /Business Legislation /MBA Semester I / Dr. M. J. Siddiqui

GENERAL DUTIES OF A PARTNER

9. Not to assign (transfer) his interest in the firm

GENERAL DUTIES OF A PARTNER

1. To carry on the business of the firm to the

GENERAL DUTIES OF A PARTNER

GENERAL DUTIES OF A PARTNER

RIGHTS OF THE PARTNERS

RIGHTS OF THE PARTNERS

RIGHTS OF THE PARTNERS

DAIMSR /Business Legislation /MBA Semester I / Dr. M. J. Siddiqui

STATUS OF MINOR AS A PARTNER

STATUS OF MINOR AS A PARTNER

STATUS OF MINOR AS A PARTNER

STATUS OF MINOR AS A PARTNER

STATUS OF MINOR AS A PARTNER

DAIMSR /Business Legislation /MBA Semester I / Dr. M. J. Siddiqui

REGISTRATION (Sec 56 to 71)

DAIMSR /Business Legislation /MBA Semester I / Dr. M. J. Siddiqui

PROCEDURE FOR REGISTRATION

PROCEDURE FOR REGISTRATION

PROCEDURE FOR REGISTRATION

DAIMSR /Business Legislation /MBA Semester I / Dr. M. J. Siddiqui

MODES OF DISSOLUTION OF FIRM

MODES OF DISSOLUTION OF FIRM

DAIMSR /Business Legislation /MBA Semester I / Dr. M. J. Siddiqui

MODES OF DISSOLUTION OF FIRM

MODES OF DISSOLUTION OF FIRM

The court may dissolve a firm at the suit

MODES OF DISSOLUTION OF FIRM

MODES OF DISSOLUTION OF FIRM

That a partner willfully or persistently

MODES OF DISSOLUTION OF FIRM

1. Right to have the business wound up (Sec.46 )

DAIMSR /Business Legislation /MBA Semester I / Dr. M. J. Siddiqui

Difference Between Partnership and Company

DAIMSR /Business Legislation /MBA Semester I / Dr. M. J. Siddiqui

CHECKLIST FOR DRAFTING A PARTNERSHIP

CHECKLIST FOR DRAFTING A PARTNERSHIP

DAIMSR /Business Legislation /MBA Semester I / Dr. M. J. Siddiqui

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