Course material THE PARTNERSHIP ACT, 1932

http://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf

Course-outline

Nature of partnership

Relationship of partners with each other

Relations Of Partners To Third Parties.

Incoming And Outgoing Partners

Dissolution Of A Firm.

Registration Of Firms

Partnership v company No separate legal personality from its

members

Created by a simple agreement

Partner cant transfer his share without consent of others

Each partner is agent of others and can bind them by his contracts made during partnership except when limited by contact. Share holders not agent of each other

Partners liable jointly and severallyno limits

A partner can not contract with the partnership a share holder can

Death or retirement dissolves partnership

Partnership v co-ownership Co-ownership is a legal concept where two or more co-

owners share the legal ownership of a property

Differences between the two:

Partnership arises out of agreementnot necessarily he case with co-ownership

Necessarily involves sharing of profit and loss

A partner ca not transfer his interest without the consent of partners

Every partner agent of the other

Every partner has lien on partnership (a lien is a form of security interest granted over an item of property to secure the payment of a debt or performance of some other obligation)

It must exist for gain

Partners cant seek division of property of partnership in specie co-owners can

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.

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

the name under which their business is carried on is called the "firm-name".

Essential characteristics of partnership

The essential characteristics of partnership are:

Association of one or more persons

There must an agreement

Sharing of profits

There must be a business

Business must be carried by all or anyone of them on behalf of all

There must an agreement

The relation of partnership arises from contract and not from status

Contract can be express or implied

family business???????

Express contract:

A contract reduced in writing

Implied contract:

Conduct of the parties and the surrounding circumstances justify inference an agreement between the parties

Example of implied contract:

a patient goes to a doctor's appointment

his actions indicate he intends to receive treatment in exchange for paying reasonable/fair doctor's fees.

by seeing the patient, the doctor's actions indicate he intends to treat the patient in exchange for payment of the bill.

Therefore, it seems that a contract actually existed between the doctor and the patient, even though nobody spoke any words of agreement.

If the patient refuses to pay after being examined, he will have breached the implied contract.

Persons carrying on business for a number of years

All parties concerned have either actively joint or acquiesced in the carrying on that business and have been sharing profits ????????

Is there a partnership?????????????

Business must be carried by all or anyone of them on behalf of allExample: Owners of wool factory A,B,C enter into a pooling contract by virtue of which

they agreed to work in the factories for certain manner and to share the total profits in certain profits

Contract was for 5 years Factory A was for to work 2.5 years Factory B to work for next 2.5 years Factory Bs owner had the option working their factories or not as they pleased

but if they worked in their factories they were bound to share profits with the other parties to contract according to the terms thereof.

held:Parties certainly agreed to share the profits but it does not appear there was any

business carried by all or anyone of them acting for all. Partners managed their own factories and no partners had any right to interfere with management of the factories of the other partners

Test of agency:

Whether a person is a partner or not depends , in almost every case, upon whether he has the authority to act for those who are admittedly partners and whether those admittedly partners have the authority to act for him.

Sharing of profits

Agreement to share loss only constitute loss only.??????

Example 1:

A & B filed separate tenders to cut and remove bamboos

Entered into agreement under which each party entitled to take certain share of bamboos collected by persons whose tenders had been accepted

Is there a partnership???????? And why???

Example 2:

A agrees with B , a goldsmith to buy and furnish gold to B to be worked up him and sold

And they will share the resulting profit

Is it partnership?????????????

MODE OF DETERMINING EXISTENCE OF PARTNERSHIP In order to determine whether partnership exists or whether a

person is or is not a partner in a firm regard shall be to the real relation between the parties, as shown by all relevant facts taken together.

Explanation:

The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners.

The receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of profits or varying with the profits earned by a business, does not itself make him a partner with the persons carrying on the business;

Whether the following situations establish existence of partnership exclusively?

receipt of such share or payment by

A lender of money to persons engaged or about to engage in any business

a servant or agent as remuneration

by the widow or child of a deceased partner, as annuity

by a previous owner or part-owner of the business, as consideration for the sale of the goodwill or share thereof

Above receipts of such share or payment do not of themselves make the receiver a partner with the persons carrying on the business

Is sharing of profits conclusive proof of existence of partnershipCox v Hickman:

Before this case sharing of profits was considered to be conclusive proof of existence of partnership

This case overruled this concept and established

though sharing of profits is strong test of existence of partnership, there may be cases where upon a simple participation in profits there is a assumption, not of law, but of fact, there is a partnership, yet whether the relation of partnership does or does not exist must depend upon the whole contract between the parties.

Class activity:decide whether partnership exists or does not exists in the following cases: A& B are co-owners of a house let to a paying tenant. they divide

the net rents between themselves.

A and B 100 bales of cotton which they agree to sell on their joint account

A & B agree to work together as carpenters, but that A shall receive all profits and shall pay wages to B.

A entered a contract with partnership firm on conditions that

i. He was to receive in consideration of advances a commission on net profits of the partnership business

ii. He will exercise control over the business fore the protection of his interest

iii. But he was not given power to transact business for the protection of his interest

Types of partnershipPARTNERSHIP-AT-WILL

no provision is made by contract between the partners for the duration of their partnership,

or

for the determination of their partnership, the partnership is partnership-at-will".

PARTICULAR PARTNERSHIP

A person becoming a partner with another person in particular adventures or undertakings

Relations of Partners To one Another

Essential reading

Section 9 to 17

Duties of partnersGeneral Duties include:

Partners bound to carry on the business of the firm to greatest common advantage

to be just and faithful to each other,

to render true accounts and full information of all things affecting the firm to any partner, his heir or legal representative.

.

Duty to indemnify:

Every partner shall indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm

Its absolute duty and partners can not contract themselves out of it.

If they do so such clause unlawful and thus unenforceable

Duties of partners by contract:

the mutual rights and duties of the partners of a firm may be determined by contract between the partners,

such contract may be express or may be implied

contract may be varied by consent of all the partners, and such consent may be express or may be implied

contracts may provide that a partner shall not carry on any business other than that of the firm while he is a partner.

Duties of partners regarding conduct of the business

a partner is not entitled to receive remuneration for taking part in the conduct of the business;

Rights of partners regarding conduct of the business

right to take part in the conduct of the business

right to have access to and to inspect and copy any of the books of the firm:

in the event of the death of a partner, his heirs or legal representatives or their duly authorized agents shall have a right of access to and to inspect and copy any of the books of the firm.

PROPERTY OF THE FIRM(Subject to the contract between the partners)the property of the firm includes all property and rights and interest in property originally

brought into the stock of the firm or acquired (by purchase or otherwise) by or for the firm

for the purposes and in the course of the business of the firm, and includes also the goodwill of the business.

Unless the contrary intention appears, property and rights and interest in property acquired with money belonging to the firm are deemed to have been acquired for the firm.

the property of the firm shall be held and used by the partners exclusively for the purposes of the business.

PERSONAL PROFITSSubject to contact:

if a partner derives any personal profits from any transaction of the firm, or from the use of the property or business connection of the firm or the firm-name, he shall account for that profit and pay it to the firm

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.

EFFECT OF CHANGE IN THE FIRM ON RIGHTS AND DUTIES OF THE PARTNERS 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, as far as may be;

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, and so far as they may be consistent with the incidents of partnership-at-will

PARTNER'S IMPLIED AUTHORITY

SOURCE OF PARTNERS IMPLIED AUTHORITY

Source of implied authority of a partner is his agency

a partner is the agent of the firm for the purposes of the business of the firm.

WHAT IS IMPLIED AUTHORITY OF PARTNER AS AGENT :

act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm.

This authority of a partner to bind the firm is called his "implied authority

Limits to the IMPLIED AUTHORITYUnless and until there is a usage or custom of trade to then

contrary, this implied authority does not include the following :

submit a dispute relating to the business of the firm to arbitration

compromise or relinquish any claim or portion of a claim by the firm

withdraw a suit or proceeding filed on behalf of the firm admit any liability in a suit or proceeding against the firm, acquire immovable property on behalf of the firm or

transfer immovable property belonging to the firm enter into partnership on behalf of the firm. open a banking account on behalf of the firm in his own

name

EXTENSION AND RESTRICTION OF PARTNER'S IMPLIED AUTHORITY Partners can by contract between the partners, extend

or restrict the implied authority of any partner.

any act done by a partner on behalf of the firm which falls within his implied authority binds the firm, unless the person with whom he is dealing knows of the restriction or does not know or believe that partner to be a partner.

Does this doctrine exists in company law as well??????

EXTENSION OF PARTNER'S AUTHORITY IN CASE OF EMERGENCY

in an emergency, a partner can to do all such acts for the purpose of protecting the firm from loss as would be done by a person of ordinary prudence, in his own case, acting under similar circumstances, and such acts bind the firm

REQUIREMENTS FOR AN ACT TO BIND THE FIRM. an act or instrument done or executed by a partner or

other person on behalf of the firm shall be

done or executed in the firm-name,

or in any other manner expressing or implying an intention to bind the firm.

ADMISSION AND RECIVING A NOTICE BY A PARTNER admission or representation made by a partner

concerning the affairs of the firm binds the firm, if made in the ordinary course of business.

Notice to a partner who habitually acts in the business of the firm of any matter relating to the affairs of the firm operates as notice to the firm, except in the case of a fraud on the firm committed by or with the consent of that partner

LIABILITY OF A PARTNER acts of partners done for the firm:

Every partner is liable jointly with all the other partners and also severally, for all acts of the firm done while he is a partner

wrongful act or omission :

the wrongful act or omission of a partner while

i. acting in the ordinary course of the business of a firm

ii. or with the authority of his partners,

And loss or injury is caused to any third party,

or any penalty is incurred,

Partners are again liable jointly and severally

LIABILITY OF FIRM FOR MISAPPLICATION BY PARTNERSWhere

(a) a partner acting within his apparent authority receives money or property from a third party and misapplies it

(b) a firm in the course of its business receives money or property from a third party, and the money or property is misapplied by any of the partners while it is in the custody of the firm, the firm is liable to make good the loss.