Topic :Law of

Partnership
Course: Business Law

Submitted To: Mam Naila

Submitted By: Roll No:

Amreena Riaz 2915

BBA 8th

National University of Modern Languages

LAW OF PARTNERSHIP

Partnership Act , 1932 (Sec. 3 )

The law of partnership is contained in the partnership Act,
1932 which came into force on 1st October , 1932 . It
extends to whole of Pakistan
Definition:
A partnership is a voluntary association of two or more
persons, who contribute, money, property, time, care or
skill, to carry on, as co-owners, a lawful business for
profit and to share the profits and losses of the business.

ESSENTIALS OF PARTNERSHIP
1. Agreement:
A partnership is the result of an agreement between
persons who want to form a partnership. An agreement
may be written or oral.
2. Number of partners:
According to section 14 of company’s ordinance, 1984 a
partnership consisting of more than 20 persons for
carrying on any business is illegal.

3. Existence of business:
The partners must agree to carry on a business. If the
purpose is to carry on some charitable work, it will not be
a partnership.
4. Sharing of profits:
The agreement between the parties must be to share the
profits of a business. The profit will be distributed among
the partners according to their agreement.
5. Duration:
The partnership continues at the will of the partners. It
comes to an end if any of the partners retires, dies or
becomes insolvent. However, if the remaining partners
agree to continue the business, the firm will not dissolve.
KIND OF PARTNERS

1. Active partner:
A partner who takes an active part in the management of
the firm is called active partner.
2. Sleeping partner:
One who does not take an active part in the management
of the firm is called sleeping.
3. Nominal partner:
One who lends his name and reputation to the firm is
called nominal partner. He does not invest in business. He
does not get share in profits. But, he is regarded as partner
in the eye of law. He is liable to the outsiders for the debts
of the firm.
4. Senior partner:
A partner who has made more investment in the firm and
receives more profit is called a senior partner.
5. Junior partner:
A junior partner is the one who has a small investment in
the business and receives a nominal share in the profits.
6. Partner in profits only:
He is a partner who shares the profits of the firm but is
not liable for the losses. But he is equally liable as other
partners to the outsiders.

TYPES OF PARTNERSHIP
1. Partnership at will:
Where no provision is made in the contract regarding the
duration of partnership.
2. Particular partnership:
Where partnership is formed to do a particular business.
Such partnership is dissolved immediately after the
completion of that business.

RIGHTS OF PARTNERS
1. Right to take part in business:
It is not essential for every partner to take part in business
but the right of participation should be available to every
partner.
2. Right to inspect books.
Every partner has rights to inspect an take copies of books
of the firm.
3. Right to share profits.
Every partner has rights to share equally in profit earned
and is liable to contribute equally to losses suffered by the
firm .
4. Right to give consent.
Every partner has rights to prevent the introduction of
new partner unless he consents to that .

DUTIES OF PARTNERS
1. Duty to carry on Business:
It is the duty of every partner to carry on the business of
the firm for the common advantage.
2. Duty to be just and faithful:
The partners should be faithful and just towards the firm
and towards other partners in their actions specifically in
maintaining the firm’s accounts.
3. Duty to indemnify:
Every partner is bound to indemnify the firm for any loss
caused to it by his conduct like fraud or
misrepresentation.
4. Duty to share losses :
Every partner shall bear the losses equally borne by the
firm irrespective of their capital contribution .
5. Duty to account for profits :
A partner must not carry on any business similar to that of
the firms . If he does so , he is bound to account for and
pay to the firms all profits made by him in that business .
6. Duty to provide information :
Every partners must give full information about the firms
to his co-partners . A partners must not conceal any
information concerning the firms from other partners.
DISSOLUTION OF PARTNERSHIP
1. A firm may be dissolved with the consent of the
partners.
2. A firm is compulsorily dissolved if all the partners
except one, become insolvent

3. If a firm is constituted for a certain term, then it stands

dissolved after the expiry of the term.
4. A firm may be dissolved by the order of the court if any
of the partners files a suit for the same on any of the
following grounds:
a. A partner has become of unsound mind.
b. A partner has become insolvent
c. A partner has committed breach
d. The firm is running on losses
5. Where the partnership is at will, any partner giving
notice in writing to all the other partners may dissolve the
firm.
SETTLEMENT OF ACCOUNTS ON DISSOLUTION
1. The partners shall pay losses, first from their profits,
next out of capital and lastly if necessary by the partners
individually according to the proportion of their expected
profits.
2. The assets of the firm shall be applied to pay the debts
of third parties, to pay each partner what is due to him, the
rest if any to be divided among the partners according to
the proportion in which they were to receive profits.

ADVANTAGES OF PARTNERSHIP
1. Easy Formation :
The partnership can be easily formed because no
complicated legal formalities are for its formation .
2. Larger Capital :
There are more persons who persons who can collect
large amount of capital . The capital can also be increased
by admitting new partners .
3. Better Management :
The partners may perform only those activities for which
they are more suitable .
4. High Credit Standing :
In partnership , the liability of all the members is
unlimited . It means that in case of loss, personal assets of
all the partners can be held liable to meet the claims of the
creditors .
5. Public Relations:
The partners personally look after the affairs of business ,
so they develop good relations with the employees and
customers .

DISADVANTAGES OF PARTNERSHIP
1. Risk of Dissolution :
In case of death , insolvency of the partner , the
partnership is terminated . The remaining partners will
have to make a new agreement if they want to continue
with the business.
2. No transfer of ownership :
In case of partnership , the partner cannot transfer his
ownership to any other person without the consent of all
the other partners .
3. Unlimited Liability :
The partners have unlimited liability with regard to debts
of the business . Every Partners is individually and jointly
liable for all debts of the firm .
4. Lack of Public Confidence :
A partnership have independent decision making
authority in the management .
5. Lack of authority :
All partners have independent decision making authority
in the management . As a result , many types of problems
may arise when there is no mutual trust , understanding
and corporation .