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Formation of partnership firm Under Partnership Act 1932

Contents

Introduction
1 Partnership firm Definition & Meaning
o 1.1 Definition of Partners & Partnership Firm
2 Elements of Partnership Firm
o 2.1 Contractual Relationship
o 2.2 Number of Partners
o 2.3 Mutual Agency
o 2.4 Sharing of Profits & Losses
o 2.5 Existence of Lawful Business
3 Partnership firm Process and Procedure
o 3.1. Partnership Deed / Partnership Agreement
o 3.1.1 Example of Partnership deed
o 3.2. Partnership firm Registration
o 3.2.1. Application for Registration.
o 3.2.2. penalty for furnishing false particulars.
o 3.2.3. Alteration of any Information.
o 3.2.4. Forms of Registration.
o 3.2.5. Effect of non-registration.
o 3.2.6. Rectification of mistakes.
o 3.2.7. Inspection of Register and filed documents
4 Partnership firm Dissolution
Conclusion
Reference
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Introduction:
Partnership emerges out of the agreement between the partners which may be oral or written.
A written agreement of partnership is always desirable in order to avoid any dispute. An
agreement of partnership specifies all terms and conditions as regards the operation of the
partnership business so that the mis-understandings can be avoided.
When once a few partners agree to start a partnership business, they sign a partnership deed,
and at once the partnership firm comes into being, and such a partnership firm will have its
own name. The partners in such a firm may be active partners and some others may be sleeping
partners.
1. Partnership firm Definition & Meaning:
The proprietorship form of ownership suffers from certain limitations such as limited resources,
limited skill and unlimited liability. Expansion in business requires more capital and
managerial skills and also involves more risk. A proprietor finds him unable to fulfill these
requirements. This call for more persons come together, with different edges and start business.
For example, a person who lacks managerial skills but may have capital.
Another person who is a good manager but may not have capital. When these persons come
together, pool their capital and skills and organize a business, it is called partnership.
Partnership grows essentially because of the limitations or disadvantages of proprietorship.
According to Partnership act 1932, A partnership firm is
the relation between persons who have agreed to share the profits of business carried on by
all or any of them acting for all.
According to J. L. Hanson
a partnership is a form of business organization in which two or more persons up to a
maximum of twenty join together to undertake some form of business activity
The above definitions itself describes each and everything about a Partnership firm. In simple
words when two or more person come together to carry on a business, they are called
Individually called as Partners and Collectively they are known as Partnership Firm.
1.1. Definition of Partners & Partnership Firm:
The persons who own the partnership business are individually called partners and
collectively they are called as firm or partnership firm. The name under which partnership
business is carried on is called Firm Name.

2. Elements of Partnership Firm

Elements are the Essentials which are required to form a Partnership firm. In simple words, we
can call them as the Pillars without which it is not possible to form a Firm. There are various
Elements of a Partnership Firm. Few of them are as follows
2.1.Contractual Relationship:
It is essential that a Partnership should be in the form of a Contract. In simple words, it can be
said that a Partnership is itself a Result of a contract. Hence it is suggested that it must be
properly written and registered so as to bind the Partners in a legal manner. It can also be oral
in nature, but it is recommended to keep the same in writing so as to avoid chaos during
dissolution or profit sharing.
2.2.Number of Partners:
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The term Partner means a group of 2 or more people. So the name of Partnership firm itself
says much about the minimum number of Person who are required to form a partnership firm.
2.3.Mutual Agency:
As per Partnership firm A Partner is both an Agent and Principal of himself and other
Partners. In the definition of a firm, it is stated that a Partnership is a Business which must be
carried by all or any 1 (single partner) acting for all. Thus Mutual Agency is one of the most
important elements of a Partnership firm. It is essential that there should be mutual consent
between all the Partners.
2.4.Sharing of Profits & Losses:
It is essential that a Partnership firm should be formed for the Purpose of carrying out business
and that profit/loss should be divided among the partners as per the Agreement between them.
If the agreement does not provide for the profit sharing ratio, the whole profit/loss is divided
among the partners equally.
2.5.Existence of Lawful Business:
It is essential that a Partnership firm should be formed for conducting a Lawful business. The
term Business includes all types of trade and Profession which are considered as Lawful in
Bangladesh. A firm which is formed for conducting any unlawful business or a firm which is
formed for Charitable purpose, cannot be considered as a Partnership firm in the Eyes of Law.
3. Partnership firm Process and Procedure
Partnerships in Bangladesh are governed by the Partnership Act, 1932. As per the Partnership
Act, Registration of Partnership Firms is optional and is entirely at the discretion of the
partners. The Partners may or may not register their Partnership Agreement.
However, in case the partnership deed is not registered, they may not be able to enjoy the
benefits which a registered partnership firm enjoys.
Registration of Partnership Firm may be done before starting the business or anytime during
the continuance of partnership. However, where the firm intends to file a case in the court to
enforce rights arising from the contract, the registration should be done before filing the case.
The procedure for Registration of Partnership Firms in Bangladesh is fairly simple. An
application and the prescribed fees are required to be submitted to the Registrar of Firms of the
State in which the firm is situated. The following documents are also required to be submitted
along with the application: -
Application for Registration of Partnership in Form No. 1
Duly filled specimen of Affidavit
Certified True Copy of the Partnership Deed
Ownership proof of the principal place of business or rental/lease agreement thereof.
The application or statement must be signed by all the partners, or by their agents especially
authorized in this behalf. When the registrar is satisfied with the points stated in the partnership
deed, he shall record an entry of the statement in a register called the Register of Firms and
issue a Certificate of Registration
3.1. Partnership Deed / Partnership Agreement:
The deed of partnership is a legally binding agreement between the partners who are in business
together. It describes how the partnership will be run and the rights and duties of the partners
themselves. Its not necessary to have a deed of partnership in order to set up a partnership, but
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it's a good idea, as it will help to avoid misunderstandings and disputes between partners in the
future.
A partnership deed is nothing but an agreement between all the partners related to their duties,
their rights, mutual consent and many other things. In simple words, Partnership deed is the
relationship between partners.
Few of the most important clauses that a partnership deed contains are as
Relationship between partners regarding the business.
1. Name, Address, age etc. of the partners
2. Firm name
3. Nature of business
4. Location of business
5. Business address
6. Duration of the partnership
7. Mode of dissolution of partnership
8. Amount of capital contribution of each partner.
9. Share profit to be taken by each member
10. Mode of management
11. Power of the partners
12. Term of retirements (Under what condition a partner retired)
13. Expulsion of member
14. Interest of Advance
15. Indemnity fault or personal fault
These clauses are of utmost importance. Even if a single clause is missing, it will create huge
problem while registering a firm.
3.1.1. Example of Partnership Agreement:
PARTNERSHIP AGREEMENT
This PARTNERSHIP AGREEMENT is made on 20 march, 2017 between Abdus Salam and
Roman.
1. NAME AND BUSINESS. The parties hereby form a partnership under the name of Borisals
good partners to conduct a Real State Business. The principal office of the business shall be
in Dhaka.
2. TERM. The partnership shall begin on 1st April, 2017, and shall continue until terminated as
herein provided.
3. CAPITAL. The capital of the partnership shall be contributed in cash by the partners as
follows: A separate capital account shall be maintained for each partner. Neither partner shall
withdraw any part of his capital account. Upon the demand of either partner, the capital
accounts of the partners shall be maintained at all times in the proportions in which the partners
share in the profits and losses of the partnership.
4. PROFIT AND LOSS. The net profits of the partnership shall be divided equally between the
partners and the net losses shall be borne equally by them. A separate income account shall be
maintained for each partner. Partnership profits and losses shall be charged or credited to the
separate income account of each partner. If a partner has no credit balance in his income
account, losses shall be charged to his capital account.
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5. SALARIES AND DRAWINGS. Neither partner shall receive any salary for services
rendered to the partnership. Each partner may, from time to time, withdraw the credit balance
in his income account.
6. INTEREST. No interest shall be paid on the initial contributions to the capital of the
partnership or on any subsequent contributions of capital.
7. MANAGEMENT DUTIES AND RESTRICTIONS. The partners shall have equal rights in
the management of the partnership business, and each partner shall devote his entire time to
the conduct of the business. Without the consent of the other partner neither partner shall on
behalf of the partnership borrow or lend money, or make, deliver, or accept any commercial
paper, or execute any mortgage, security agreement, bond, or lease, or purchase or contract to
purchase, or sell or contract to sell any property for or of the partnership other than the type of
property bought and sold in the regular course of its business.
8. BANKING. All funds of the partnership shall be deposited in its name in such checking
account or accounts as shall be designated by the partners. All withdrawals are to be made upon
checks signed by either partner.
9. BOOKS. The partnership books shall be maintained at the principal office of the partnership,
and each partner shall at all times have access thereto. The books shall be kept on a fiscal year
basis, commencing _____________________ and ending _____________________, and shall
be closed and balanced at the end of each fiscal year. An audit shall be made as of the closing
date.
10. VOLUNTARY TERMINATION. The partnership may be dissolved at any time by
agreement of the partners, in which event the partners shall proceed with reasonable
promptness to liquidate the business of the partnership. The partnership name shall be sold with
the other assets of the business.
11. DEATH. Upon the death of either partner, the surviving partner shall have the right either
to purchase the interest of the decedent in the partnership or to terminate and liquidate the
partnership business.
12. ARBITRATION. Any controversy or claim arising out of or relating to this Agreement, or
the breach hereof, shall be settled by arbitration in accordance with the rules, then obtaining,
of the American Arbitration Association, and judgment upon the award rendered may be
entered in any court having jurisdiction thereof.

Executed this ______________ day of _________________, 20_____ in

_____________________ [city], _____________________ [state].
Witness: .
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3.2. Partnership firm Registration:

3.2.1. Application for Registration:
Under Section 58 of the Act, a firm may be registered at any time ( not merely at the time of
its formation but subsequently also ) by filing an application with the Registrar of Firms of the
area in which any place of business of the firm is situated or proposed to be situated.
Application shall contain: -
name of the firm
place or principal place of business
names of any other places where the firm carries on business.
date on which each partner joined the firm
name in full and permanent address of partners.
duration of the firm
Application shall be signed and verified by all the partners or their duly authorized
agents.
Application shall be accompanied by prescribed fee as well as the following documents:
Prescribed Registration Form for Incorporation of a partnership firm. (Form No. 1 and
Specimen of Affidavit)
certified true copy of the Partnership deed entered into.
ownership proof of the principal place of business
Name of the 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 firms name.
Under Section 59 of the Act, when the Registrar of Firms is satisfied that the provisions of
section 58 have been duly complied with, he shall record an entry of the statement in the
Register of Firms and issue a Certificate of Registration.
3.2.2. penalty for furnishing false particulars (Section 70)
Any person who signs any statement, amending statement, notice or intimation under this
Chapter containing any particular which he knows to be false or does not believe to be true or
containing particulars which he knows to be incomplete or does not believe to be complete,
shall be punishable with imprisonment which may extend to three months, or with a fine or
with both.
3.2.3. Alteration of any Information:
Any alterations, subsequent to Registration shall be notified to the registrar:-
Change in firm name and principal place of business (Section 60) shall require sending
of a new application form along with the prescribed fee, duly signed and verified by all
the partners.
Change relating to opening and closing of branches. (Section 61)
When a registered firm discontinues business at any place or begins to carry on business
at any place, such place not being its principal place of business, any partner or agent
of the firm may send intimation thereof to the Registrar.
Change in the name and permanent address of any partner (Section 62)
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When any partner in a registered firm alters his name or permanent address, an
intimation of the alteration may be sent by any partner or agent of the firm to the
Registrar
Change in the constitution of the firm and its dissolution [Section 63(1)]
when change occurs in the constitution of the firm, any of the new, continuing or the
outgoing partner, while when a registered firm is dissolved, any person who was a
partner immediately before the dissolution or the agent of any such partner or person
specially authorized on his behalf, may give notice of such a change to the Registrar,
specifying the date thereof.
Under Section 63(2), when a minor who has been admitted to the benefits of partnership
in a firm attains majority and elects to become or not to become a partner, he or his
agent specially authorized in this behalf, may give notice to the Registrar that he has or
has not become a partner.
3.2.4. Forms of Registration:
Accordingly, the various forms prescribed under the Partnership Act, 1932, for the alterations
in the registered partnership firm are: -

a. Form No. II: - For change of principle place of business & change in the name of the firm.
b. Form No. III: - For change of the other then principle place of business.
c. Form No. IV: - For change of name of the partners & permanent address of the partners.
d. Form No. V: - For change of constitution of forms & addition or retirement of partner.
e. Form No.VI: - For dissolution of the firm
f. Form No. VII: - For minor partner attains the age of majority.

3.2.5. Effect of non-registration:

Partnership Act, 1932 does not provide for compulsory registration of firms. It is optional for
partners to set the firm registered and there are no penalties for non-registration.
However, Section 69 of the Act which deals with the effects of non-registration denies certain
rights to an unregistered firm. Under the Act: -
A partner of an unregistered firm cannot file a suit in any court against the firm or other
partners for the enforcement of any right arising from a contract or right conferred by
the Partnership Act unless the firm is registered and the person suing is or has been
shown in the Register of Firms as a partner in the firm.
No suits to enforce a right arising 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 and the persons
suing are or have been shown in the Register of Firms as partners in the firm.
An unregistered firm or any of its partners cannot claim a set off (i.e. mutual adjustment
of debts owned by the disputant parties to one another) or other proceedings in a dispute
with a third party.
Hence, every firm finds it advisable to get itself registered sooner or later.
However, non-registration of a Partnership firm shall not affect: -
The rights of third parties to sue the firm and/or its partners.
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The firms or partners in the firms which have no place of business in the territories to
which this Act extends, or whose places of business in the said territories are situated
in areas to which the act does not apply.
any suit or claim or set-off not exceeding one hundred rupees in value which, in the
Presidency-towns, is not of a kind specified in Section 19 of the Presidency Small Cause
Courts Act, 1882 (15 of 1882), or outside the Presidency- towns, is not of a kind
specified in the Second Schedule to the Provincial Small Cause Courts Act, 1887 (9 of
1887), to any proceeding in execution or other proceeding incidental to or arising from
any such suit or claim.
the enforcement of any right to sue for the dissolution of a firm or for accounts of a
dissolved firm, or any right or power to realize the property of a dissolved firm.
the powers of an official assignee, receiver or Court under the Presidency-towns
Insolvency Act, 1909 (3 of 1909), or the Provincial Insolvency Act, 1920 (5 of 1920),
to realize the property of an insolvent partner.
3.2.6. Rectification of mistakes (Section 64 of the Act)
The Registrar shall have power at all times to rectify any mistake in order to bring the
entry in the Register of Firms relating to any firm into conformity with the documents
relating to that firm filed under this Act.
On application made by all the parties who have signed any document relating to a firm
filed under this Act, the Registrar may rectify any mistake in such document or in the
record or note thereof made in the Register of Firms.
3.2.7. Inspection of Register and filed documents (Section 66 of the Act:)
The Register of Firms shall be open to inspection by any person on payment of such
fee as may be prescribed.
All statements, notices and intimations filed under this Act shall be open to inspection,
subject to such conditions and on payment of such fee as may be prescribed.
Grant of copies (Section 67 of the Act)
The Registrar shall on application furnish to any person, an payment of such fee as may be
prescribed, a copy, certified under his hand, of any entry or portion thereof in the Register of
Firms
4. Partnership firm Dissolution:
Dissolution of a Partnership and Dissolution of a Partnership firm are 2 Different things. In
case of Partnership dissolution, the agreement of Partnership is terminated.
Whereas Dissolution of a Partnership means the closing down or the Dismissal of the firm.
Just like the formation, dissolution of Partnership firm is quite easy. There are various ways in
which a Partnership Business can be dissolved. Few of them are as follows
Dissolution of a firm by the order of the court
Dissolution order is issued by the court in the circumstances like If a Partner becomes of
unsound mind, or if he is unable to perform his duties or if he is found guilty of misconduct
etc.
The court can also issue a dissolution order if it satisfied that the firm cannot be carried except
with a loss.
Dissolution of a firm without the order of the court
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In all the other cases like If all the partners agree to dissolve the Partnership or the happening
of a certain contingencies like death of a partner or in the case if a Partner gives his assent in
writing to all the other partners of his intention to dissolve a firm, a courts order is not needed
to dissolve the firm.
Upon dissolution, the assets are sold, the liabilities are paid off, and the account of the partners
are settled.
Conclusion:
Under the above discussion, we can say that partnership business is a legal business and its
partners are also legal. Because they have to perform some formalities. But except these the
most important thing of this business is belief. Without belief everything is baseless. As the
partnership business is consisting of some partners. So, the partners must be honest and faithful
to each other. If there is lack of perfect relationship among the partners the business must be
dissolve. So, we can say that Partnership Business is a Business Based on Fiduciary
Relationship.
References:
1. Commercial law including company law & Industrial law
2. Textbook on Partnership Act with Limited Liability Partnership Act
By Dr. Madhusudan Saharay
3. Company Law By Brenda Hannigan