Indian Partnership Act, 1932

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INDIAN PARTNERSHIP ACT, 1932

According to Section 4 of the Indian Partnership Act, 1932- “Partnership” is the relation between persons who have agreed to share the profits of a business carried by all or any one of them acting for all.

The people who enter into a partnership are individually called ‘Partners’ and collectively called a ‘Firm’. The name under which they carry on the business is called ‘The firm name’.

ESSENTIAL ELEMENTS OF A PARTNERSHIP:

The elements important for constituting a partnership are:

  • There must be a contract.
  • There must be two or more persons.
  • They should agree to carry on a business.
  • The main objective is to share profits.
  • The business must be carried on by all or any one of them acting for all.

KINDS OF PARTNERSHIP:

The distinction between partnership can be done on the basis of two criteria:

Duration of partnership: Partnership at will Or Partnership for fixed duration.

Extent of business carried by the partnership: General partnership or particular partnership.

TYPES OF PARTNERS:

ACTIVE PARTNER: An active partner is also known as Ostensible partner. An active partner takes an active participation in the firm and running of the business. He carries on the daily business on behalf of all the partners. Hence, whenever an active partner decides to retire from the firm, he must release a public notice as this absolves him of the acts done by his partners after his retirement.

PARTNER IN PROFITS ONLY: This partner only shares profits of the firm and is not liable for any liabilities. In case of third parties also he is only liable for profits and is not responsible for any liabilities.

DORMANT/SLEEPING PARTNER: This is the partner who does not participate in the daily functioning of the partnership firm that is he does not take an active part in the daily functioning of the business. He is bound by the actions of all of his partners. If such a partner decides to retire, he does not need to give a public notice.

NOMINAL PARTNER: Nominal Partner is the one who lends his name to the partnership and does not have any significant interest in the partnership.

PARTNER BY ESTOPPEL: If a partner holds out to another that he is a partner of the firm, either by his words or conduct then such partner cannot deny that he is not a partner. This means that he is not a partner but has represented himself in such a way that makes him a partner by estoppel or by holding out.

MINOR PARTNER: A minor cannot be a partner of a firm according to the Contract Act. However, a minor can be admitted to the benefits of a partnership if all partners give their consent for the same. Such a minor partner on attaining majority (18 years of age) has six months to decide if he wishes to become a partner or not. He has to declare his decision through public notice.

RIGHTS OF THE PARTNERS:

  • Right to participate in business: Each partner has an equal right to participate in the conduct of their business. Partners can curtail the right to allow only some of them to contribute to the functioning of the business if the partnership deed says so.
  • Right to express opinions: Each and every partner has a right to keep his opinion. Partners, by a majority can determine the differences with respect to ordinary matters connected with the business.
  • Right to access books and accounts: Each partner can inspect and copy books of accounts of the business. The right is applicable equally to active and dormant partners.
  • Right to share profits: Partners generally specify in their deed the proportion in which they will share profits of the firm. However, if the profit-sharing ratio is not decided then all the partners are supposed to share the profits equally.
  • Right to be indemnified: Partners can make some payments and incur some liabilities through their decisions in the course of their business. They can claim indemnity from each other for such decisions. These decisions must be taken in case of emergencies and should be of such nature that an ordinarily prudent person would resort in such situations.
  • Right to interest on capital and advances: Partners generally do not get an interest on the capital they contribute. In case they decide to take an interest, such payment must be made only out of profits. They can, however, receive interest of 6% p.a. for other advances made subsequently towards the business.

DUTIES OF THE PARTNER:

  1. Duty to indemnify for fraud.
  2. Duty to use firm’s property properly.
  3. Duty to not earn personal profits or to compete.
  4. Duty to act diligently.

ADMISSION OR RETIREMENT OF A PARTNER

Whenever there is an admission of a new partner or retirement of a partner or expulsion or insolvency of a partner, the partnership firm undergoes reconstitution.

Section 31: Introduction of a Partner.

Section 32: Retirement of a Partner.

Section 33: Expulsion of a Partner.

Section 34: Insolvency of a Partner.

Section 35: Liability of estate of deceased partner.

DISSOLUTION OF A FIRM

When the partnership between all the partners of a firm is dissolved, then it is called dissolution of a firm. It is important to note that the relationship between all partners should be dissolved for the firm to be dissolved. A firm can be dissolved either voluntarily or by an order from the Court.

VOLUNTARY DISSOLUTION OF A PARTNERSHIP:

A firm can be voluntarily dissolved by 4 methods:

  • By agreement (Section 40)
  • By compulsory dissolution (Section 41)
  • On happening of certain contingencies (Section 42)
  • By notice of partnership at will (Section 43)

DISSOLUTION OF A FIRM BY COURT:

According to Section 44 of the Indian Partnership Act, 1932 the Court may dissolve a firm on the suit of a partner on any of these grounds:

  1. Insanity/Unsound mind.
  2. Permanent Incapacity.
  3. Misconduct.
  4. Persistent breach of the agreement.
  5. Transfer of Interest.
  6. Continuous/Perpetual losses.
  7. Just and equitable grounds.

Author: Gargi Mishra,
Amity Law School, Student of 3rd Year B.A.LLB(H)

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