In partnership two or more person hence misunderstanding may arise.
No single person is responsible.
To control rights and duties of partners, partnership and person dealing, above act is required.
It is a branch of agency, it means every partners is a general agent of partnership
He is liable for firm’s transactions in his ratio of sharing of profit, hence he is also principal.
Unit -1 General nature of partnership
Meaning:
Section: 4
Two or more persons agreed to share the profits of business carried by all or any one of them acting for all.
All elements must co – exist.
Essential elements of partnership
Agreement:
Arise from contract not from status like HUF.
Two types of HUF:
Dayabhaga west Bengal son will get right after death of father. Kansh may be king after death of Ugrasen.
Mitaksha Son will get right in family business with the birth only.
It may be express or implied.
It may be oral or in writing.
Sharing profit of business:
No partnership no business or no intention of sharing profit.
Co ownership of land is not business.
Charitable trust, club cannot form partnership but may form non-economic purpose company.
Purchase and sale by x and y jointly for earning profit is a partnership.
Sharing of profit is a condition of partnership not sharing of loss.
If deed is silent, loss will be shared in the ratio of profit only.
Carried by all or any of them:
Sharing of profit is a prime facie evidence which can be rebutted by mutual agency.
Mutual agency is a conclusive evidence.
Every partner is a principal as well as agent due to mutual agency
True test of partnership:
in following cases although there is a sharing of profit but partnership is not exist.
A lender of money
Employee or agent
Widow or child of deceased partner.
Sharing of profit is a prime facie evidence which can be rebutted by mutual agency.
Mutual agency is a conclusive evidence.
Every partner is a principal as well as agent due to mutual agency
If no agreement , real intention, conduct of parties and surrounding circumstances will be considered.
Distinction between partnership and firm :
Partnership firm
Individually Collectively
Abstract relationship concrete
Invisible visible
Partnership and joint stock company
Partnership – joint stock company
No separate legal entity – yes
Every partners agent of other – members not Partner
Must distribute as per deed – some portion as Dividend
Unlimited liability-limited by share,Guarantee and unlimited
Joint estate – separate with name of Company
Transfer with consent – private as per article
of all partner public unrestricted.
Management by partner – only in general meeting
Act – members 100 – private – 2 to 200
Rule – members 50 – public – 7 to unlimited
Due to death, insolvency – perpetual succession
Or retirement firm May
Dissolve.
Audit not compulsory – obligatory
Difference between partnership and club
Partnership club
Meaning – purpose – it is association having
Earning profit no object of earning
Of profit but health or
Recreation.
Partners are agent – members are no agent
Of each other
Having interest in – no interest of member
Property of the firm
Change affect to firm – not affect
Difference between Partnership and HUF
Partnership HUF
By agreement – By status due to birth
Death of partner – death of member not
Leads to dissolution
All partners manage – karta governing male Member.
Every partner bind – Only Karta can bind to
the firm to HUF.
Partners Generally – Karta unlimited,
Unlimited Liable members up to share in
Profit
Can call account – can not
Partnership act – Hindu law
Minor in benefit with – member of ancestral
The consent of all business by birth
May dissolve by – continue until divide
Death or insolvency
Difference between partnership and coownership:
Partnership – Co ownership
Express or implied – agreement, operation of
Contract law like inheritance
Partners are member – co owner not
Community of interest – no interest in others.
Transfer share with – transfer his share
Consent of otherwithout consent of
Partners others
Difference between partnership and association.
Partnership association
Meaning – social cause no profit motive
Runs a business – charitable, religious
Or improvement scheme
Mutual insurance,
Building corporation
Trade protection association
Types of partnership:
At will –
no duration of partnership in a contract.
Particular partnership:
For particular undertaking, or venture, construction of road or railway lining.
Types of partners:
Active/actual/ostensible partner:
by agreement
All the acts in the ordinary course of business
liable up to public notice.
Sleeping or dormant partner:
By agreement
Not in the conduct of business
Liable for the all act of firm up to retirement
No need of public notice in case of retirement.
Nominal partner:
gives his name to the firm
no real interest in the business.
No profit, no investment on part in business but he is liable to third party.
Partner in profits only
Not liable in loss
Liable to third parties for all acts of the profit only.
Sub partner
Share the profit of firm with outsider
Such outsider known as sub partner
No rights and duties against the debt of firm.
Incoming partners
Admitted in existing firm with the consent of all.
Not liable for any act done before his admission.
Outgoing partner:
One leaves other continue.
He is liable up to public notice except death and insolvency.
Partners by holding out (estoppel):
Represents himself by word or conduct or
Allow others to represent him as a partner
Third party on the faith of such representation
enter into transaction with firm, such partner is liable to third party.
X and Y are partner. They introduce to A as a partner before supplier Z. A has not refused. If Z supplies TV sets due to A as a partner
A is liable for the transactions with Z.
Such representation may or may not with fraudulent intention.
Above rule applicable to retiring partner also. He is liable up to public notice if third party deals with firm due to such partner.
Retiring partner is not liable if third party was not aware that he was a partner.
Minor:
Partnership is based on contract,
contract with minor is void,
minor can enter as a partner in profit with the consent of all partners.
Rights
Share of profit
Access, inspect and copy of accounts
Sue for accounts if severing his connection with firm
At the time of majority:
Elect to become partner within 6 months – entitle share as like was minor
Not to elect to become partner within 6 months – not liable after public notice.
Liabilities:
Before attaining majority
Up to share of profit and property but no personal property
Cannot be insolvent
After attaining majority
Within 6 month after majority or coming knowledge of partnership which is later
If elected to be a partner
Personally liable from the date of entering into partnership as a minor
Share of property and profit will be same as minor
Not to elect as a partner
Liable up to giving public notice
Sue for share of profit and property
Notice to the registrar
Relations of partners
Section 9 to 17 of partnership Act governs the mutual relations of partners.
It can be created by contract which is implied or express during course of dealing.
It also changed with the consent of all partners.
Example: contract may provide the condition in deed partner cannot do other business while he is a partner.
Right to take part in the conduct of the business:
Management powers are coextensive.
Any partner wrongly precluded, court will not allow such restrictions.
If any partner is wrongly precluded to take part in business, he may sue for dissolution, and sue for accounts.
Above rule apply, if no contrary intention in the deed.
Generally in agreement, limited powers will be given to any partners, then court cannot interfere except illegal act or breach of trust reposed.
Right to be consulted:
Routine matters with majority and but crucial decision like change in nature of business with the consent of all
Right of access of books:
Any partner including sleeping partner can inspect or take the copy in good faith
Right to remuneration:
No partner is entitled except express agreement or custom.
Generally managing partner receives the remuneration in practice.
Right to share profits:
No agreement. It is equally. Party not agree must prove that how it is unequal
No connection between capital contribution and ratio of profit and loss.
Interest on capital:
If express in agreement or usage then only it can be paid out of profit.
If specifically given in deed then only interest will be paid in case of loss also.
In case of insufficient profit, interest will be paid in capital ratio.
Partners are adventurer not the creditors.
Interest on advances:
No express agreement, 6% interest will be paid.
Interest on capital will be paid up to dissolution of partnership and interest on loan will be paid up to date of payment.
Interest on loan is paid whether there is a profit or loss.
Right to be indemnified:
In emergency, for protecting of firm as like prudent man, as own case paid or accepted liabilities by any partner, firm will reimburse or indemnify to partner.
To stop admission of a new partner:
New partner can be admitted with the consent of all.
Any partner has objected, new partner cannot be admitted.
Right to retire:
Partners of partnership at will can retire by giving notice to other partners.
Not to be expelled:
Allowed in deed, Majority, good faith and for the benefit of firm.
Outgoing partner to carry competing business:
Advertise for his business
But he cannot use the firm name or representing himself as old firm or solicit the customers of old firm.
Outgoing partner to share subsequent profit:
After death or cease as a partner, firm continues the business without settle the account of such partner; he is entitled to receive 6% of outstanding balance or share of profit up to settlement.
Dissolve the firm:
with the consent of all firm can dissolve.
Partnership at will – it can be dissolve by giving notice to all other partners.
Duties:
Greatest common advantages
Faithful to each other
Render true accounts
Indemnify to firm for his fraud or willful negligence
Use skill and knowledge without remuneration
Share the loss also.
Any profit received from the transaction, property, business connection and firm name must refund to the firm.
If partner carries competing business, profit of such business should pay to the firm.
Firm is not liable for any loss of such business.
Partnership property:
Known as partnership asset, joint assets, joint stock, common stock or joint estate.
It includes:
Property, right and interest brought as a contribution
Property, right and interest purchased for the firm
Goodwill
Only property used for firm does not mean it is a property of firm, real intention of partner will be considered.
Goodwill:
Reputation due to which over and above normal profit enterprise can earn
At the time of dissolution, goodwill will be sold for the benefit of all partners.
It can be sold separately or along with other property.
Seller of goodwill cannot do the same business within specified limit and specified time.
Use of property for business will not make it is of the firm. But intention of parties and agreement is relevant.
personal profit earned by partner
Profit earned from the transaction or property of firm or by using the firm name should be given to the firm.
A, B,C and D are partners of sugar refining business.
A was aware of price fluctuation of sugarcane. He purchased at lower price and sold at higher price when price is increased without notice of other partners. A must account profit to the firm.
Rights and duties after change in constitution:
Change in constitution includes:
Admission, retirement, carries other business and continues business after expiry of term.
Rights and duties are similar to earlier except business continue after fixed term it will become at will.
Inconsistent provision with partnership at will,
Will be deleted.
Relation of partners with third parties:
Partner is a agent as well as principal.
For his act other partners are also liable hence he is an agent.
For others act he is also liable hence he is principal.
Above rule is applicable if such act is for the purpose of business.
In agency, agent is not liable in ordinary course of business, but in partnership partners are liable up to his share.
Implied authority of partners:
Any act of partner with firm name bind to the firm is known as implied authority.
Act done relate to the usual business within scope of authority.
Usual way depends on nature and circumstances of each case.
Implied authority of a partner may differ in different kind of the firm.
In case of solicitor business, to draw, accept and endorse the bill is not within implied authority but in case of banker it is within implied authority of firm.
In case of commercial nature partnership, buy goods, borrow money, repay debt and issue or receive negotiable instrument
Acts beyond implied authority:
Submit a dispute to arbitration
Open a bank account with his own name
Compromise any claim against third party
Withdraw a suit filed
Admit any liability in a suit
Acquire immovable property for the firm
Transfer immovable property of the firm
Enter in to partnership for the firm
Extension or restriction of partner’s implied authority:
With consent of all partners
By agreement
Usage or custom
Restrictions imposed effective if
Third party knows such restriction
Third party does not know he was a partner
If such authority is restricted and third party dealing with firm knows it, firm is not liable and vice versa.
Rights in emergency:
Do all acts for protecting the firm
With ordinary prudence
Similar circumstances in own case
A borrows Rs 1,000 for business purpose which is within implied authority of partner.
Admission by partners:
Firm is liable for the act of partner
In relation to partnership transactions.
Unless authority is restricted and third party know such restriction.
Z purchases a spare part of Yamaha from x who is a partner, but it was not suitable to Yamaha, Other partners are not aware of such sale. Firm is liable.
Notice to active partner and its effect:
Except partner involved in the fraud, notice given to any partner will be treated as notice given to firm, as notice given to agent will be treated as notice given to principal.
P purchased a stolen car from x, all partners are liable.
Matter should be related to firm.
Liabilities to third parties
Jointly and severally for the act of implied and express authority done towards the business of firm.
Contractual liability:
Infringement of trademark by firm – damage arises after dissolution all partners are liable.
Tort or wrongful act:
Firm is liable for the wrongful act, negligence or omission of any partner in the ordinary course of business and within authority although method used is unauthorized.
A partner omits to fence the shaft of mines. Workmen are injured. Firm is liable.
Misappropriation:
If it was within his apparent authority to receive money or bring it within firm’s custody, then misapplies, firm is liable.
A, B and C are partners of car parking business. P parks his car in parking. A sold the car of P, Firm is liable.
Right of transferee of a partner’s share:
Share in partnership is an asset of partner, it can be transferred but partnership is based on confidence hence assignee cannot enjoy same rights as original partner. He has limited rights given as below:
During continuance not to
Interfere the conduct of business
Require the accounts
Inspect the books.
He can only receive share of profit
On the dissolution
Receive share of assets, for determining share entitled an account.
New partner can be admitted with the consent off all partners hence assignee has no any right as like original partner.
If any partner has given right to transfer his share in deed, it will be treated as admission cum retirement.
Legal consequence of coming in or going out:
It may be in the form of admission, retirement, expulsion or insolvency.
Admission
with consent of all partners
Liability commence from the date of admission unless agreed for prior act.
For the prior act consent of creditors also required then only new firm is liable, because it is a novation
Retirement:
At will by giving notice to other partner or in other case with consent of all partners, any partner can retire.
Retiring partner is liable up to public notice.
If third party is not aware that retiring person was a partner, after retirement before public notice for the transaction with such third party, retiring partner is not liable.
Rights of outgoing partner:
Carrying competing business unless there is a restriction in agreement for a specified period within specified limit.
He may advertise but cannot use the name of firm or represent himself on behalf of old firm or solicit the old customers.
Retiring partner will receive share of property and goodwill at fair value.
If new firm carries old business without settlement of final claim of retiring partner, he may claim share of profit or 6% interest up to the date of settlement.
Retiring partner gives option to surviving partner to purchase his interest
Liabilities of outgoing partner:
Liable up to public notice except
Third party was not aware regarding such person is a partner
At will partnership gives notice to all partners
Death
Insolvency
Exclusion of partners:
Power given in contract
Majority in good faith
For the benefit of firm
Opportunity of being heard is given
Any partner cannot be expelled due to personal bias. Spouse of A, B and C in club.
Insolvency of a partner
Ceases as a partner from the date of order of adjudication
His estate also not liable from the order of adjudication
Generally firm is dissolved due to insolvency of any partner, but it is not compulsory, if remaining partner is able to continue they may continue the business.
Death of a partner:
After death if business is continued, estate of decease partner is not liable without public notice.
Ordinarily, firm is dissolved due to death.
But partners are competent and agreed to continue, it can be continued.
Although order given during life time of partner, but goods is delivered after death of any partner, remaining surviving partners are liable for payment. Estate of deceased partner not liable for these dues.
Revocation of continuing guarantee by change in the firm:
Guarantee given to the firm or third party is revoked if there is a change in the constitution if no contrary intention is shown.
Unit 3
Registration and dissolution of firm:
Registration means to get partnership registered with registrar of firms.
Before this act there was no provision of registration.
It was difficult to identify the firm
It is optional at the discretion of partners.
Unregistered firm has several disabilities.
Mode of effecting registration:
It can be registered at the beginning of firm or afterwards.
By post or delivery to registrar
Area in which place of business situated or proposed to be situated
In prescribed form which includes.
Firm name
Principal place of business
Other place of business
Date of joining
Full and permanent address of partners
Duration of firm
Signed by partner or his agent and verified.
If registrar is satisfied all provisions are duly complied, record entry in register and file statement.
Any alteration in name, place and constitution also is registered.
When registration is complete?
Deemed complete when application in prescribed form with prescribed fees.
Recording of an entry in register is a routine duty.
Consequences of non-registration:
In English law registration of firm is compulsory and penalty is levied due to non-registration of firm.
In India certain disabilities are provided for non-registration of firm given as below:
Firm or partner cannot sue to third party
Partners cannot sue on each other.
Firm can set off up to Rs.100 if third party sue on firm.
Rights of unregistered firm:
Third party sue on the firm
Partner can sue for – Dissolution of firm, settle of accounts
Realization of firm’s property
Official assignees release the property of insolvent partner and bring an action.
Set off up to Rs. 100.
For sue on the third party, firm name and names of partners should be registered.
Retirement of partner is not informed to registrar, suit is valid.
If admission of partner is not informed to registrar, suit is not valid. A, B C and D.
Dissolution of firm:
Discontinue of jural relations existing between partners. Terminates partnership between each and every partners of firm.
Any partner is retired due to death, insolvency or other reason is known as dissolution of partnership. Relationship of such partner and other partners is dissolved.
Mode of dissolution
Without intervention of court
voluntary
By agreement
Compulsory dissolution:
All partners or all except one partner becomes insolvent
Business becomes unlawful due to happening of event.
Chemical business banned by law must be dissolved
Due to certain contingencies
Expiry of fixed term
Completion of one or more adventure
Death of partners
Adjudication of partner as insolvent
Partnership at will
By giving notice to all partners
Date which is mentioned in notice, if date is not mentioned in notice from the date of notice
Dissolution is effective.
Dissolution by court:
Insanity/unsound mind
Suit by other partner or next friend of insane
Permanent incapacity
incapable to perform his duties
Misconduct:
Guilty of conduct which is prejudice to carry the business.
Persistent breach of contract
Willfully commits the breach of agreement
Not practicable to carry business
Due to none recording of receipt in books, quarrel arise between partners, destroy the confidence, court may order for dissolution.
Transfer of interest:
transfer his interest to third party, charged or sold by court as arrears of land revenue. Court may dissolve the firm.
Continuous loss:
Business will be carried at a loss in future.
Just and equitable grounds:
court may consider other grounds for dissolution.
Deadlock in the management
Not talking terms
Loss of substratum
Gambling by a partner…
Consequence of dissolution:
Continue liability up to public notice
X and y were partners. Executed dissolution deed was executed on 1st December but public notice was not given. Mr. x borrowed fund on 20th December, y is also liable.
In following cases public notice is not required
Estate of a deceased partner
Insolvent partner
Dormant partner (sleeping partner)
Enforce winding up:
On partnership being dissolved, partner or his representative have right to receive surplus from property after applying for firm’s debt.
Continue authority of partners after dissolution:
Rights and duties continue for winding up of firm or complete unfinished transactions on the date of dissolution.
Settlement of partnership accounts:
Deficiencies of capital first from profit and at last partners personally in their p & l ratio.
If specific agreement then in their capital ratio.
Asset of firm is applied in following sequence:
Debt of third party
Advances of partners
Capital
Surplus in p & l ratio
If equal standing pay proportionately
Loss due to insolvency of any partner will be borne by partners in capital ratio.
A, B and C are partners. Balance of capital 10,000. 5,000 and 1,000
But assets realized 7,000
Deficiency 16,000 – 7,000 = 9,000
Each partner will borne 9,000/3= 3,000
A 10,000-3000=7,000
B 5,000-3000=2,000
C 1,000-3000=(2,000)
Firm will pay to A and B while C will pay to the firm.
If c became insolvent, deficiency of c will be borne by A and B in the ratio of 2 : 1
Deficiency of A 3,000+1,333=4,333
Deficiency of B 3,000+667=4,667
Firm’s debt as well as partner’s personal debt
From the firm’s asset first pay firm’s debt and from surplus pay partner’s person debt.
From personal assets first pay personal debt and if excess than pay firm’s debt.
Personal profits earned after dissolution
before complete winding up, any partner earns personal profit must be given to the all partners (firm)
lease expired after death of partner is renewed by other partners will be of the firm.
Partner or his representative may restrain to other partners form using firm’s property or name for own benefit till wound up.
Return of premium due to premature dissolution
Any partner is admitted for fixed term with premium, partnership is dissolved before fixed term.
Proportionate premium will be refunded except in following circumstances.
Death of any partner
Misconduct of partner paying premium
Agreement contains provision of non refund.
Proportionate premium will be refunded in following cases
Dissolved due to
Without fault of either party
Fault of both parties
Fault of party receiving of premium
Insolvency of receiving partner – not aware of such circumstances when premium was paid.
Rescission of partnership for fraud act. It is based on confidence
partner affected by fraud
Resign from partnership
Lien on surplus after payment of debt for his capital contribution
Same rank for any payment of firm debt.
Indemnify from partners guilty of fraud or misrepresentation.
Goodwill
purchaser can use
Old name
Represent to the customer of old firm
Seller of goodwill
Carry similar business
Compete to the purchaser
Advertise of his business
But cannot use firm name or solicit the customer of old firm.
Mode of giving public notice:
Publication of Official Gazette
At least one vernacular newspaper circulating in district in which principal place of business.
Registered firm served notice to the ROF relates retirement, expulsion, dissolution of firm, election as a partner while attaining majority
Very nice for urgent reavison