![Business Law Unit IV: Partnership Laws Part A The Partnership Act, 1932 Notes [Gauhati University FYUGP BCom 3rd Sem]](https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjJwDIT0T2kcVhPyQ5PwQgCbaqT1Bc-cLxnKaVjq3S93ofY5wD8y2PQ14hhbrsd3IsbOsw6gyokXw96LcvfTtKgrRsMTH4eo17pHXXOW6B-kgXa0FGVOdThc0Ro8jzkqP4DeU_V0CUVyCnqHBMmbJ2zKolpAmmK3QpZ-T0I7imcn1feF8CKGV4HAFxvD-5C/s16000-rw/1000358855.webp "Business Law Unit IV: Partnership Laws Part A The Partnership Act, 1932 Notes [Gauhati University FYUGP BCom 3rd Sem]")
1. Write two differences between partnership and co-ownership. (GU BCom 2019, 2020, 2021)
Answer:
i) Partnership arises from an agreement, whereas co-ownership may arise from agreement or by operation of law.
ii) In partnership, there is sharing of profits and losses, but in co-ownership, there is no sharing of profits and losses.
2. What is a partnership deed? (GU BCom 2023, 2024)
Answer: A partnership deed is a written document containing the terms and conditions agreed upon by all the partners regarding the conduct of the partnership business.
3. Define partnership under the Partnership Act, 1932.
Answer: According to Section 4 of the Indian Partnership Act, 1932, “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.”
4. State two essentials of a partnership.
Answer:
i) There must be an agreement between two or more persons.
ii) The agreement must be to share the profits of a business carried on by all or any of them acting for all.
5. Who is a partner by estoppel?
Answer: A partner by estoppel is a person who, by his conduct or words, represents himself as a partner in a firm and thereby becomes liable to third parties as if he were a partner, even though he is not actually one.
6. What do you mean by implied authority of a partner?
Answer: Implied authority of a partner means the authority of a partner to bind the firm by his acts done in the ordinary course of the firm’s business, even though such authority is not expressly given.
7. State two rights of partners.
Answer:
i) Right to share the profits of the business.
ii) Right to take part in the management of the firm.
8. State two duties of partners.
Answer:
i) Duty to carry on the business of the firm honestly and in good faith.
ii) Duty to render true accounts and full information to other partners.
9. Who is a minor partner?
Answer: A minor partner is a person below 18 years of age who is admitted to the benefits of partnership with the consent of all partners but cannot become a full-fledged partner.
10. Write two differences between partnership firm and joint Hindu family business.
Answer:
i) Partnership is created by contract, whereas joint Hindu family business arises by status.
ii) In partnership, all partners have equal rights, but in a joint Hindu family business, only the Karta has the right to manage the business.
11. State two modes of dissolution of partnership firm.
Answer:
i) By mutual agreement of all partners.
ii) By the insolvency or death of a partner.
12. What do you mean by incoming partner?
Answer: An incoming partner is a person who is admitted into an existing partnership firm with the consent of all the existing partners.
13. Define "Partnership at will."
Answer: Partnership at will is a partnership where no fixed duration is agreed upon and can be dissolved by any partner at any time by giving notice to the others.
14. What is the minimum number of persons required to form a partnership?
Answer:
The minimum number of persons required to form a partnership is two.
15. Who regulates partnership law in India?
Answer: Partnership law in India is regulated by the Indian Partnership Act, 1932.
5 Marks Questions (Short Notes / Brief Explanations)
1. State the essential elements of partnership. (GU BCom 2019)
Answer: According to Section 4 of the Indian Partnership Act, 1932, 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.” The essential elements of a partnership are as follows:
i) Agreement: A partnership arises only from an agreement between two or more persons. It may be oral or written, but it must express their intention to form a partnership.
ii) Number of Partners: There must be at least two persons to form a partnership. The maximum number of partners is 50 as per the Companies Act, 2013.
iii) Existence of Business: The partnership must be formed for carrying on a lawful business. Mere co-ownership of property does not constitute partnership.
iv) Sharing of Profits: The agreement must include sharing of profits of the business. Sharing of losses is implied unless agreed otherwise.
v) Mutual Agency: The business must be carried on by all or any one of the partners acting for all. Each partner acts as both principal and agent of the firm.
vi) Lawful Business: The business carried on by the partners must be lawful. Any illegal business will not be treated as a partnership.
Thus, the above elements must coexist for a valid partnership to be formed under the law.
2. Briefly state different types of partners. (GU BCom 2020)
Answer: Under the Indian Partnership Act, 1932, there are different types of partners depending on their role, liability, and participation in the firm. The main types are as follows:
i) Active or Managing Partner: He takes an active part in the conduct of the business and has the authority to act on behalf of the firm.
ii) Sleeping or Dormant Partner: He invests capital and shares profits but does not take part in day-to-day business activities.
iii) Nominal Partner: He only allows his name to be used by the firm but does not contribute capital or share in profits. However, he is liable to third parties for firm’s acts.
iv) Partner in Profits Only: Such a partner shares only the profits of the firm and is not liable for its losses.
v) Minor Partner: A minor cannot become a full partner but can be admitted to the benefits of partnership with the consent of all partners.
vi) Partner by Estoppel or Holding Out: A person who, by his conduct or declaration, represents himself as a partner and becomes liable to third parties as if he were one.
vii) Secret Partner: He is a partner in the firm but his name is not disclosed to the public.
Hence, these are the main types of partners found in a partnership firm.
3. Explain the procedure of registration of partnership firm. (GU BCom 2021, 2023)
Answer: Registration of a partnership firm is not compulsory under the Indian Partnership Act, 1932, but an unregistered firm suffers from several disadvantages. The procedure for registration is as follows:
i) Application: The firm must submit an application to the Registrar of Firms of the area in which the firm is situated. The application must be signed and verified by all partners.
ii) Contents of Application: The application must contain the following particulars:
a) Name of the firm.
b) Principal place of business.
c) Names of other places where the firm carries on business.
d) Names and addresses of all partners.
e) Date when each partner joined the firm.
f) Duration of the firm, if any.
iii) Filing of Documents: The prescribed registration fee must be deposited along with the application and supporting documents.
iv) Scrutiny by Registrar: The Registrar of Firms verifies the application and, if found satisfactory, records the statement in the Register of Firms.
v) Certificate of Registration: After successful verification, the Registrar issues a Certificate of Registration to the firm.
Once registered, the firm gets legal recognition and can enforce its rights against third parties in the court of law.
4. What test would you apply to determine the existence of partnership? (GU BCom 2023)
Answer: To determine whether a partnership exists or not, the following tests or criteria are applied:
i) Agreement between Persons: There must be an agreement between two or more persons. Partnership cannot arise by status or inheritance.
ii) Existence of Business: The parties must carry on some business. A mere ownership of property without business activity is not partnership.
iii) Sharing of Profits: The parties must agree to share profits of the business. However, sharing of profits alone is not conclusive proof of partnership.
iv) Mutual Agency: This is the most important test. Each partner must have the authority to act as an agent of the firm and of other partners. If there is no mutual agency, there is no partnership.
v) Intention of the Parties: The real intention of the parties to act as partners in business must be considered.
Thus, the existence of partnership is mainly determined by the presence of mutual agency along with other essential features.
5. Discuss the liabilities of partners.
Answer: Under the Indian Partnership Act, 1932, the liabilities of partners are as follows:
i) Joint and Several Liability: All partners are jointly as well as individually liable for all acts of the firm done while they are partners.
ii) Liability for Acts of Co-partners: Each partner is liable for the wrongful acts, omissions, or frauds committed by other partners in the course of the firm’s business.
iii) Liability of Incoming Partner: An incoming partner is not liable for any acts of the firm done before he joined, unless he agrees otherwise.
iv) Liability of Retiring Partner: A retiring partner remains liable for acts done before his retirement until a public notice of retirement is given.
v) Liability after Dissolution: Partners continue to be liable for acts necessary for winding up the business and completing transactions begun before dissolution.
vi) Liability of Minor Partner: A minor admitted to the benefits of partnership is not personally liable, but his share in the firm’s property is liable for the firm’s debts.
Hence, partners have unlimited liability and are personally responsible for all the obligations of the firm incurred during the period of partnership.
6. Explain the implied authority of a partner.
Answer:
Implied authority of a partner means the authority which is not expressly given but is assumed to be given to a partner to carry on the business of the firm in the usual way. According to Section 19(1) of the Indian Partnership Act, 1932, “The act of a partner which is done to carry on, in the usual way, the business of the kind carried on by the firm binds the firm.”
The main features of implied authority are:
i) Acts within ordinary course of business: The partner’s act must be within the usual course of business of the firm.
ii) Binding nature: The firm is bound by such acts done by any partner as long as they fall within the scope of business.
iii) Examples of implied authority:
a) Purchasing or selling goods on behalf of the firm.
b) Receiving payments or issuing receipts on behalf of the firm.
c) Borrowing money in the firm’s name for business purposes.
iv) Restrictions: A partner cannot, without the consent of other partners, do certain acts like submitting disputes to arbitration, opening bank accounts in his name, or transferring immovable property of the firm.
Thus, implied authority ensures that the firm’s business runs smoothly and that third parties can rely on the acts of a partner done in the ordinary course of business.
7. Distinguish between partnership and co-ownership.
Answer:
8. What are the effects of non-registration of a partnership firm?
Answer: Registration of a partnership firm is optional under the Indian Partnership Act, 1932, but non-registration leads to certain legal disabilities. The main effects of non-registration are:
i) Inability to sue by firm: An unregistered firm cannot file a suit against any third party to enforce its rights under a contract.
ii) Inability of partners to sue firm or co-partners: A partner of an unregistered firm cannot sue the firm or other partners to enforce rights arising from the partnership agreement.
iii) No right to claim set-off: An unregistered firm cannot claim a set-off in a suit filed against it exceeding ₹100.
iv) Third parties can sue the firm: Third parties are not barred from suing an unregistered firm for enforcement of their rights.
v) No effect on other rights: The firm can still be registered at any later date, and non-contractual rights (like ownership of property) are not affected.
Therefore, although registration is not compulsory, it is highly desirable to avoid such legal disadvantages.
9. State the rules relating to incoming and outgoing partners.
Answer:
i) Incoming Partner:
An incoming partner is one who is admitted into an existing firm with the consent of all existing partners. The rules regarding him are:
a) He is not liable for any acts of the firm done before his admission unless he agrees otherwise.
b) He becomes liable for all acts of the firm done after his admission.
c) His rights and duties are the same as those of existing partners after admission.
ii) Outgoing Partner:
An outgoing partner is one who ceases to be a member of the firm due to retirement, expulsion, insolvency, or death. The rules regarding him are:
a) He remains liable for acts of the firm done before his retirement until public notice of retirement is given.
b) He is not liable for acts of the firm done after his retirement once public notice is issued.
c) He has the right to share profits earned from use of his capital after retirement until it is returned to him.
Thus, the law protects the interests of both incoming and outgoing partners by defining their rights and liabilities clearly.
10. Distinguish between partnership at will and particular partnership.
Answer:
10 Marks Questions (Long / Essay Type)
1. State the rights and duties of partners under the Indian Partnership Act, 1932. (GU BCom 2019, 2021)
Answer: The Indian Partnership Act, 1932 lays down various provisions relating to the mutual rights and duties of partners in Sections 9 to 17. These rights and duties form the foundation for smooth functioning and fair conduct of the business of a partnership firm.
A) Rights of Partners: The main rights of partners are as follows:
i) Right to take part in management: Every partner has the right to take an active part in the management and decision-making of the business of the firm. No partner can be excluded from this right without his consent.
ii) Right to be consulted: Every partner has the right to express his opinion before any decision is made in matters concerning the firm. Decisions regarding ordinary business matters are decided by majority, but a change in the nature of business requires unanimous consent.
iii) Right to share profits: Each partner has the right to share the profits of the firm in the agreed ratio. If there is no specific agreement, profits and losses are shared equally among all partners.
iv) Right to access books of accounts: Every partner has the right to inspect and copy any of the books of accounts of the firm. This ensures transparency and accountability.
v) Right to indemnity: A partner is entitled to be indemnified by the firm for expenses incurred or liabilities suffered in the ordinary course of business or for protecting the firm from loss.
vi) Right to interest on capital and advances: A partner is entitled to interest on capital and on any advance made beyond the agreed capital, only if provided by the partnership deed or agreed upon by all partners.
vii) Right to retire: With the consent of other partners or in case of a partnership at will, by giving written notice, a partner has the right to retire from the firm.
viii) Right to share goodwill: On dissolution of the firm, every partner has a right to share in the goodwill of the firm.
B) Duties of Partners: The duties of partners are equally important as their rights. The major duties include:
i) Duty to carry on business honestly and faithfully: Each partner must conduct the business of the firm with utmost good faith and for the common advantage of all partners.
ii) Duty to render true accounts: Every partner must provide full and true information about the business to other partners whenever required.
iii) Duty to indemnify for loss caused by fraud: A partner must compensate the firm for any loss caused by his fraud in the conduct of the business.
iv) Duty to share losses: Partners are bound to share all losses of the firm in the agreed ratio. If no ratio is specified, they share equally.
v) Duty to attend diligently to business: Each partner is bound to attend diligently to the business of the firm.
vi) Duty not to carry on competing business: A partner must not carry on any business of the same nature as that of the firm without the consent of other partners. If he does, he must account for the profits made in such business.
vii) Duty to act within authority: A partner must act within the limits of his authority and not do anything which binds the firm beyond his power.
viii) Duty to use firm’s property exclusively for business: The property of the firm must be used only for the purposes of the firm and not for personal benefit.
In conclusion, the rights and duties of partners ensure mutual trust, fairness, and cooperation in the partnership business and form the legal and moral backbone of the partnership relationship.
2. Explain the procedure of registration of partnership firm and state its benefits. (GU BCom 2020, 2021, 2023)
Answer: The registration of a partnership firm is governed by Sections 58 to 59 of the Indian Partnership Act, 1932. Although registration of a partnership firm is not compulsory, it is highly desirable because an unregistered firm suffers from various disabilities.
A) Procedure for Registration of Partnership Firm:
i) Filing of Application: An application for registration of the firm must be filed with the Registrar of Firms of the area where the firm is situated. The application must be in the prescribed form and signed by all partners or their authorized agents.
ii) Contents of Application:
The application must contain the following particulars:
a) Name of the firm.
b) Principal place of business.
c) Names of other places where the firm carries on business.
d) Names and permanent addresses of all partners.
e) Date when each partner joined the firm.
f) Duration of the firm (if any).
iii) Filing of Documents and Fee: The prescribed registration fee and supporting documents such as the partnership deed must be submitted along with the application.
iv) Verification by Registrar: The Registrar verifies the particulars of the application and ensures that the firm’s name is not identical with that of an existing firm.
v) Entry in the Register of Firms: If the Registrar is satisfied that all requirements have been fulfilled, he records the statement in the Register of Firms. This register contains complete details of all registered firms in the state.
vi) Certificate of Registration: After successful verification, the Registrar issues a Certificate of Registration, which is conclusive proof that the firm has been duly registered.
B) Benefits or Advantages of Registration:
i) Right to sue third parties: A registered firm can file a suit against any third party for enforcement of its rights under a contract.
ii) Right of partners to sue the firm: A partner of a registered firm can file a suit against the firm or other partners to enforce rights arising from the partnership agreement.
iii) Right to claim set-off: A registered firm can claim set-off in a suit filed against it by third parties.
iv) Legal recognition: A registered firm enjoys legal recognition and credibility before financial institutions, clients, and government authorities.
v) Proof of existence: The Certificate of Registration serves as legal proof of the firm’s existence and authenticity.
vi) Continuity and protection: Registration ensures that the firm’s name and rights are protected and recognized in case of disputes.
Hence, registration of a partnership firm, though optional, is advisable as it secures legal benefits and avoids restrictions imposed on unregistered firms.
3. Discuss the dissolution of partnership firm under the Partnership Act, 1932.
Answer: Meaning: Dissolution of partnership firm means the complete termination of the relationship between all partners of a firm. It results in the winding up of the business, realization of assets, and payment of liabilities. The rules relating to dissolution are contained in Sections 39 to 47 of the Indian Partnership Act, 1932.
Types of Dissolution:
i) Dissolution by Agreement (Section 40): A firm may be dissolved with the consent of all partners or in accordance with a contract between them.
ii) Compulsory Dissolution (Section 41):
A firm is compulsorily dissolved in the following cases:
a) When all partners become insolvent, or
b) When the business becomes unlawful due to change in law.
iii) Dissolution on the Happening of Certain Contingencies (Section 42):
A firm is dissolved in any of the following situations unless there is an agreement to the contrary:
a) On the expiry of a fixed period (if the partnership was for a fixed term).
b) On completion of a specific adventure or undertaking.
c) On the death of a partner.
d) On the insolvency of a partner.
iv) Dissolution by Notice (Section 43):
In a partnership at will, the firm may be dissolved by any partner giving notice in writing to all the partners of his intention to dissolve the firm.
v) Dissolution by Court (Section 44):
The court may order dissolution of a firm on the following grounds:
a) Insanity or permanent incapacity of a partner.
b) Misconduct of a partner affecting business.
c) Persistent breach of agreement by a partner.
d) Continuous losses making business unprofitable.
e) Any other just and equitable ground.
Consequences of Dissolution:
After dissolution, the following steps are taken:
a) Assets of the firm are realized and liabilities are paid.
b) The firm’s debts to outsiders are paid first, followed by partners’ advances and capital.
c) Any surplus is distributed among partners according to profit-sharing ratio.
Thus, dissolution brings an end to the firm’s legal existence and is governed by the principles of equity and fairness among all partners.
4. Explain the liabilities of partners to third parties.
Answer: Under the Indian Partnership Act, 1932, every partner is both a principal and an agent. Therefore, each partner is liable for the acts of the firm and the acts of other partners done in the ordinary course of business. The liabilities of partners towards third parties are as follows:
i) Joint and Several Liability (Section 25): All partners are jointly and severally liable for all acts of the firm done while they are partners. This means a third party can recover the entire amount of debt from any one or more of the partners.
ii) Liability for Acts of Partners (Section 18): Each partner acts as an agent of the firm and of the other partners. Hence, the firm and all partners are bound by acts done by any partner in the ordinary course of business.
iii) Liability for Wrongful Acts (Section 26): If any partner, in the course of the firm’s business, commits a wrongful act or omission causing loss to a third party, the firm and all partners are jointly and severally liable.
iv) Liability for Misapplication (Section 27): If money or property of a third party is misapplied by a partner while acting in the course of business, the firm is liable to make good the loss.
v) Liability of Incoming Partner: An incoming partner is not liable for any acts of the firm done before he joined, unless he agrees to be liable for them. He is liable only for acts done after his admission.
vi) Liability of Retiring Partner: A retiring partner remains liable for acts done before retirement until public notice of retirement is given.
vii) Liability after Dissolution: Partners remain liable for acts necessary for winding up the firm and completing transactions begun before dissolution.
viii) Liability of a Minor Partner: A minor admitted to the benefits of partnership is not personally liable to third parties, but his share in the firm’s property is liable for the firm’s debts.
In conclusion, the liability of partners to third parties is unlimited, and they are personally responsible for all the debts and obligations of the firm incurred during their tenure as partners.
5. Discuss the implied authority of a partner with exceptions.
Answer: Meaning: Implied authority means the authority which is not expressly given but is assumed to exist as necessary to carry on the business of the firm in the usual way. Section 19 of the Indian Partnership Act, 1932 defines the implied authority of a partner.
Scope of Implied Authority: Every partner is an agent of the firm, and his acts done in the ordinary course of business bind the firm and all partners. The following acts fall within the implied authority:
i) Purchasing or selling goods on behalf of the firm.
ii) Borrowing money or incurring debts for business purposes.
iii) Receiving payments and issuing receipts.
iv) Engaging servants or agents for business.
v) Settling accounts with third parties.
Conditions for Exercising Implied Authority:
a) The act must be done in the name of the firm.
b) It must be within the scope of the firm’s business.
c) It must be done in the ordinary course of business.
Exceptions to Implied Authority (Acts beyond Implied Authority):
According to Section 19(2), a partner cannot, without the consent of other partners, do the following acts:
i) Submit a dispute relating to the business to arbitration.
ii) Open a bank account in his own name on behalf of the firm.
iii) Compromise or relinquish any claim or portion of a claim by the firm.
iv) Withdraw a suit or proceeding filed on behalf of the firm.
v) Admit any liability in a suit against the firm.
vi) Acquire or transfer immovable property belonging to the firm.
vii) Enter into partnership with any third person on behalf of the firm.
Restriction of Implied Authority (Section 20): The partners may, by mutual agreement, restrict or extend the implied authority of any partner. However, such restriction is valid only if the third party has knowledge of it.
Conclusion: Implied authority is essential for the smooth and efficient functioning of a partnership business. It allows partners to act freely in ordinary business matters, while also protecting the interests of the firm by restricting acts beyond the scope of the partnership’s ordinary course of trade.
Q6. Explain the rules relating to incoming and outgoing partners.
Answer: Under the Indian Partnership Act, 1932, provisions relating to incoming and outgoing partners are contained in Sections 31 to 38. These provisions define how a new partner may be admitted and under what conditions an existing partner may retire, become insolvent, or die.
Rules Relating to Incoming Partner:
i) Consent of All Partners: According to Section 31(1), a new partner can be introduced into a firm only with the consent of all existing partners, unless there is an agreement providing otherwise.
ii) Liability of Incoming Partner: As per Section 31(2), an incoming partner is not liable for any acts of the firm done before his admission, unless he agrees to be so liable by a contract.
iii) Rights of Incoming Partner: After joining the firm, he gets all the rights and duties of a partner as mentioned in the partnership agreement. He becomes entitled to share the profits of the firm and is bound by the duties of partnership.
iv) Capital Contribution: An incoming partner usually contributes capital or goodwill as agreed among the partners.
v) Registration (if required): When a new partner is admitted, the change must be recorded with the Registrar of Firms to ensure public notice and to avoid future disputes.
Rules Relating to Outgoing Partner:
i) By Consent or Agreement: A partner may retire with the consent of all other partners or in accordance with an express agreement among partners.
ii) By Notice in Partnership at Will: Under Section 32(1)(c), in case of a partnership at will, a partner may retire by giving a written notice to all other partners of his intention to retire.
iii) Liability for Past Acts: An outgoing partner continues to be liable for all acts of the firm done before his retirement until public notice is given.
iv) Right to Share in Profits: Section 37 states that if an outgoing partner’s capital remains in the firm, he is entitled to a share in subsequent profits or interest at 6% per annum on the amount due.
v) Expulsion of Partner: Under Section 33, a partner may be expelled only by exercising powers conferred by the partnership deed and in good faith.
vi) Insolvency or Death: The partnership stands dissolved as regards the insolvent or deceased partner, but may continue for the remaining partners if agreed.
Conclusion: The provisions relating to incoming and outgoing partners ensure fairness in the firm’s operations and protect both the rights of existing partners and those who join or retire from the firm. Proper consent, notice, and public declaration are essential to maintain transparency and avoid future liability disputes.
Q7. Distinguish between dissolution of partnership and dissolution of firm.
Answer: The terms dissolution of partnership and dissolution of firm are often used interchangeably, but they have distinct meanings under the Indian Partnership Act, 1932.
Meaning:
Dissolution of Partnership refers to a change in the relationship among partners without ending the existence of the firm.
Dissolution of Firm means a complete closure of the business of the firm and termination of partnership among all partners.
Differences between Dissolution of Partnership and Dissolution of Firm:
Q8. Discuss the concept of partnership at will with case laws.
Answer: A partnership at will is one where no fixed duration or specific object of partnership is mentioned in the agreement. It continues at the will of the partners and can be dissolved by any partner by giving notice.
Definition (Section 7 of the Indian Partnership Act, 1932):
“When 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 called a partnership at will.”
Essential Features:
i) No Fixed Duration: The partnership should not be formed for a fixed period of time.
ii) No Specific Purpose: The partnership should not be for a particular venture or project.
iii) Dissolution by Notice: Any partner can dissolve the firm by giving written notice to all other partners. The firm dissolves from the date mentioned in the notice or from the date of its communication.
Rights of Partners in Partnership at Will:
i) A partner can retire or dissolve the firm by giving notice.
ii) Profits are distributed as per agreement or equally in absence of such.
iii) Partners can demand accounts and share of profits upon dissolution.
Case Laws:
i) Cox v. Hickman (1860): The court held that sharing profits alone does not constitute partnership; intention and mutual consent are key elements.
ii) M/s. Jagannath v. Commissioner of Income Tax (1957): The court observed that when the partnership deed does not fix any duration, it is a partnership at will.
iii) Karunakaran v. Kumaran (AIR 1953 Mad 656): The Madras High Court ruled that absence of a term in the agreement makes the partnership one at will.
Conclusion: A partnership at will provides flexibility to partners to continue or terminate the partnership freely. It operates purely based on mutual consent and can be dissolved without legal complications, ensuring convenience for partners.
Q9. Explain the rights and liabilities of partners after dissolution.
Answer: When a partnership firm is dissolved, the rights and liabilities of partners are governed by Sections 45 to 55 of the Indian Partnership Act, 1932. These provisions ensure proper settlement of accounts and responsibilities among partners.
Rights of Partners after Dissolution:
i) Right to Have Business Wound Up (Sec. 46): Every partner is entitled to have the firm’s property applied in payment of debts and surplus distributed among partners.
ii) Right to Return of Premium (Sec. 51): A partner who has paid a premium upon entering the firm is entitled to a proportionate refund if the firm is dissolved before the expiry of the agreed term, unless dissolution is due to his own misconduct.
iii) Right to Share in Profits after Dissolution (Sec. 37): If the firm continues business using assets belonging to the outgoing partner, he is entitled to a share in profits or 6% interest per annum.
iv) Right to Indemnity (Sec. 69): Partners can claim indemnity for payments made in the course of winding up the firm’s affairs.
v) Right to Restrain Others from Using Firm’s Name: Partners have the right to stop others from using the firm’s name or goodwill without consent.
Liabilities of Partners after Dissolution:
i) Liability for Acts Before Dissolution (Sec. 45): Partners remain liable for all acts of the firm done before dissolution unless due notice of dissolution is given.
ii) Liability to Third Parties: Partners are responsible to third parties for obligations arising before dissolution.
iii) Liability to Contribute Deficiency: Partners must contribute towards losses or deficiencies in assets.
iv) Liability in Case of Fraud: If any partner commits fraud, he must compensate the other partners for losses caused.
v) Liability of Deceased Partner’s Estate: The estate of a deceased partner is liable for obligations incurred before his death but not afterward.
Conclusion: After dissolution, partners retain certain rights to protect their financial interests and are also liable for pre-dissolution obligations. Proper accounting, settlement, and public notice help in avoiding disputes and ensure fair closure of partnership affairs.
Q10. Discuss the relation of partners with third parties under the Act.
Answer: The relationship of partners with third parties is governed by Sections 18 to 30 of the Indian Partnership Act, 1932. Partners act as both principals and agents for each other and for the firm in dealings with outsiders.
1. Partners as Agents (Sec. 18): Every partner is an agent of the firm and other partners for the purpose of the business. The acts of a partner bind the firm if done within the scope of his authority.
2. Implied Authority of Partner (Sec. 19): Unless restricted, a partner’s authority extends to all acts necessary for carrying on the business, such as buying/selling goods, receiving payments, and employing servants. However, certain acts like submitting disputes to arbitration or transferring immovable property require express authority.
3. Liability of the Firm for Acts of Partner (Sec. 25): Every partner is jointly and severally liable for all acts of the firm done while he is a partner. The firm is bound by acts done in its name and within the ordinary course of business.
4. Liability for Wrongful Acts (Sec. 26): If a partner causes loss to a third party due to wrongful acts or negligence in the course of business, the firm is liable to compensate for such loss.
5. Misapplication of Money or Property (Sec. 27): The firm is liable if a partner misapplies money or property received from third parties in the course of business.
6. Holding Out or Partner by Estoppel (Sec. 28): If a person represents himself as a partner and induces others to give credit to the firm, he is liable as if he were a partner, even if no actual partnership exists.
7. Liability of Incoming and Outgoing Partners (Sec. 31 & 32): An incoming partner is not liable for acts done before joining. An outgoing partner is liable for acts done before his retirement until public notice is given.
Conclusion: Thus, the relation between partners and third parties is based on the principles of agency and mutual liability. While partners enjoy authority to bind the firm, they also share collective responsibility for obligations and wrongful acts committed during the partnership.-0000-
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