Partnership FINAL

8/2/2019 Partnership FINAL

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Law ofPartnership

Presented by:Iqra NagiJahangir TariqShoaib Rizvi

Jawad Ahmed


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Introduction to Topic

One of the forms in which business can be carried on is

partnership, where two or more persons join together to form

the partnership and run the business. In order to govern and

guide partnership, the Partnership Act, 1932 was enacted.

Since public at large would be dealing with the partnership as

customers, suppliers, creditors, lendors, employees or any

other capacity, it is also very important for them to know the

legal consequences of their transactions and other actions in

relation with the partnership.


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Meaning &Definition of Partnership

Section 4 of the Partnership Act, 1932 defines the termPartnership as under:

PARTNERSHIP IS THE RELATION BETWEEN

TWO OR MORE PERSONS WHO HAVE AGREEDTO SHARE THE PROFITS OF A BUSINESSCARRIED ON BY ALL OR ANY OF THEMACTING FOR ALL.

Thus, Partnership is the name of legal relationshipbetween/among persons who have entered in to thecontract.


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Maximum Limit on Number of Partners

Section 11 Companies Act provides that the

maximum no. of persons, a firm can have:

In case of partnership firm carrying on a banking business 10

In case of partnership firm carrying on any other business 20

If the number of partners exceeds the aforesaid limit,the partnership firm becomes an illegal association.

If an association of persons or firm having members or partnersexceeding the Above limit will not be an illegal association if that firmsobjective is not to earn profit.


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CHACTERISTICS OFPARTNERSHIP

Legal Entity:A partnership has no separate legal entity apart from its members.It means the firm and partners are not separate from one another.

Agreement:A partnership is a result of agreement between persons. Anagreement may be written or oral. Only the persons who arecompetent to contract can form a partnership.

Number of Partners:There must be at least 2 persons to form a partnership. Thepartnership Act does not mention the maximum limit of personswho can be partners in a partnership firm. According to section 14of Companies Ordinance 1984, a partnership consisting of morethan 20 persons cannot be formed.


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Existence of Business:The partners must agree to carry on a business. If the purpose issomething other than business, it is not partnership. Therefore

when there is no business, there is no partnership.

Sharing of Profits:The agreement between partners must be to share the profits of abusiness. The profit will be distributed amongst the partners

according to their agreement. The partners will share the lossaccording to the agreed ratio.

Mutual Agency:

The business must be carried on by all the partners or any of them

acting for all the partners. Each partner acts as an agent of otherpartners of the firm. Again, each partner acts as a principal alsobecause he binds himself to the activities of other partners. Itmeans that the contract of agency exists among partners.


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Unlimited Liability:

The liability of partners is unlimited in case of debts. All the partners

are individually and collectively responsible for the debts of thebusiness. It means that if there is any loss and the business sourcesare insufficient to meet the claims of the creditors, the privateproperties of the partners can be sold to meet the claims of thecreditors.

Capital:Generally, the capital of the firm is provided by all the partners. It isnot necessary to contribute equal capital. A person withoutcontributing any capital may also become a partner.

Utmost faith:A partnership business Is based on mutual confidence and trust ofthe partners. The partners must be just and honest with each other.They must disclose all facts and provide true accounts relating tothe business to each other. They must not make any secret profit.


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Management:According to law, every partner can take part in the conduct andmanagement of the business of the firm. Generally, the work is

divided amongst partners according to their experience andknowledge.

Control:Since partnership is formed by an agreement, its control depends on

the terms of the agreement. Where all the partners can take activepart in the conduct of the business, the control remains with all ofthem and all major decisions are taken with the consent of all thepartners. Otherwise, control may be given to one or more partnersunder the agreement

Transfer of Interest:A partner cannot transfer his share in the partners to an outsiderwithout the consent of all other partners. Thus, share in partnershipis not freely transferable.


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Duration:The partnership continues at the will of the partners. It comes to anend if anyone of the partners dies or become insolvent. However, ifremaining partners agree to continue the business, the firm will not

dissolve.


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Types of Partnership

Partnership at Will

(Sec.7)

Particular Partnership

(Sec.8)

On the Basis of Duration


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Partnership at Will [Sec.7 read withSec.43)]

When there is no provision in partnership agreement(known as partnership Deed, if in writing) for:

The duration of their partnership, or

The determination of their partnership,

then the partnership is called Partnership at Will. Special feature of Partnership at will is that such firm

may be dissolved by any partner by giving a notice inwriting to all other partners of his intention to dissolve the

firm The firm will be dissolved from that date which is

mentioned in the notice as the date of dissolution and if nodate is mentioned then from the date of communication of

notice.


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Particular Partnership [sec. 8]

When a partnership is formed for a Specific venture or undertaking, or

Particular period (fixed term)

then such partnership is called a particularpartnership.

Such partnership comes to an end on the completion of

the venture or the expiry of time period.

A particular partnership may be dissolved before the

expiry of the term or completion of the venture only bythe mutual consent of all the partners.


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Contd.

Sec. 17 (b) of the Act provides that if a firm

,constituted for a fixed term, continues to carry on

business after the expiry of that term, then the

partnership will become partnership at will ANDmutual rights and duties of partners will remain same

as they were before the expiry.


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Advantages of Partnership Firm

Easy Formation: The partnership can be formed easily because no legal formality is

required for its formation. The registration of firm is not compulsory.The cost of formation is also small.

More Capital:In partnership, there are more persons, so they can easily collect ahuge amount of capital. If the present partners are not in a positionto supply the needed capital, the amount can be borrowed.Moreover, the capital can also be increased by adding new partners.

Better Management:In partnership, partners may perform those duties for which theyare suitable. In case of important matters, all the partners can gettogether and decide. This ensures efficiency and increase profits.


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High Credit Standing:

In case of partnership, the liability of all members is unlimited. Itmeans that in case of loss the personal properties of all the partnersare available to meet the claims of the creditors, so the financialinstitutions give loans without fear.

More Interest:All the partners know that they will earn profit, so they work hard tomake the firm successful. They know that in case of failure ofbusiness, they will have to bear the loss.

Skilled EmployeesIn partnership, resources of the Firm are more, so the services ofskilled employees can be obtained.


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Public Relations:

partners personally look after the business, so they can develop

good relations with the employees and customers which arebeneficial for the firm. The employees can also be managedefficiently.

Flexibility: A partnership is free from legal restrictions. It is formed by an

agreement so the business can be changed easily. Its objects,membership and capital may be adjusted according to change inbusiness conditions


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Quick Decision: In partnership, quick decisions can be taken regarding business

policies which enable a firm to take advantage of changingconditions.

Sharing of Risk: A partnership firm enjoys the advantage of sharing risk as compared

to sole trading. Possibility of expansion:

A partnership business is flexible and expansion of business is easy.Firm can extend its business due to greater resources, favorable

credit standing and managerial ability. It can be expanded bymaking more partners.


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Disadvantage of PartnershipFirm

Unlimited Liability: The partners have unlimited liability with regards to the debts of the

business. All the partners are individually and collectivelyresponsible for the debts of the business. It means that if there is

any loss and the business sources are insufficient to meet the claimsof the creditors, the private properties of the partners can be sold tomeet the claims of the creditors.

Risk of Dissolution: In case of death, bankruptcy or insanity of partner, the partnership

is terminated.


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Possibility of Disagreement: A partnership is started by a group of persons having good

relations. But with the passage of time, differences may develop

among them resulting in dissolution of the firm.

Limited Resources: In a joint stock company, there are thousands of shareholders and a

large amount of capital can be gathered in order to expand thebusiness. But in case of partnership, the maximum limit of membersis 20 and huge amount of capital cannot be raised easily.


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No Transfer of Shares: The partner cannot transfer his share to an outsider without the

consent of other members.

Lack of Public Confidence: A partnership does not enjoy public confidence due to lack of

publicity. The public have little knowledge about its activitiesbecause its accounts and reports are not published.

Lack of Authority: All the partners have independent decision making authority in the

management. As a result, many types of problems may arise whenthere is no mutual understanding and cooperation.


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Authority of Partners: A partner is the agent of firm and other partners. He can bind the

firm and co-partners by his agreement with outsiders. Thus adishonest and incompetent partner may create problems for his co-partners.

Loss of Opportunities: The partnership business may miss out on business opportunitiesdue to delay in decision making and differences among partners.

Possibility of Fraud:

As the registration of firm is not compulsory, there are chances offraud.

Documents

Partnership FINAL