INTRODUCTION

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. 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 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. The subject of partnership is included in item 7 of the Concurrent List in the Seventh Schedule to the Constitution of India and therefore, the parliament and the Legislature of any state have the power to make laws with respect to this matter as provided in art 246 of the constitution. The task of consolidating the many common law rules largely formulated in the 18th and 19thcenturies was performed by Sir Frederick Pollock who first drafted the Partnership bill in 1879 and having amended it several times, saw it enacted as the Partnership Act 1890 which has proved to be one of the most successful pieces of the legislation in English law.[1] The Indian Partnership Act has drawn its luminosity from the English Act by enacting several similar substantive provisions. The Act defines and amends the law relating to partnership but does not purport to completely codify it and the unrepealed provisions of the Indian Contract Act, in so far as they are not inconsistent with the Act, continue to apply to firms. The Act provides only a voluntary framework for businessmen planning to use the medium of partnership and contains contracting out provisions in s 11(1) and 13, which make mutual rights and liabilities of the partners, subject to a contract between them. The definition of the expression business under s 45 of the English Act is retained in s 2(b). The definition is not exhaustive. Business would include a single commercial adventure.[2] Road building activity under a government contract even in a single venture is a business activity. Thus virtually any commercial activity or adventure amounts to a business for the purpose of the Act, but it is not every occupation, which results in monetary gain that constitutes a business. A landowner does not carry on a business although the management of his estate and collection of his rents may be his only serious occupation. The term business is restricted to what is regarded by businessmen as commercial or professional business.ie, calling in which men holds themselves out as willing to sell goods or to provide skilled assistance or other service. 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. It has been suggested to us that the fundamental principle on which the Indian Partnership Act is based, that a firm is not a legal entity, should be replaced by the contrary principle which recognizes the firm as a legal person or legal entity, on the ground that such a change would be useful to the business and commercial community as well as to those who deal with a firm and that it would also simplify proceedings by and against a firm. Thus questions for a long time engaged the attention of jurists, lawyers and textbook writers in India, England and the United States of America. In England, it has been suggested that the English law of Partnership should in this respect be assimilated to that of Scotland which recognizes a firm as a legal or juristic person. Definition of partnership , partner , firm , and firm name The entire above are defined in sec 4 of The Indian Partnership Act 1932 as below: Partnership is a 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 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 . The definition of partnership now substituted for the condensed version of Kents, which stood in the Contract Act, reproduces, with slight verbal alteration, a suggestion made long ago by Sir F Pollock. His purpose then was to meet an objection of Sir G Jessels, which seemed to him rather captious[3] to the effect that persons who do not in fact bring any property, labour or skill to the common undertaking, such as a deceased partners widow admitted under a provision in the partnership articles may be partners. The answer in that case appears to be that the share acquired by her is nonetheless hers, by virtue of being given to her. It will be observed that the present section is confined, as a definition ought to be, to stating the attributes, which are necessary and sufficient to identify any particular example as a member of the class defined. Cautions, qualifications and exceptions, which have to be attended to in applying the general conception, are properly left to come afterwards. The fault of including too much is easy to commit, and has been committed by several of the authors whose definitions are collected in the first chapter of Lindley.[4] One typical mistake is to add words about the object being lawful. It is not correct to say or imply that partnership entered into for an unlawful purpose, or purposes, some of which are unlawful, is not a partnership at all. One might as well say (contrary to the definition of larceny in English law) that a thief does not have possession of the thing stolen. Under common law legal systems, the basic form of partnership is a general partnership, in which all partners manage the business and are personally liable for its debts. Two other forms which have developed in most countries are the limited partnership , in which certain "limited partners" relinquish their ability to manage the business in exchange for limited liability for the partnership's debts, and the limited

liability partnership , in which all partners have some degree of limited liability. There are two types of partners. General partners and silent partner general partner have an obligation ofstrict liability to third parties injured by the Partnership. General partners may have joint liability or joint and several liability depending upon circumstances. The liability of limited partners is limited to their investment in the partnership. Whereas a silent partner is one who still shares in the profits and losses of the business, but who is uninvolved in its management, and/or whose association with the business is not publicly known. According to Civil Law: In civil law system, a partnership is a nominate contract between individual who, in the spirit of corporation, agree to carry on an enterprise, contributing it by combining property, knowledge and sharing the profit. Partner may have partnership agreement or declaration of partnership and in some jurisdiction such agreement may be registered and available for public inspection. In many civil law countries partnership is considered to be a legal entity, although different legal system reach different conclusion. In India: The definition of partnership was first given in section 239 of Indian contract act 1872 as Partnership is the relation which subsists between persons who have agreed to combine their property, labour, skill in some business and to share the profits thereof between them . Later partnership was separated from Bear act and older definition was superseded, given as follows According to the Section 4 of Indian Partnership Act of 1932, 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 . Thus the present definition of Partnership act according to Indian contract Act is much wider than previous definition because the 1932 definition adds the concept of mutual agency. In England: Partnership is the relation which subsists between persons carrying on a business in common with a view of profit. The definition of partnership is given by different personalities some of the definitions given by them are as fellow Prof. Haney, partnership is the relation existing between persons, competent to make contracts, who have agreed to carry on a lawful business in common with a view to private gain . According to Dr. William R.Spriegel, partnership has two or more members, each of whom is responsible for obligation of the partnership. Each of the partners may bind the others and the assets of partners may be taken for the debts of the partnership . In the words of Kimball and Kimball, A partnership or firm as it is often called, is thus a group of men who have joined capital or services for the prosecuting of some business . Therefore, by going through all the definition we can conclude that partnership is that form of business organization in which, partners agree to share the profits of a lawful business, managed and carried on either by all or by any one of them acting for all . The definition of partnership contains three elements: (1) There must be an agreement entered into by all the persons concerned; (2) the agreement must be to share the profits of a business; and (3) the business must be carried on by all or any of the persons concerned, acting for all. All these elements must be present before a group of associates can be held to be partners.

These three elements may appear to overlap, but they are nevertheless distinct. The first element relates to the voluntary contractual nature of partnership; the second gives the motive which leads to the formation of firms, i.e., the acquisition of gain; and the third shows that the persons of the group who conduct the business do so as agents for all the persons in the group, and are therefore liable to account for all. The definition which stands in English Act, the relation which subsists between persons carrying on a business in common with a view of profit , appears to be founded on the following dictum of the Privy Council in an Indian case decided on the analogy of English Law: To constitute a partnership the parties must have agreed to carry on business and to share profits in some way in common . It will be observed that this definition does not mention sharing as distinguished from making profits; and it has been suggested that in England persons may be partners in an undertaking carried on by them in concert without aiming at personal gain, or even on the express terms that none of them shall derive any individual profits from it, and that the object of dividing profits, though almost always important in fact, points to the conclusion that it is rather an accident than of the essence of the partnership relation . REGISTRATION OF PARTNERSHIP FIRMS Registration of a firm is not compulsory, though usually done as registration brings many advantages to the firm. Since Partnership Act is a concurrent subject as per the constitution of India, the registration firms and the related works are handled by the State government in each state. Section 71 authorises State government to make rules for prescribing fees for filing documents with registrar prescribing forms of various forms of various statements and intimations are to be made to registrar and regulating procedures in the office of the registrar. TYPES OF PARTNERSHIP FIRM Different kinds of partnership may be explained as follows. 1. General or Unlimited Partnership 2. Limited Partnership 1. General or Unlimited Partnership A partnership in which the liability of all the partners is unlimited is known as unlimited partnership. All the partners can take part in the working of the business. In India, only this kind of partnership exists. General partnership can be classified into three types such as partnershipat-will, particular partnership and joint venture. They are discussed below. a. Partnership at will Partnership-at-will is a partnership which is formed to carry on business without specifying any period of time. The life of such a partnership continues as long as the partners are willing to continue it as such. The partnership can be terminated, if any partner notifies his desire to quit. b. Particular Partnership It is a partnership established for a stipulated period of time or for the completion of a specified

venture. It automatically comes to an end with the expiry of the stipulated period or on the completion of the specified venture, as the case may be. For example, a partnership may be created for one year only. When the time lapses, the partnership comes to an end. c. Joint Venture A joint venture is a temporary partnership which is formed to complete a specific venture or job during a specified period of time. Every partner does not have the right of implied agency. No partner can withdraw his interest in the firm before the completion of the venture. For example, a partnership is formed for the construction of a building. The partnership comes to an end if the construction is over. 2. Limited Partnership A partnership in which the liability of the partner is limited is called limited partnership. The Law does not permit the formation of a limited partnership in India. But in Europe and U.S.A. and U.K limited partnership is allowed. A limited partnership firm must have at least one partner whose liability is unlimited. The liability of remaining partners is limited. Thus limited partnership consists of two types of partners, general partner and limited partner.

PARTNER CANNOT SUE IF FIRM IS UNREGISTERED - No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any court by or on behalf of any person suing as a partner in a firm against the firm or an {person alleged to be or to have been a Partner in the fir} 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. [Section 69(1)]. - Thus, a partner cannot sue the firm or any other partner if firm is unregistered. - If third party files suit against a partner, he cannot claim of set off or institute other proceeding to enforce a right arising from a contract.- Suit or claim or set off upto Rs. 100 can be made as per section 69(4)(b), but it is negligible in today s standards. - Criminal proceedings can be filed, but civil suit is not permissible. UNREGISTERED FIRM CANNOT SUE THIRD PARTY - No suit 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. [section 69(2)].- If third party files suit against the unregistered firm, the firm cannot claim set off or institute other proceeding to enforce a right arising from a contract. Suit or claim or set off upto Rs. 100 can be made as per section 69(4)(b), but it is negligible in today s standards. - Criminal proceedings can be filed, but civil suit is not permissible. GENERAL DUTIES OF A PARTNER Subject to a contract to the contrary between the partners the following are the duties of a partner according to section 9 of The Indian Partnership Act, 19321- 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. Where a partner carries on a rival business in competition with the partnership, the other

partners are entitled to restrain him. 2- 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 3- To render true accounts and full information of all things done by them to their copartners. 4- According to sec. 10 of the said act every partner shall 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. 5- 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. 6- 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 AND DUTIES OF THE PARTNERS Determination of rights and duties of partners by contract between the partners: Subject to the provisions of the Indian Partnership Act, the mutual rights and duties of the partners of a firm may be determined by contract between the partners, and such contract may be express or may be implied by a course of dealing. Such contract may be varied by consent of all the partners, and such consent may be express or may be implied by a course of dealing. [Section 11(1)]. Thus, partners are free to determine the mutual rights and duties by contract. Such contract may be in writing or it may be implied by their actions. According to section 17 of the said act, rights and duties of partners is subject to a contract between the partners: 1- After a change in a firm- where a change occurs in the constitution of a firm, the mutual rights and duties of the partners in the reconstituted firm remain the same as they were immediately before the change. 2- After the expiry of the term of the firm- where a firm constituted for a fixed term continues to carry on business after the expiry of that term, the mutual rights and duties of the partners remain the same as they were before the expiry, so far as they may be consistent with the incidents of partnership at will. 3- Where additional undertakings are carried out- where a firm constituted to carry out one or more adventures or undertakings carries out other adventures or undertakings are the same as those in respect of the original adventures or undertakings.

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.

SPECIAL RIGHTS AND DUTIES OF THE PARTNERS After the change of the firm-Where the change occurs in the constitution of a firm, the mutual rights and duties of the partners in the reconstituted firm remain the same.

RELATIONS OF PARTNERS TO THIRD PARTIES According to sec 18 of the Indian Partnership Act, a partner is the agent of the firm for the purpose of the business of the firm. This and the two following sections supersede sec 251 of the contract act by a much more explicit statement , which closely resembles sec 5 of the English Act in form. For obvious reasons, the summary statement of principle in sec 18 called for the expansion which is supplied in sec 19 , and these two closely connected sections are here dealt with together for the reader s convenience. In Cox v. Hickman[5], Lord Wensleydale said: So far if two or more agree that they should carry on a trade, and share the profits of it, each is a principal, and each is an agent for the other, and each is bound by the others contract in carrying on the trade, as much as a single principal would be by the act of an agent who was to give the whole of the profits to his employer. The settled position of law is that the act of the partner of the firm can well be constructed as an act on behalf of all the partners if the circumstances warrant such a conclusion. A firm is not presumed conversely to be an agent of the individual partners. Payment to one partner is in general a good payment to the firm , but the payment to the firm of a private debt due to one partner is not a discharge unless it is shown that the firm had in fact authority to receive it. RESTRICTIONS ON AUTHORITY OF A PARTNER Restrictions are governed by Contract and by the Partnership Act

The partners may by contract extend or restrict the implied authority of any partner. 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: 1-Submit a dispute relating to the business of a firm to arbitration. 2-Open a bank account in his own name. 3-Compromise or relinquish any claim of the firm. 3-Withdraw a suit or proceeding on behalf of the firm. 4-Admit any liability in a suit or proceeding against the firm. 5-Acquire immovable property on behalf of the firm. 6-Transfer immovable property belonging to the firm, or 7-Enter into partnership on behalf of the firm.