Understanding the Indian Partnership Act of 1932

 
S
YBCOM & FYBMS
 
INDIAN PARTNERSHIP ACT, 1932
 
  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.
 
ELIGIBILITY
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 following can enter into a
partnership
INDIVIDUAL
FIRM
HINDU UNDIVIDED FAMILY
COMPANY
TRUSTEES
 
INDIVIDUAL
:
 
An individual, who is
competent to contract, can become a
partner in the partnership firm. If
there are more than two partners in
a firm, an individual can be a partner
in his individual capacity as well as in
a representative capacity as Karta of
the Hindu undivided family.
 
FIRM
: A partnership firm is not a
person and therefore a firm can not
enter into partnership with any firm
or individual. But a partner of the
partnership firm can enter into
partnership with other persons and
he can share the profits of the said
firm with his other co-partners of the
parent firm.
 
HINDU UNDIVIDED FAMILY
: A
Karta of the Hindu undivided family
can become a partner in a
partnership in his individual capacity,
provided the member has
contributed his self acquired or
personal skill and labour
 
COMPANY
: A company is a juristic
person and therefore can become a
partner in a partnership firm, if it is
authorised to do so by its objects.
 
TRUSTEES
: Trustees of private
religious trust, family trust and trustees
of Hindu mutts or other religious
endowments are juristic persons and
can therefore enter into partnership,
unless their constitution or objects
forbid
 
NUMBER OF PARTNERS
The number of partners in a firm
shall not exceed 20 and a
partnership having more than 20
persons is illegal.
 If the partnership is between the
karta or member of Hindu undivided
family the members of the joint
Hindu family will not be taken into
account.
 
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AGREEMENT
 - The relationship
between partners arises from
contract and not status. If after the
death of sole proprietor of a firm, his
heirs inherit firm they do not become
partners, as there is no agreement
between them
 
SHARING OF PROFITS
 – The
partners may agree to share profits
out of partnership business, but not
share the losses. Sharing of losses is
not necessary to constitute the
partnership. The partners may agree
to share the profits of the business in
any way they like.
 
BUSINESS
 – Business includes
every trade, occupation, or
profession. There must be course of
dealings either actually continued or
contemplated to be continued with a
profit motive and not for sport or
pleasure.
 
RELATION BETWEEN PARTNERS
The partner while carrying on the
business of the partnership acts a
principle and an agent. He is a
principal because he acts for himself,
and he is an agent as he
simultaneously acts for the rest of
the partners.
 
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Subject to a contract to the contrary
between the partners the following are the
duties of a partner.
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.
 
 
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
 
To render 
true accounts and full
information
 of all things done by
them to their co-partners.
To 
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.
 
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.
 
To 
indemnify the firm for willful
neglect
 of a partner. A partner shall
indemnify the firm for any loss
caused to it by his willful neglect in
the conduct of the business of the
firm.
 
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.
 
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Subject to a contract to the
contrary a partner has the
following rights.
To take part in the conduct and
management of the business
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
 
To have free access to all the
records, books of account of the firm
and take copy from them.
To share in the profits of the
business. Every partner is entitled to
share in the profits in proportion
agreed to between the parties.
 
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.
To be indemnified by the firm against
losses or expenses incurred by him for the
benefit of the firm.
 
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:
Submit a dispute relating to the
business of a firm to arbitration
Open a bank account in his own
name
 
Compromise or relinquish any claim
of the firm
Withdraw a suit or proceeding on
behalf of the firm
Admit any liability in a suit or
proceeding against the firm
 
Acquire immovable property on
behalf of the firm
Transfer immovable property
belonging to the firm, or
Enter into partnership on behalf of
the firm.
 
 
 
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A person who is a minor according
to the law to which he is subject
may not be a partner in a firm, but,
with the consent of all the partners
for the time being, he may be
admitted to the benefits of
partnership.
 
Such minor has a right to such share
of the property and of the profits of
the firm as may be agreed upon, and
he may have access to and inspect
and of the accounts of the firm
 
 
Such minor’s share is liable for the
acts of the firm, but the minor is not
personally liable for any such act.
Such minor may not sue the partners
for an account or payment of his
share of the property or profits of the
firm
 
At any time within six months of his
attaining majority, or of his obtaining
knowledge that he had been admitted to
the benefits of partnership, whichever
date is later, such person may give public
notice that he has elected to become or
not to become a partner in the firm, and
such notice shall determine his position as
regards the firm, provided that, if he fails
to give such notice, he shall become a
partner in the firm on the expiry of the
said six months.
 
Where any person has been admitted
as a minor to the benefits of
partnership in a firm, the burden of
proving the fact that such person
had no knowledge of such admission
until a particular date after the
expiry of six months of his attaining
majority shall lie on the person
asserting that fact
 
Where such person becomes a
partner-
his rights and liabilities as a minor
continue upto the date on which he
becomes a partner, but he also
becomes personally liable to third
parties for all acts of the firm done
since he was admitted to the benefits
of the partnership, and
 
his share in the property and profits
of the firm shall be the share to
which he was entitled as a minor
 
Where such person elects not to
become a partner-
his rights and liabilities shall continue
to be those of a minor upto the date
on which he gives public notice,
his share shall not be liable for any
acts of the firm done after the date
of the notice, and
he shall be entitled to sue the
partners for his share of the property
and profits.
 
 
 
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A firm may be dissolved in the
following manner
Dissolution by Court
Dissolution by agreement
Dissolution by operation of law
Dissolution on the happening of
certain contingencies
Dissolution by notice
 
DISSOLUTION BY COURT
The court may dissolve a firm at the suit
of any partners on any of the following
grounds namely :
INSANITY OF A PARTNER
: that a partner
has become of unsound mind. The
insanity of a partner does not ipso facto
dissolve the firm and the next friend or
continuing partners has to file suit foe
dissolution.
 
PERMANENT INCAPACITY OF A PARTNER
:
that a partner has become permanently
incapable of performing his duties as
partner.
CONDUCT AFFECTING PREJUDICIALLY
THE BUSINESS
 : that a partner is guilty of
conduct, which is likely to affect
prejudicially the carrying on the business
of the firm.
 
BREACH OF PARTNERSHIP AGREEMENT
that a partner willfully or persistently
commits breach of agreements relating to
the management of the affairs of the firm
or the conduct of it’s business or
otherwise conducts himself in matters
relating to the business, that it is not
reasonably practical for the other partners
to carry on the business with him.
 
TRANSFER OF INTEREST OF A PARTNER :
that a partner has in any way transferred
the whole of his interest in the firm to a
third party.
LOSS
: that the business of the firm cannot
be carried on save at a loss
JUST AND EQUITABLE
 : on any other
ground that renders it just an equitable
that the firm should be dissolved
 
DISSOLUTION BY AGREEMENT
A firm may be dissolved with the
consent of all the partners or in
accordance with the contract
between the partners. The
partnership agreement may contain
a proviso that the firm will be
dissolved on the happening of certain
contingency
 
DISSOLUTION BY OPERATION OF
LAW
A firm is compulsorily dissolved on
the following grounds
Insolvency of partners
By the happening of any event which
makes it unlawful for the business of
the firm to e carried on.
 
DISSOLUTION ON THE
HAPPENING OF CERTAIN
CONTINGENCIES
Subject to contract between the
partners a firm is dissolved on the
happening of the following
contingencies.
If constituted for a fixed term, by the
expiry of that term
 
If constituted to carry out one or
more adventures or undertakings, by
its completion.
By the death of a partner
On insolvency of a partner
 
DISSOLUTION BY NOTICE
If the partnership is at will, the same
may be dissolved by service of a
notice by one partner to dissolve the
firm.
 
R
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It is not compulsory to register the
firm. However there are serious
effects of non-registration.
 
No suit to enforce a right arising
from a contract or conferred by the
Indian Partnership Act shall be
instituted in any court by or on
behalf of any person suing as partner
in a firm against the firm or any
person alleged to be or to have been
a partner in the firm, unless the firm
is registered and the person suing is
or has been shown on the Register of
firms as a partner in the firm
 
Similarly, no suit to enforce a right
rising 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.
 
PROCEDURE FOR REGISTRATION
 The
registration of a firm may be effected at
any time by sending by post or delivering
to the Registrar of Firms of the area in
which any place of business of the firm is
situated or proposed to be situated, a
statement in the prescribed form and
accompanied by the prescribed fee,
stating :
the firm name
 
the place or principal place of
business of the firm;
the names of any other places where
the firm carries on business;
the date when each partner joined
the firm;
 
the names in full and permanent
addresses of the partners; and
the duration of the firm.
 
The statement shall be signed by all
the partners or by their agents
specially authorised in this behalf.
Each person signing the statement
shall also verify in the manner
prescribed.
 
A firm name shall not contain any of
the following words viz. "Crown",
‘Emperor", "Empress", "Empire",
"Imperial", "King", "Queen", "Royal",
or words expressing or implying the
sanction, approval or patronage of
Government, except when the State
Government signifies its consent to
the use of such words as part of the
firm name by order in writing.
 
All the States have framed rules
prescribing the forms, fee for
registration and verification of the
statement. The application for
registration has to be made to the
Registrar of Firms in the prescribed
form
 
When the Registrar is satisfied that
the provisions have been complied
with, he shall record and entry of the
statement in a register called the
Register of Firms and shall file the
statement. The Registrar is the
competent authority and if he acts
bona fide and follows the procedure,
his satisfaction cannot be challenged.
 
CHECKLIST FOR DRAFTING A
PARTNERSHIP DEED
A partnership deed should contain
the following clauses
Name of the parties
Nature of business
 
Duration of partnership
Name of the firm
Capital
Share of partners in profits and
losses
Banking, Account firm
Books of account
 
Powers of partners
Retirement and expulsion of partners
Death of partner
Dissolution of firm
Settlement of disputes
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SYBCOM & FYBMS

INDIAN PARTNERSHIP ACT, 1932

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A partnership under the Indian Partnership Act, 1932 is defined as the relationship between individuals agreeing to share business profits. Governed by the act, eligibility requires individuals of majority age, sound mind, and contracting capacity. Partnerships can involve individuals, firms, Hindu undivided families, companies, and trustees. Key eligibility criteria and details on individual, firm, and Hindu undivided family partnerships are covered.


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  1. SYBCOM & FYBMS INDIAN PARTNERSHIP ACT, 1932

  2. 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.

  3. 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.

  4. ELIGIBILITY 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.

  5. The following can enter into a partnership INDIVIDUAL FIRM HINDU UNDIVIDED FAMILY COMPANY TRUSTEES

  6. INDIVIDUAL: An individual, who is competent to contract, can become a partner in the partnership firm. If there are more than two partners in a firm, an individual can be a partner in his individual capacity as well as in a representative capacity as Karta of the Hindu undivided family.

  7. FIRM: A partnership firm is not a person and therefore a firm can not enter into partnership with any firm or individual. But a partner of the partnership firm can enter into partnership with other persons and he can share the profits of the said firm with his other co-partners of the parent firm.

  8. HINDU UNDIVIDED FAMILY: A Karta of the Hindu undivided family can become a partner in a partnership in his individual capacity, provided the member has contributed his self acquired or personal skill and labour

  9. COMPANY: A company is a juristic person and therefore can become a partner in a partnership firm, if it is authorised to do so by its objects.

  10. TRUSTEES: Trustees of private religious trust, family trust and trustees of Hindu mutts or other religious endowments are juristic persons and can therefore enter into partnership, unless their constitution or objects forbid

  11. NUMBER OF PARTNERS The number of partners in a firm shall not exceed 20 and a partnership having more than 20 persons is illegal. If the partnership is between the karta or member of Hindu undivided family the members of the joint Hindu family will not be taken into account.

  12. ESSENTIALS OF A PARTNERSHIP AGREEMENT - The relationship between partners arises from contract and not status. If after the death of sole proprietor of a firm, his heirs inherit firm they do not become partners, as there is no agreement between them

  13. SHARING OF PROFITS The partners may agree to share profits out of partnership business, but not share the losses. Sharing of losses is not necessary to constitute the partnership. The partners may agree to share the profits of the business in any way they like.

  14. BUSINESS Business includes every trade, occupation, or profession. There must be course of dealings either actually continued or contemplated to be continued with a profit motive and not for sport or pleasure.

  15. RELATION BETWEEN PARTNERS The partner while carrying on the business of the partnership acts a principle and an agent. He is a principal because he acts for himself, and he is an agent as he simultaneously acts for the rest of the partners.

  16. GENERAL DUTIES OF A PARTNER Subject to a contract to the contrary between the partners the following are the duties of a partner. 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.

  17. Where a partner carries on a rival business in competition with the partnership, the other partners are entitled to restrain him.

  18. 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

  19. To render true accounts and full information of all things done by them to their co-partners. To 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.

  20. 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.

  21. To indemnify the firm for willful neglect of a partner. A partner shall indemnify the firm for any loss caused to it by his willful neglect in the conduct of the business of the firm.

  22. 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.

  23. RIGHTS OF THE PARTNERS Subject to a contract to the contrary a partner has the following rights. To take part in the conduct and management of the business 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

  24. To have free access to all the records, books of account of the firm and take copy from them. To share in the profits of the business. Every partner is entitled to share in the profits in proportion agreed to between the parties.

  25. 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. To be indemnified by the firm against losses or expenses incurred by him for the benefit of the firm.

  26. 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.

  27. 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: Submit a dispute relating to the business of a firm to arbitration Open a bank account in his own name

  28. Compromise or relinquish any claim of the firm Withdraw a suit or proceeding on behalf of the firm Admit any liability in a suit or proceeding against the firm

  29. Acquire immovable property on behalf of the firm Transfer immovable property belonging to the firm, or Enter into partnership on behalf of the firm.

  30. RIGHTS OF A MINOR A person who is a minor according to the law to which he is subject may not be a partner in a firm, but, with the consent of all the partners for the time being, he may be admitted to the benefits of partnership.

  31. Such minor has a right to such share of the property and of the profits of the firm as may be agreed upon, and he may have access to and inspect and of the accounts of the firm

  32. Such minors share is liable for the acts of the firm, but the minor is not personally liable for any such act. Such minor may not sue the partners for an account or payment of his share of the property or profits of the firm

  33. At any time within six months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, such person may give public notice that he has elected to become or not to become a partner in the firm, and such notice shall determine his position as regards the firm, provided that, if he fails to give such notice, he shall become a partner in the firm on the expiry of the said six months.

  34. Where any person has been admitted as a minor to the benefits of partnership in a firm, the burden of proving the fact that such person had no knowledge of such admission until a particular date after the expiry of six months of his attaining majority shall lie on the person asserting that fact

  35. Where such person becomes a partner- his rights and liabilities as a minor continue upto the date on which he becomes a partner, but he also becomes personally liable to third parties for all acts of the firm done since he was admitted to the benefits of the partnership, and

  36. his share in the property and profits of the firm shall be the share to which he was entitled as a minor

  37. Where such person elects not to become a partner- his rights and liabilities shall continue to be those of a minor upto the date on which he gives public notice, his share shall not be liable for any acts of the firm done after the date of the notice, and he shall be entitled to sue the partners for his share of the property and profits.

  38. DISSOLUTION OF A FIRM A firm may be dissolved in the following manner Dissolution by Court Dissolution by agreement Dissolution by operation of law Dissolution on the happening of certain contingencies Dissolution by notice

  39. DISSOLUTION BY COURT The court may dissolve a firm at the suit of any partners on any of the following grounds namely : INSANITY OF A PARTNER: that a partner has become of unsound mind. The insanity of a partner does not ipso facto dissolve the firm and the next friend or continuing partners has to file suit foe dissolution.

  40. PERMANENT INCAPACITY OF A PARTNER: that a partner has become permanently incapable of performing his duties as partner. CONDUCT AFFECTING PREJUDICIALLY THE BUSINESS : that a partner is guilty of conduct, which is likely to affect prejudicially the carrying on the business of the firm.

  41. BREACH OF PARTNERSHIP AGREEMENT that a partner willfully or persistently commits breach of agreements relating to the management of the affairs of the firm or the conduct of it s business or otherwise conducts himself in matters relating to the business, that it is not reasonably practical for the other partners to carry on the business with him.

  42. TRANSFER OF INTEREST OF A PARTNER : that a partner has in any way transferred the whole of his interest in the firm to a third party. LOSS: that the business of the firm cannot be carried on save at a loss JUST AND EQUITABLE : on any other ground that renders it just an equitable that the firm should be dissolved

  43. DISSOLUTION BY AGREEMENT A firm may be dissolved with the consent of all the partners or in accordance with the contract between the partners. The partnership agreement may contain a proviso that the firm will be dissolved on the happening of certain contingency

  44. DISSOLUTION BY OPERATION OF LAW A firm is compulsorily dissolved on the following grounds Insolvency of partners By the happening of any event which makes it unlawful for the business of the firm to e carried on.

  45. DISSOLUTION ON THE HAPPENING OF CERTAIN CONTINGENCIES Subject to contract between the partners a firm is dissolved on the happening of the following contingencies. If constituted for a fixed term, by the expiry of that term

  46. If constituted to carry out one or more adventures or undertakings, by its completion. By the death of a partner On insolvency of a partner

  47. DISSOLUTION BY NOTICE If the partnership is at will, the same may be dissolved by service of a notice by one partner to dissolve the firm.

  48. REGISTRATION It is not compulsory to register the firm. However there are serious effects of non-registration.

  49. No suit to enforce a right arising from a contract or conferred by the Indian Partnership Act shall be instituted in any court by or on behalf of any person suing as partner in a firm against the firm or any person alleged to be or to have been a partner in the firm, unless the firm is registered and the person suing is or has been shown on the Register of firms as a partner in the firm

  50. Similarly, no suit to enforce a right rising 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.

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