Presentation Transcript

Partnership Act 1932 : Partnership Act 1932 Partnership Contract : concurrent sub
ject ( in Entry 7 of List III (Seventh Schedule to Constitution). Indian Partnersh
ip Act is a Central Act, special types of Contract Unlimited liability is the ma
jor disadvantage Partnership Firm is not a legal entity Thursday, October 15, 20
09 1 Dr. Tabrez Ahmad,KLS, KIIT BBSR

Definition of partnership : Definition of partnership Partnership is the relation

between persons who have agreed to share the profits of a business carried on b
y all or any one of them acting for all. Thursday, October 15, 2009 2 Dr. Tabrez
Ahmad,KLS, KIIT BBSR

ESSENTIALS OF A PARTNERSHIP : ESSENTIALS OF A PARTNERSHIP AGREEMENT ASSOCIATION

OF TWO OR MORE PERSONS SHARING OF PROFITS BUSINESS RELATION BETWEEN PARTNERS The
No. of partners in a firm shall not exceed 20 partnership having more than 20 p
ersons is illegal . When there is partnership between two firms, all the partner
s of each firm will be taken into account. If the partnership is between the kar
ta or member of Hindu undivided family the members of the joint Hindu family wil
l not be taken into account Thursday, October 15, 2009 3 Dr. Tabrez Ahmad,KLS, K
IIT BBSR

Essentials elaborated : Essentials elaborated A. agreement competent to contract

. the age of majority sound mind and is not disqualified from contracting by any
law to which he is subject B The following can enter into a partnership INDIVID
UAL FIRM HINDU UNDIVIDED FAMILY COMPANY TRUSTEES Thursday, October 15, 2009 4 Dr
. Tabrez Ahmad,KLS, KIIT BBSR

Slide 5: MUTUAL AGENCY IS THE REAL TEST - The real test of partnership firm is mutu
al agency , i.e. whether a partner can bind the firm by his act, i.e. whether he c
an act as agent of all other partners. Persons who have entered into partnership
with one another are called individually partners and collectively a firm , and the
name under which their business is carried on is called the firm name Thursday, O
ctober 15, 2009 5 Dr. Tabrez Ahmad,KLS, KIIT BBSR

Slide 6: Partnership Firm is not a legal entity - It may be surprising but true
that a Partnership Firm is not a legal entity. It has limited identity for purp
ose of tax law. As per section 4 of Indian Partnership Act, 1932, 'partnership'
is the relation between persons who have agreed to share the profits of a busine
ss carried on by all or any one of them acting for all. - - Under partnership la
w, a partnership firm is not a legal entity, but only consists of individual par
tners for the time being. It is not a distinct legal entity apart from the partn
ers constituting it - Malabar Fisheries Co. v. CIT (1979) 120 ITR 49 = 2 Taxman
409 (SC). Thursday, October 15, 2009 6 Dr. Tabrez Ahmad,KLS, KIIT BBSR

Difference between partnership and Company : Difference between partnership and

Company Regulating act Number of members Entity Liability Authority of members M
anagement Transfer of Interest Audit Registration Winding Up Ownership of the pr
operty Agency shareholder not agents Contracting with the co. shareholder can do
, partner cannot do with firm Ultra vires in Co., not so in Partnership Thursday
, October 15, 2009 7 Dr. Tabrez Ahmad,KLS, KIIT BBSR

Types of partnership : Types of partnership Partnership at will Particular partn

ership( specific venture) Kinds of Partners Active / actual / ostensible partner
s: must give public notice of his retirement Sleeping/ dormant partners: undiscl
osed principal, have voice in Mgt .not required to give PNoR Thursday, October 1
5, 2009 8 Dr. Tabrez Ahmad,KLS, KIIT BBSR

Slide 9: Silent partners: no voice in Mgt., fully liable for P/LPartner in profi
ts only: No voice in Mgt. only for P. now started in India, in LLP Sub partner:
A partner agrees to share his P with O/S this O/S is Sub Partner Partner by esto
ppel /holding out/ Quasi Partner/ Nominal Partner: No agreement but the person h
olds out, represents himself to be a partner, becomes responsible to O/s as part
ner. It is not necessary that representation must be made directly to the person
so giving credit. Thursday, October 15, 2009 Dr. Tabrez Ahmad,KLS, KIIT BBSR 9

Formation Of Partnerships : Formation Of Partnerships May be formed by oral or w

ritten agreement All essential of valid contract be present Mutual rights and Ob
ligation to be in Partnership Deed The deed to be registered Thursday, October 1
5, 2009 10 Dr. Tabrez Ahmad,KLS, KIIT BBSR

Partnership Deed : Partnership Deed A partnership deed should contain the follow
ing clause Name of the parties Nature of business Duration of partnership Name o
f the firm Capital Share of partners in profits and losses Banking, Account firm
Books of account Powers of partners Retirement and expulsion of partners Death
of partner Dissolution of firm Settlement of disputes Thursday, October 15, 2009
11 Dr. Tabrez Ahmad,KLS, KIIT BBSR

GENERAL DUTIES OF A PARTNER : GENERAL DUTIES OF A PARTNER A. Absolute Duties car

ry on the business with common advantage just and faithful render true accounts
to provide full information To indemnify for loss caused by fraud liable jointly
and severally not to assign his interest Thursday, October 15, 2009 12 Dr. Tabr
ez Ahmad,KLS, KIIT BBSR

Slide 13: B. Qualified duties Not to carry on business competing with the firm i
ndemnify the firm for wilful neglect carry out the duties diligently to work wit
hout remuneration to contribute to losses Partners use firms property exclusivel
y for the firm to account for personal profits derived Thursday, October 15, 200
9 13 Dr. Tabrez Ahmad,KLS, KIIT BBSR

RIGHTS OF THE PARTNERS : RIGHTS OF THE PARTNERS To take part in the conduct and
management of the business free access to all the records To express opinion in
matters connected with the business share in the profits of the business To get
interest on the payment of advance To be indemnified by the firm against losses
or expenses Thursday, October 15, 2009 14 Dr. Tabrez Ahmad,KLS, KIIT BBSR

Registration of Firms : Registration of Firms not compulsory Time of registratio

n Procedure for registration Change of particulars Effects of non registration T
hursday, October 15, 2009 15 Dr. Tabrez Ahmad,KLS, KIIT BBSR

Procedure for registration : Procedure for registration sending by post /deliver

ing to the Registrar of Firms of the area a statement in the prescribed form and
accompanied by the prescribed fee, Signed by all partners/ agents Following to
be in the application: The firm name the place or principal place of business of
the firm; the names of any other places where the firm carries on business; the
date when each partner joined the firm; the names in full and permanent address
es of the partners; and the duration of the firm Thursday, October 15, 2009 16 D
r. Tabrez Ahmad,KLS, KIIT BBSR

Effects of non Registration : Effects of non Registration No suit in a civil cou

rt by a partner against the firm or co partner No suit in civil court against th
ird parties Firm or partners cannot make claim to set off other proceeding based
upon a contract Registration of firms from IT is different from the above regis
tration. For the purpose of assessment under IT separate registration with IT is
required. Thursday, October 15, 2009 17 Dr. Tabrez Ahmad,KLS, KIIT BBSR

authorities : authorities Express authority Implied authority: acts of a partner

which incidental or usually done in the course of the business. In case of emer
gency; all acts as prudent The implied authority of a partner does not empower h
im to Submit a dispute relating to the business of a firm to arbitration Open a
bank account in his own name Compromise or relinquish any claim of the firm With
draw a suit or proceeding on behalf of the firm Admit any liability in a suit or
proceeding against the firm Acquire immovable property on behalf of the firm Tr
ansfer immovable property belonging to the firm, or Enter into partnership on be
half of the firm Thursday, October 15, 2009 18 Dr. Tabrez Ahmad,KLS, KIIT BBSR

Liabilities of partners to third parties : Liabilities of partners to third part

ies L of a partner for acts of the firm: liable jointly and severally L of firm
for wrongful act of partner: firm liable to 3rd party for loss caused by partner
,the same will be borne by the partner who committed the fraud and not shared b
y the partners L of firm for misapplication by partners: if partner misappropria
tes received in repayment on account of the firm, 3rd party can make the firm li
able for it. Thursday, October 15, 2009 19 Dr. Tabrez Ahmad,KLS, KIIT BBSR

Dissolution and Reconstitution : Dissolution and Reconstitution Reconstitution o

f a Partnership Firm partnership firm has no legal entity or perpetual existence
. Change in partners via death, retirement, admission of new member, expulsion,
insolvency, transfer of interest by partner etc. This changes, the rights and li
abilities of each partner. This is termed as reconstitution of a firm. DISSOLUTI
ON OF PARTNERSHIP AND DISSOLUTION OF FIRM Dissolution of partnership between all
partners of firm is dissolution of firm When one or more partners cease to be p
artners but others continue it is called dissolution of partnership, it is recon
stitution of of firm without dissolution Thursday, October 15, 2009 20 Dr. Tabre
z Ahmad,KLS, KIIT BBSR

Dissolution of firm : Dissolution of firm Court INSANITY OF A PARTNER PERMANENT

INCAPACITY OF A PARTNER CONDUCT AFFECTING PREJUDICIALLY THE BUSINESS BREACH OF P
ARTNERSHIP AGREEMENT TRANSFER OF INTEREST OF A PARTNER JUST AND EQUITABLE Thursd
ay, October 15, 2009 21 Dr. Tabrez Ahmad,KLS, KIIT BBSR

Dissolution of firm : Dissolution of firm B. Others agreement Compulsory dissolu

tion in case of insolvency on happening of certain contingency :If constituted f
or a fixed term, by the expiry of that term :If constituted to carry out one or
more adventures or undertakings, by its completion. : By the death of a partner
:On insolvency of a partner By notice if partnership is at will Thursday, Octobe
r 15, 2009 22 Dr. Tabrez Ahmad,KLS, KIIT BBSR

Consequence of dissolution : Consequence of dissolution Continuing liability of

partner Continuing authority of partners for winding up Liability to share perso
nal profits Return of premium Where contract rescinded for fraud Right to impose
restriction: agreement to goodwill Thursday, October 15, 2009 23 Dr. Tabrez Ahm
ad,KLS, KIIT BBSR

Sale of goodwill of firm after dissolution : Sale of goodwill of firm after diss
olution intangible asset of the firm. Brand image - - Goodwill is the value of re
putation of the business of the firm. It is sold after dissolution either separa
tely or along with property of firm. - - As per section 14, property of partners
hip firm includes goodwill of the firm. - - in winding up included in assets The
seller of goodwill i.e partners of dissolved firm cannot use firm name,represen
t themselves as carrying on business of old firm Thursday, October 15, 2009 24 D
r. Tabrez Ahmad,KLS, KIIT BBSR

Slide 25: Thanks Thursday, October 15, 2009 Dr. Tabrez Ahmad,KLS, KIIT BBSR 25