PARTNERSHIP ACT 1932 IN CHANGING SOCIETY

A Project submitted in partial fulfillment of the course CONTRACTS II,

3rd SEMESTER during the Academic Year 2019-2020

SUBMITTED BY:
KUMAR SHASWAT
Roll No. – 1929
B.A. LL.B. (Hons.)

SUBMITTED TO:
DR.VIJAY KUMAR VIMAL
FACULTY OF CONTRACTS II

AUGUST, 2019
CHANAKYA NATIONAL LAW UNIVERSITY, NAYAYA NAGAR,
MITHAPUR, PATNA-800001

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 DECLARATION BY THE CANDIDATE

I hereby declare that the work reported in the B.A. LL.B (Hons.) Project Report Entitled
“partnership act 1932 in changing society” submitted at Chanakya National Law University,
Patna is an authentic record of my work carried out under the supervision of Prof Dr Vijay
Kumar Vimal . I have not submitted this work elsewhere for any other degree or diploma. I am
fully responsible for the contents of my Project Report.

(Signature of the Candidate)

KUMAR SHASWAT
Chanakya National Law University, Patna

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 ACKNOWLEDGEMENT

Firstly, I would like to thank my faculty of Contracts II Dr Vijay Kumar Vimal for providing
me an opportunity to make my project on such an interesting topic which is also a contemporary
issue as for now.
Secondly, I would like to thank all my colleagues and friends for helping me out in arranging
of the accumulated collected study material.
Lastly, special thanks to my parents for guiding me in giving the final touch to this project and
helping me out throughout this project.

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 TABLE OF CONTENT

INTRODUCTION………………………………………………... 5-6

1. IMPORTANCE OF PARTNERSHIP ACT………………..7-8

2. NATURE OF PARTNERSHIP AND DEED………………9-10
3. SCOPE AND PURPOSE…………………..……………….11
4. CONCLUSION……………………………………………..11-12

BIBLIOGRAPHY…………………………………………………. 13

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 INTRODUCTION

The Indian Partnership Act was enacted in 1932 and it came into force on 1st day of October,
1932]. The present Act superseded the earlier law relating to Partnership, which was contained
in Chapter XI of the Indian Contract Act,1872. The Act is not exhaustive.

A Partnership arises from a contract, and therefore , such a contract is governed not only by
the provisions of the Partnership Act in that regard , but also by the general law of contract in
such matters, where the Partnership Act does not specifically make any provision. It has been
expressly provided in the Partnership Act that un repealed provisions of the Indian Contract
Act , 1872 , save in so far as they are inconsistent with the express provisions of this act , shall
continue to apply.Thus, the rules relating to offer and acceptance , consideration , free consent
, legality of object ,etc, as contained in the Indian Contract Act are applicable to a contract of
Partnership also. On the other hand , regarding the position of minor , since there is specific
provision contained in Section 30 of the Indian Partnership Act Partnership is a form of
business organization , where two or more persons join together for jointly carrying on some
business. It is an improvement over the ‘Sole –trade business ’, where one single individual
with his own resources, skill and effort carries on his own business. Due to the limitation of
resources of only a single person being involved in the sole-trade business , a larger business
requiring more investments and resources than available to a sole-trader, cannot be thought of
in such a form of business organization. In partnership, on the other hand , a number of persons
could pool their resources and efforts and could start a much larger business, than could be
afforded by any of these partners individually . In case of loss the burden gets divided amongst
various partners in a Partnership.

If the number of members in any association exceeds the above stated limit , that must be registered as
a company under Companies Act ,1956 otherwise that will be considered to be an illegal association.
As against partnership, where the maximum number of partners can be 10 or 20 , depending on the
nature of partnership business, there could be possibly much larger number of members in a company.
Therefore , if a much larger business than could be afforded by only 10 or 20 persons , is sought to be
carried on , a company works out to be better form of business organization than partnership . For
instance , there could be a public company having 1,00,000 members , each one of them having
contributed just Rs.10 , and thus having a capital of Rs. 10,00,000 for its business. A Company , as a
form of business organization may be better than a partnership in another way also. It is an artificial

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person, distinct from its members , and has much longer life than that of a partnership, whereas the
partnership being nothing but an aggregate of all the partners, partnership has much smaller span of life
than a company. In the case of a Company, the liability of a member (shareholder) is limited to the
extent of the amount of shares purchased by him, whereas in case of Partnership, the liability of every
partner in unlimited, and this factor is of great advantage in case of a Company , from the point of view
of risk of investors in the business.

AIMS AND OBJECTIVE

1. To study the indian partnership act,1932
2. To study its importance
3. To study it’s case laws

RESEARCH METHODOLOGY
The researcher has adopted the doctrinal method of the research.

SOURCES OF DATA
In order to complete the research study, the researcher will collect the material through various
primary and secondary sources of data.

PRIMARY SOURCES such as legislations and cases.

SECONDARY SOURCES reviewing the internet and different websites which preserve
historical documents and put them up for knowledge distribution.

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 LIMITATION OF THE STUDY

Since the researcher is a student of law, he has access to a limited area and knowledge. The
researcher having only a preliminary knowledge of the subject could understand the problem
clearly but was faced with constraints.

The researcher has limited time for the project. The need and background is also necessary for
having a bird’s eye view of the particular topic and it gets developed only by effective and
extended reading over a long period of time. However, the researcher only has access to limited
amount of work that is available in the library. The researcher has a restricted access to
information and sources for reasons beyond her control. But the researcher will still attempt to
take out the best possible work.

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 IMPORTANCE OF PARTNERSHIP ACT,1932

close family friends should create and sign a business partnership agreement to avoid
miscommunications and legal problems that can arise even when there’s no disagreement. A
partnership is a less-formal operating structure than an incorporation; a partnership agreement
can protect owners in the event of the death of one partner, a dispute, a sale to a new partner or
the dissolution of the business, among other benefits.
Ownership

A partnership agreement spells out exactly who owns what percentage of a business. A majority
partner might take on more of the responsibility in exchange for more of the profits. He also
might ask for the opposite scenario, taking less day-to-day responsibility for operations in
exchange for putting up a bigger investment and taking a larger share of the profits. If the
business is sold, a partnership agreement delineates who gets what.

Control

When two partners who each own 50 percent of a company disagree, this can lead to problems
that include one partner making decisions without consent of the other. Even when one partner
is a majority owner, both partners can make decisions without approval of the other unless a
partnership agreement limits one’s authority. An effective partnership agreement places limits
on decisions either party can make, or awards control of the business to one of the partners.
For example, the agreement might contain a clause that neither partner can spend more than a
certain amount of money, add or change products or services, relocate the business, sell to a
new partner, hire or fire key staff or close the business without the written approval of the other.

Liability

Some partnerships are general partnerships, with the partners sharing responsibilities and
liabilities. Other agreements are limited partnerships, with one or more partners acting as an
investor with limited or no activity in the business and little or no liability. A partnership can
protect partners who want to share in the profits without becoming actively involved in the
operations and opening themselves up to legal problems, such as lawsuits or tax liens.

Dissolutions

When one partner wants to end a partnership, it can cause significant hardship on the other. A
partnership agreement should lay out how the business can be dissolved or a partnership

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transferred. Partners often go into business together because they trust one another and enjoy
working together. Some put a clause into their contracts that one partner may not sell his share
to a third party without offering the original remaining partner an opportunity to buy out the
other. In other cases, partners might need approval before they can sell to a particular party.
Several partnership agreements protect partners in the event of the death of one partner. In
many general partnerships, the partnership usually ends with the death of one of the partners.
The remaining partners may draw up a new agreement. Some partnership agreements address
the rights of heirs, with some agreements allowing the remaining partners to buy the share of
the deceased partner’s interest, rather than allowing a spouse or child to become a partner.
Partnership agreements can lay out who owns assets, such as the business name, customer list
or recipes, if the business is dissolved.

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 NATURE OF PARTNERSHIP AND PARTNERSHIP DEED

Before we dive into the accounting of a partnership firm, it is important that we learn the basics
of partnership. The essentials that make a partnership are unique and valuable information
before we learn accounting effects. Also, we will look at the basics of a partnership deed. Let
us get started. When two or more persons join hands to set up a business and share its profits
and losses it is called Partnership. 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’. Partners are the persons who have
entered into partnership individually with one another. Partners collectively are called ‘firm’.
The essential features of the partnership are as follows.

Two or More Persons There should be at least two persons coming together to form the
partnership for a common goal. In other words, the minimum number of partners in a partnership
firm can be two.Indian Partnership Act, 1932 has put no limitations on maximum numbers of
partners in a firm. But however, Indian Companies Act, 2013 puts a limit on a number of the
partners in a firm as follow:

 For Banking Business, Partners must be less than or equal to 10.

 For Any Other Business, Partners must be less than or equal to 20.

 If the number of partners exceeds the limits, the partnership becomes illegal.

Agreement The partnership is an agreement between two or more persons who decided to do business
and share its profits and losses. To have a legal relationship between the partners, the partnership
agreement becomes the basis. The agreement can be in written form or oral form. An oral agreement is
equally valid. But, preferably the partners should have a written agreement, in order to avoid disputes
in future.

Business To carry on some business there should be an agreement. Mere co-ownership of a

property does not amount to the partnership. The business must also be legal in nature, a
partnership to carry out illegal business is not valid.

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Mutual Agency The business of a partnership firm may be carried on by all the partners or any
of them acting for all. This statement has two important implications. First, to participate in the
conduct of the affairs of its business, every partner is entitled. Second that a relationship of
mutual agency between all the partners exists.

For all the other partners, each partner carrying on the business is the principal as well as the
agent. He can bind other partners by his acts. And also is bound by the acts of other partners
with regard to the business of the firm.

Sharing of Profit The agreement between partners must be to share profits and losses of a
business. Sharing of profits and losses is important. The partnership is not for the purpose of
some charitable activity.
Liability of Partnership Each partner is liable jointly with all the other partners. And also when
is a partner, severally liable to the third party for all the acts done by the firm. Liability of the
partner is not limited. This implies that for paying off the firm’s debts, his private assets can
also be used.

Partnership Deed Agreement to carry on a business between the partners, partnership comes
into existence. The partnership agreement can be either oral or written. The Partnership Act does
not require that the agreement must be in writing. But when the agreement is in written form, it
is called ‘Partnership Deed’. Partnership deed should be duly signed by the partners, stamped &
registered..

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 INDIAN PARTNERSHIP ACT,1932: :PREAMBLE: SCOPE AND
PURPOSE

The preamble is an admissible aid to construction . It throws light on the intent and design of
the legislature and indicates the scope and purpose of the legislation itself.[4] But it cannot be
used to control or qualify precise and unambiguous language of the enactment . It is only when
there is a doubt as to the meaning of a provision, that recourse may be had to the preamble to
ascertain the reasons for the enactment and hence, the intention of Parliament. Scope:
The scope of a partnership is primarily a question of the intention of the partners. There is no
restriction on the exercise of such powers as it chooses at any time to exercise, except such
prohibitions on illegal, immoral or fraudulent conduct as apply equally to individuals.
1- A partnership may itself be a member of another firm if the partners of the constituent firm
consent..

2- If it appears that all the partners have either authorized or ratified the contract, no further
question as to its validity ordinarily remains. The cases where the question of the validity of
partnership contract arises is where one partner has made the contract without specific authority
from his co-partners. As to their implied scope partnerships may he divided into the classes of
the non-trading and the trading. Some powers can be exercised by partners in partnership of
either type. Thus a partner may retain an attorney protect the interests of the firm. Definition
Of
Section 4 of the Indian Partnership Act ,1932 defines ‘Partnership’ as under[6] :
‘Partnership is 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

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 CONCLUSION AND SUGGESTIONS ’

In my opinion Partnership is very important because in day to day activities we enter into
partnership agreements and by making partners big goals are achieved with the help of joint
and more number of people. The joint efforts of all the member results in successful
accomplishment of tasks and that task or job can be easily afforded. Division of work leads to
increase in efficiency at work among different partners.

When some job is done by consent of all the members and if some profit is earned then it is
shared among the different partners. And similar is the case when some loss occurs then that
is also beard among all the members and its not that only one has to take responsibility or
give compensation. So in my view Partnership is a good form of doing business than a
company which is owned by a single person.

Partnership is one of the oldest forms of business relationships. Though limited liability
companies have replaced partnership firms in complex businesses, partnerships are still
preferred by professionals and small trading and business enterprises in India and abroad.

The Indian partnership act of 1932 provides for a general form of partnership which is the
most prevalent form in India, but, over time the general form of partnership has lost its charm
because of the inherent disadvantages in it, the most important is the unlimited liability of all
partners for business debts and legal consequences, regardless of their holding, as the firm is
not a legal entity.

General partners are also jointly and severally liable for tortuous acts of co-partners. Each
partner has the exposure of their personal assets being appropriated and liquidated to meet
partnership dues. These are statutory position, which cannot be altered by contract inter-se,
though at times subterfuges are resorted to by unscrupulous partners to avoid personal
liability.

General partnership holdings are not easy to transfer; typically all other partners have to
agree. Yet partnership is preferred in India, because of the ease of formation and lack of
compliances involved.

The need for LLP:

The government has woken up from it slumber has acknowledged the disadvantages posed
the general partnership and recognised the need for introducing LLP in India. To this end the
government set up a Committee headed by Mr. Naresh Chandra which has come up with a
framework for introducing LLP in India. The broad areas of analysis made by the Committee
relate to:

1. Application of the LLP Regime;

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2. Incorporation, Registration and Number of Partners;
3. Limited Liability;
4. Financial Safeguards; and
5. Tax Treatment of LLPs.

BIBLIOGRAPHY

BOOKS:
 MULLA:The Indian Partnership Act:1932
 Bare Act :The Indian Partnership Act,1932

WEBSITES:

 http://www.legalservicesindia.com//Indian-Partnership-Act,1932.
 http://www.economicsdiscussion.net/partnership-firm/partnership-firm
 https://smallbusiness.chron.com/importance-partnership-agreement

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