Contracts of Partnership

CONTRACTS OF
PARTNERSHIP
(The Indian Partnership Act, 1932)
By Kapil Chawla

Contents
1. Overview of The Indian Partnership Act,1932
2. Partnership : Meaning & Definition
3. Features of Partnership
4. Partnership & Joint Hindu Family
5. Kinds of Partners
6. Partnership and Agency( Rule in Cox vs.
Hickman)
7. Registration of Firm
8. Effects of Non-Registration
9. Rights Duties of Partners
10.Dissolution of Firms

Partnership : Meaning & Definition
 Partnership Meaning
 Definition (Section 4)
◦Partnership
◦Partner
◦Firm
◦Firm Name

Features of Partnership
1.Association of two or more
persons
2.Agreement
3.To carry on Business
4.Sharing of profits
5.Mutual agency

1.Association of two or more
persons

2. Agreement
(Partnership Deed)

3. To carry on Business

4. Sharing of profits
(equally or in proportion
of capital)

5. Mutual Agency (One
acting for all and all acting
for one)

Partnership & Joint Hindu Family
Partnership Firm Joint Hindu Family Firm
1.The relation of
partnership arises
from contract, and not
from status.
1.The relation of Joint
Hindu Family firm
arises from status, and
not from contract. It
arises by operation of
law.
2.Every partnership firm
is governed by
provisions of Indian
Partnership Act, 1932,
Indian Contract Act,
1872 etc.
2. Every Joint Hindu
Family firm is
governed by the
codified and
uncodified Hindu
Laws.

3. The interest of the
partners in a of a
partnership firm is
determined by
contract.
3. The interest of the
members of Hindu
Joint Family firm in
ancestral business is
acquired by status,
i.e. by birth.
4. A Partnership firm
may be constituted
irrespective of the
members’ caste and
religion.
4. A Joint Hindu Family
firm is limited to
Hindu religion, that
too the caste to which
the members belong.

5. A Partnership firm is by
death, insanity of a
partner.
5. A Joint Hindu Family
firm is not dissolved by
death or insanity of
family member.
6. No person can be
introduced as a partner
without the consent of
all the partners (Sec.
31).
6. A member of a Joint
Hindu acquires an
interest in the firm’s
business by birth,
marriage, adoption etc.
No consent of the other
members is necessary.
Other members cannot
deprive his right.

7. Partnership is a specific
application of the
principles of agency. It is
often said “The law of
partnership is
undoubtedly, a branch of
the law of Principal and
Agent”.
7. The principles of agency
does not apply in case of
Joint Hindu Family firm.
8. There is restriction on the
maximum number of
members in the case of a
partnership firm. Minimum
two and maximum twenty
partners are allowed.
8. There is no such
restriction.

9. The liability of the
members is not limited
to the extent of his
interest in the assets of
the partnership firm.
9. The liability of the
members is limited to
the extent of his
interest in the assets of
Joint Hindu Family.
10.Doctrines of Holding
Out and Estoppel are
applicable.
10.Doctrines of Holding
Out and Estoppel are
not applicable.
11.A person can be
admitted as a partner in
the firm due to his
money, reputation,
skills, ability etc.
11.A person can be
admitted as a members
in a Joint Hindu Family
by the fact of marriage,
birth, adoption.

Kinds of Partners
1.Active Partner
2.Sleeping Partner
3.Nominal Partner
4.Partner by Estoppel or
Holding out
5.Minor Partner

Kinds of Partners
1.Active Partner (works actively
in firm)

Kinds of Partners
2. Sleeping Partner (does not
work, but invests capital)

Kinds of Partners
3. Nominal Partner (firm uses
his name for reputation)

Kinds of Partners
4. Partner by Estoppel or
Holding out (keeps silence
when announced as partner
before others)

Kinds of Partners
5. Minor Partner (Minor as
Partner)

Partnership and Agency
The Law of Partnership is an Extension of the
Law of Agency or Law as to Partnership is
undoubtedly a Branch of the Law of Principal
and Agent or the Rule in Cox vs. Hickman

Partnership and Agency
◦ Cox vs. Hickman (1860) 11 ER 431
◦ Facts of the case

Registration of Firm
 Procedure for Registration
◦ Application contains the following
particulars (Sec 58)
 Firm name
 Place or principal place of business
 Names of any other places, where
firm carries on business
 Date when each partner joined the
firm
 Full names & permanent addresses
of the partners
 Duration of the firm

Effects of Non-Registration (Sec. 69)
1. Partner cannot sue
2. Firm cannot sue
3. Claim of set-off

Effects of Non-Registration (Sec. 69)
Exceptions (Sec. 69(3))
1. Suit for accounts of a dissolved firm
2. Suit for dissolution of the firm Claim of set-off
3. Suit for realising the property of a dissolved
firm
4. Proceeding by Official Assignee or Receiver to
realise the property of an insolvent partner
5. Claim of set off not exceeding Rs.100
provided it is not of a small cause nature

Rights of Partners
1.Rights to take part in the
business(S.12(a)
2.Right to be consulted (S.12(c))
3.Right to access to books (S.12(d))
4.Right to Indemnity (S.13(e))
5.Right to claim remuneration,
profits and interest on Capital
(S.13(a), S.13(b) and S.13(c &
d))

Duties of a Partner
1. Duty to carry on business for common
advantage (S.9)
2. Duty to render true accounts (S.9)
3. Duty to indemnify loss (S.10)
4. Duty to attend diligently (S.12(b))
5. Proper use of firm’s property

Dissolution of Partnership Firm
◦ Dissolution of Firm
 Meaning & Definition
◦ Dissolution of Partnership

Modes of Dissolution of
Partnership Firm
1. Without the Order/ Intervention of the
Court
i. By agreement (S. 40)
ii. Compulsory dissolution (S.41)
iii. Dissolution on the happening of certain
contingencies (S.42)
iv. Dissolution by notice of partners at will (S.43)

Modes of Dissolution of Partnership
Firm
2. Dissolution by the Court (S.44)
i. Insanity of partner
ii. Permanent incapacity
iii. Misconduct
iv. Breach of agreement
v. Business working of losses
vi. Any other ground

Conclusion
1. Overview of The Indian Partnership Act,1932
2. Partnership : Meaning & Definition
3. Features of Partnership
4. Partnership & Joint Hindu Family
5. Kinds of Partners
6. Partnership and Agency( Rule in Cox vs.
Hickman)
7. Registration of Firm
8. Effects of Non-Registration
9. Rights Duties of Partners
10.Dissolution of Firms

Contracts of Partnership

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