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Partnership Laws

Common Questions on Partnership Laws.

i.What is Partnership?

ii.Why Partnership?

iii.Which Laws Govern Partnership?

iv.How to End Partnership?

v.What are the Liabilities of Partners in Partnership?

Prior to 1932, Chapter XI (Sections 239 to 266) of the Indian Contract Act, 1872 contained the law relating to partnership in India. As these provisions were not exhaustive, it was considered expedient and necessary to separate the law relating to partnership and to embody it in a separate enactment. Hence, the Indian Partnership Act, 1932 was brought to the fore.

What Is Partnership?

It is a type of Business where two or more persons pool money, skill and other resources and share the profit of such business as per agreed terms in Partnership Agreement. The liabilities and risks associated in such business is shared as per the Agreement or if there is no agreement then it is shared proportionately.

Advantages of Partnership

  1. Easy to establish.
  2. Easy to Raise Funds.
  3. Wide pool of Knowledge, Skill and Contacts.
  4. Improved Management.
  5. Sharing of Profit and Loss.
  6. Equal Rights in Management.

 Laws Governing Partnership

The Indian Partnership Act ,1932

  • A partnership firm is not a distinct legal entity apart from the partners constituting it, i.e. a partnership firm is not a ‘person in law’ but is merely an association of individuals.
  • As per Section 4 of the Act, 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.
  • An agreement of partnership need not be express but can be inferred from the course of conduct of the parties to the agreement
  • As per Section 11 of the Act, the mutual rights and duties of the partners of the firm may be determined by contract between the partners, and such contract may be expressed or may be implied by the course of dealing.
  • As per Section 29 of the Act, a transfer by a partner of his rights in the firm, either absolute or by mortgage, or by the creation by him of a charge on such interest, does not entitle the transferee, during the continuance of the firm, to interfere in the conduct of the business, or to require accounts, or to inspect the books of the firm, but entitles the transferee only to receive the share of profits of the transferring partner, and the transferee shall accept the account of profits agreed to by the partners. As per Section 31 of the Act, no person shall be introduced as a partner into a firm without the consent of all the existing partners.
  • As per Section 33 of the Act, a partner may not be expelled from a firm by any majority of the partner, save in the exercise in good faith of powers conferred by contract between the partners. (Rules of Section 32 can be applicable to an expelled partner)

Dissolution of Partnership

  • Dissolution by Mutual Agreement
  • Dissolution by Court.

 Dissolution by Mutual Agreement

 By Agreement (Section 40 Of Indian Partnership Act,1932).

 By Compulsory Dissolution (Section 41 Of Indian Partnership Act,1932).

 Dissolution by Happening of a Contingent Event (Section 42 Of Indian Partnership Act,1932).

 Dissolution by Notice (Section 43 Of Indian Partnership Act,1932).

Dissolution by Court

Insanity of Partner.

Incapacity of Partner.

Misconduct of Partner.

Constant Breach of Agreement of Partner.

Transfer of Interest.

Continuous Losses.