PARTNERSHIP ACT 1932

ASSIGNMENT- Part 1

1. Explain: Features/Characteristics of a partnership. Kinds of Partnership.

2. Definition: Act of Firm, Business, Third Party, Partnership, Partner, Firm, Firm Name.

Act of firm

An act of firm means any act or omission by all the partners or by any partner or agent of the
firm which gives rise to a right enforceable by or against the firm.

Business

To constitute a partnership the parties must have agreed to carry on a business. Where there is no
business to be done there can be no question of partnership. Business here includes any lawful
trade, occupation and profession.

Third party

Third party used in relation to firm or to a partner therein means any person who is not a partner
in the firm.

Partnership

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.

Firm and partners

Persons who have entered into partnership with one another are called individually partners and
collectively a firm.

Firm Name
The name under which the business of the firm is carried on is called the “firm name”.

3. Relation of partnership arises from contract and not from status, Explain.

Section 4 itself serve to appropriately emphasize that a "partnership is the relation between the
parties who have agreed to share the profits of a business" which means that the partnership is
outcome of a contract and cannot arise by status. The definition makes it clear that the
relationship is of a contractual nature. It is the result of an agreement. The first sentence of
Section 5 highlights the same idea that the relationship of partnership emerges from contract and
not from status. Close relationship does not mean they are partners.

4. Define Partnership at Will and Particular Partnership.

Partnership at Will

According to section 7 of the partnership Act 1932 where no provision is made between the
partners for the duration of their partnership that for how long their partnership exist, the
partnership is called partnership at will. In such partnership there is no provision as to when the
partnership will come to an end. Any partner is free to dissolve the partnership by giving a notice
in writing to all other partners of his consent to dissolve the firm. The dissolution of a partnership
is not pre-decided and it is taken into consideration when the need arises. It’s upon the partners
to decide among themselves the necessary time period of partnership.

Particular Partnership

According to section 8 of the partnership Act 1932, where a partnership is created for any
particular adventure or undertaking or for a specific time period and once that objective of the
business partnership is achieved then partnership gets dissolved it is known as particular
partnership. In simple words this partnership is formed for undertaking the particular venture and
it comes to an end automatically after the completion of tasks involved in the venture. If the
partners decide to continue such a partnership even after the expiry of the specific period or
completion of specific venture then it becomes partnership at will.
5. Explain in detail the Duties, Rights and Liabilities of Partners to one another.

Duties of a Partner

The following are the duties of a partner in a partnership firm.

Section 9: General duties of a partner

Partners are legally bound to carry on the business of the partnership firm. The general
responsibilities of a partner are

1. A partner is required to carry on the business to the highest common advantage.

2. A partner is required to be just and faithful to each other

3. A partner has to render to any other partner or his legal representative about the true
account and all the information of all the things affecting the partnership firm.

Section 10: To indemnify for fraud

According to Section 10, a partner of the partnership firm is liable to compensate the firm for any
damages caused to its business or the firm because of a partner’s fraud in the conduct of the
business of the firm.

Section 13(f): To indemnify for willful neglect

According to the Section, a partner of a partnership firm must compensate the firm for any
damages or loss caused to it by willful neglect in the conduct of the business of the firm.

Section 12(b) & Section 13(a): To attend duties diligently without remuneration

According to Section 12(b) of the Indian Partnership Act, every partner is legally bound to attend
to his duties diligently to his duties relating to the conduct of the firm’s business. Moreover,
Section 13(a) enumerates that a partner is not, however, generally entitled to remuneration for
participating in the conduct of the business. A partner is also bound to let his partners have the
advantage of his knowledge and skill.

Section 13(b): To share losses

Section 16(a): To account for any profit

If a partner of a partnership firm derives any profit for himself for any transaction of the firm or
from the use of the property or business connection of the firm or firm’s name, then the partner is
bound to account for that profit and refund it to the firm.

Section 16(b): To account and pay for profits of competing for business

If a partner carries on a company of the same nature as the firm and competes with that of the
firm, the partner must be accountable for and pay to the firm all the profits made in the business
by the partner. The partnership firm will not be held liable for any losses caused in the business.

Rights of a Partner

The following are the rights of a partner in a partnership firm.

Section 12(a): Right to take part in the conduct of the Business

All the partners of a partnership firm have the right to take part in the business conducted by the
firm as a partnership business is a business of the partners, and their management powers are
generally coextensive. If the management power of a particular partner is interfered with and the
individual has been wrongfully precluded from participating, the Court of Law can intervene
under such circumstances. The Court can, and will, restrain the other partner from doing so by
injunction. Other remedies are a suit for dissolution, a suit for accounts without seeking
dissolution and so on for a partner who has been wrongfully deprived of the right to participate
in the management.

Section 12(c): Right to be consulted

When a difference of any sorts arises between the partners of a firm concerning the business of
the firm, it shall be decided by the views of the majority among the partners. Every partner in the
firm shall have the right to express his opinion before the decision is made. However, there can
be no changes like the business of the firm without the consent of all the partners involved.
Section 12(d): Right of access to books

Every partner of the firm regardless of being an active or a sleeping partner, is entitled to have
access to any of the books of the partnership firm. The partner has the right to inspect and take a
copy of the same if required. However, this right must be exercised bonafide.

Liabilities of Partners to one another

Section 13(a): Right to remuneration

No partner of the firm is entitled to receive any remuneration along with his share in the profits
of the business by the firm as a result of taking part in the business of the firm. Although, this
rule may always vary by an express agreement, or by a course of dealings, in which case the
partner will be entitled to remuneration. Thus, a partner may claim remuneration even in the
absence of a contract where it is customary to pay remuneration to a partner for conducting the
business of the partnership firm the partner may claim it even in the absence of a contract for the
payment of the same. It is common for partners to agree that a managing partner will receive
over and above his share, salary or commission for the trouble that he will take while conducting
the business of the firm.

Section 13(b): Right to share profits

Partners are entitled to share all the profits earned in the business equally. Similarly, the losses
sustained by the partnership firm is also equally contributed. The amount of a partner’s share
must be ascertained by inquiring whether there is an agreement in that behalf among the partners.
If there is no agreement, then it can be presumed that the share of profit is equal and the burden
of proving that the shares are unequal, will lie on the party alleging the same.

The is no relation between the proportion in which the partners shall share the profits and the
percentage in which they have contributed to the capital of the partnership firm.

Section 13(c): Interest on capital

If a partner subscribes interest on capital is payable to the partner under the partnership deed,
then the interest will be payable out of the profits only in such a case. In a general rule, the
interest on a capital subscribes by partners is not permitted unless there is an agreement or a
usage to that effect. The underlying principle in this provision of law is that with concern to the
capital brought by a partner in the business, the partner is not a creditor of the firm but an
adventurer.

The following elements must be ensured before a partner can be entitled to interest on the capital
brought by the partner in the business.

1. An express agreement to the same effect or the practice of a particular partnership.

2. Any trade custom to that effect; or

3. A statutory provision which entitles him to such interest on the capital.

Section 13(d): Interest on advances

If a partner makes an advance to the partnership firm in addition to the amount of capital to be
contributed by him, the partner is entitled to claim interest thereon at 6 per cent per annum.
While the interest on capital account ceases to run on dissolution, the interest on advances keeps
running even after dissolution and up to the date of payment. It can be noted that the Partnership
Act makes a distinction between the capital contribution of a partner and the advance made by
him to the firm. The advance by the partner is regarded as loans which should bear interest while
the capital interest takes interest only when there is an agreement to this effect.

Section 13(e): Right to be indemnified

All the partners of the firm have the right to be repaid by the firm in respect of the payments
made and the liabilities incurred by him in the ordinary and proper conduct of the business of the
firm. This also includes the performance of an act in an emergency for protecting the firm from a
loss, if the payments, liability and action are such as a prudent man would make, incur or
perform in his case, under similar circumstances.

Section 31: Right to stop the admission of a new partner

All the partners of a partnership firm have the right to prevent the introduction of a new partner
in the firm without the consent of all the existing partners.

Section 32(1): Right to retire

Section 33: Right not to be expelled

Every partner of a partnership firm has the right to continue in the business. A partner cannot be
dismissed from the firm by any majority of the partners unless conferred by a partnership
agreement and exercised in good faith and for the advantage of the partnership firm.

Section 36(1): Right of outgoing partner to carry on a competing business

A partner outgoing from the partnership firm may carry on a business competing with that of the
firm. The partner may even advertise such activity but has to do so without using the firm’s name
or representing himself as carrying on the business of the firm or soliciting the clients who were
dealing with the firm before the partner ceased to be a part of the partnership firm.

Section 37: Right of outgoing partner to share subsequent profits

If a partner has passed away or ceased to be a partner and the existing partners carry on the
business of the firm with the property of the firm without any final settlement of accounts as
between them and the outgoing partner or his estate, the outgoing partner or his estate has, at his
or his representative’s option, the right to such share of profit made since he ceased to be a
partner as may be attributable to the use of his share of the property of the firm or interest at 6
per cent per annum on the amount of the partner’s share in the property of the firm.

Section 40: Right to dissolve the firm

A partner of a partnership firm has the right to dissolve the partnership with the consent of all the
other partners. However, where the partnership is at will, the firm may be dissolved by any
partner by giving notice in writing to all the other partners of his intention to dissolve the firm.

6. Explain the term Partner to be agent of the Firm. What is implied authority of a partner
as an agent of the Firm, are there any restrictions to exercise such implied authority.
7. How a partner act in case of emergency.

According to section 7 it is the duty of the partner to do all such acts for the purpose of
protecting the firm from loss as would be done by a person of ordinary care, in his own case
acting under similar circumstances. He can even exceed his authority in order to save the firm
from any loss.

8. Under what circumstances a Firm is liable for the act, admission and omission, wrongful act,
misapplication by a partner. What is the extent of liability and whether such liability is jointly or
independently of the relevant partner.

9. How a partner can transfer his interest and what are the rights of transferee interest.

10. Explain in detail. How a Minor can enter into a partnership. Rights and liabilities of a minor
in a partnership. 11. What is the procedure for introduction and retirement of a partner into a
Firm, Rights and Liabilities of incoming and retiring partner.

12. How a partner can be expelled from a Firm.

13. What happened when a partner become insolvent. 14. What is the extent of liability of a
deceased partner, whether the firm continues or not.

15. Can any restriction be imposed on a retiring partner to run same business as of the Firm if so,
what is the effect of Section 27 Contract Act 1872.
16. What are the rights of outgoing partner (died or ceased to be partner) in the Firm subsequent
profit if the Firm continues. Can a surviving partner purchase the interest of outgoing partner, if
so what are his liabilities.

17. What is the effect of change in a firm on continuing guarantee?

18. Define dissolution of firm. Define the following ways of dissolution of a firm (i)

By Agreement (ii) by compulsion (iii) happening of contingencies/ conditions (iv) by notice at

19. What is the procedure for registration of a firm? What is the effect of non-registration of a
firm.

The Negotiable Instruments Act, 1881

20. What are the essentials or characteristics of Negotiable Instruments. Define and Differentiate
between the following. (i) Promissory Note and Bill of Exchange, and (ii) Bill of Exchange and
Cheque. Define (iii) Crossing of a cheque (iv) Endorsement