INDIAN PARTNERSHIP ACT FOR ENTREPRENEURS by : DR. T.K. JAIN AFTERSCHO☺OL centre for social entrepreneurship sivakamu veterinary hospital road bikaner 334001 rajasthan, india FOR – PGPSE – PGPSE / CSE PARTICIPANTS
[email protected] mobile : 91+9414430763 5 DECEMBER 09
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My words.... Ours is a great country with immense entrepreneurial potential. However, our legal system and taxation system is so cumbersome that our creativity and talent is wasted / unnecessarily diverted in these sectors. I wish that these are simplified so that an ordinary entrepreneur can understand these without help from any expert. I wish that more people should become entrepreneurs, rather than becoming an expert in avoiding taxation. Let us wish that some likeminded person is able to reach policy making level and is able to change these. I have tried to simplify simplify Indian partnership act for Indian entrepreneurs – but it is so complicated that even if you simplify it, it will remain complicated. An ordinary Indian entrepreneur wishes to remain an honest entrepreneur and contribute to the development of nation, but our systems and processes force him to adopt unfair means ... 5 DECEMBER 09
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What is the true test of partnership ?
Mutual agency
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Is agreement necessary for partnership ?
Yes there must be an agreement between the partners of a partnership firm.
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Is registration necessary for partnership ?
No but registered firms enjoy better legal position in comparison to unregistered firm
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Can minor become partner without the concent of all the partners ? No
A minor may be admitted to the benefits of a partnership only with the consent of all other partners.
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Agreement requires consideration. Can partnership agreement be made without consideration ?
Yes As relations of partners inter se are that of agency, no consideration is required to create the partnership.
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What are the contents of a partnership deed ? (i) The firm name and business to be carried on under that name. (ii) Names and addresses of partners. (ii) Nature and scope of business and address(s) of business place(s). (iv) Commencement Commencement and duration of partnership. (v) The capital and the contribution made by each partner. (vi) Provision for further capital and loans by partners to the firm. (vii) Partner’s drawings. Etc read sec 11 (1) for details
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What is partnership at will ?
Where 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 Partnership at Will (sec. 7)
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When will the constitution of a partnership firm necessarily change ? a new partner is introduced as a partner in a firm; (Section 31) a partner retires from a firm; (Section 32), a partner is expelled from a firm; (Section 33), a partner is adjudicated as an insolvent; (Section 34) and a partner dies. (Section 35) 5 DECEMBER 09
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Can a minor become a partner ?
A minor cannot be a partner, although he may be admitted to the benefits of partnership.
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Can a co-parcener demand accounts ?
A partner can demand the accounts of the firm, but a co-parcener cannot ask for accounts
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Is co-parcener liable for the liability of the HUF firm ?
No Every partner is personally liable for the debts of the firm; in a joint family business only the Karta is personally liable 5 DECEMBER 09
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Is the share of a co-parcener fixed like the share of a partner ? No a partner has a definite share in the business and this can be changed only by agreement, but the share of a coparcener is not fixed; it may be enlarged by death or reduced by a birth in the family 5 DECEMBER 09
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Wil a firm dissolve on death of a co-parcener – like in the case of death of a partner ? No The death of a partner dissolves the partnership, but the death of a coparcener does not dissolve the family firm
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Can any co-parcener borrow money for firm and bind the firm by his decisions ? No Only Karta or manager (who is the head of the family) has implied authority to borrow and bind other members; but in a partnership each partner is entitled to do so 5 DECEMBER 09
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Can a creditor ask for payment from a member of a company like from a member of a partnership firm?
No The creditors of the partnership can call upon individual partners to pay the firm’s debt, but the members of a company are not personally liable for the company’s debts 5 DECEMBER 09
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Can a partner retire without giving public notice ?
Only a sleeping partner can retire from the firm without giving any public notice to this effect.
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What is difference between nominal partners and sleeping partners ? Nominal partners (who give their name only) are liable to third parties for all a ll the acts of the firm. Unlike a sleeping partner, they are known to the outsiders as partners in the firm, whereas actually they are not. 5 DECEMBER 09
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What are the rights of a sub partner ?
A sub partner has no rights righ ts or duties towards the firm and does not carry any liability for the debts of the firm. He cannot bind the firm or other partners by his acts. 5 DECEMBER 09
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What is partnership by estoppel? if a person who is declared to be a partner (when actually he is not) does not deny the fact that he is a partner, he being held out as a partner is responsible for all liability of the business.(read sec 28 of partnership act and 115 of Indian evidence act) 5 DECEMBER 09
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Can we have a partnership firm of all minors ?
No
A partnership firm cannot be formed with only minors as partners. There must be atleast two major partners before a minor is admitted into the benefits of partnership. 5 DECEMBER 09
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Can a minor partner see the accounts of a firm and sue his firm ? Yes
He is entitled to his agreed share and can inspect books of account of the firm [Section 30(2)]. He can bring a suit for account and his share when he intends to sever his connections with the firm, but not otherwise. [Section 30(4)] 5 DECEMBER 09
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Can a sleeping partner see the accounts of the firm ? Yes Every partner whether active or dormant, has a right of free access to all records, books and accounts of the business and also to examine and copy them. [Section 12(d)] 5 DECEMBER 09
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How should partners share profit in the absence of agreement ?
Every partner is entitled to share in the profits equally, unless different proportions are stipulated. [Section 13(b)]
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Can a partner demand interest on his capital over and above the prescribed share ?
Yes A partner who has contributed more than the share of the capital for the purpose of the business is entitled to an interest at a rate agreed upon, and where no rate is stipulated for, at six per cent c ent per annum. But a partner cannot claim interest on capital, unless there is an agreement to pay it. [Section 13(d)] 5 DECEMBER 09
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Can a partner stop entry of a new partner ?
Yes Every partner is entitled to prevent the introduction of a new partner into the firm without his consent. (Section 31)
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If a partner spends some money for the firm, can he force the firm to indemnify him ? Yes A partner is entitled to be indemnified by the firm for all expenses incurred by him in the course of the business, for all payments made by him in respect of partnership debts or liabilities and disbursements made in an emergency for protecting the firm from loss. [Section 13(e)]
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Is a partner an agent of his firm ?
Yes Every partner is an agent of the firm and of other partners for the purpose of the business of the firm (Section 18).
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Can a partner on his own submit a dispute relating to the business of the firm to arbitration
No not without others permission
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Can a partner on his own open a banking account on behalf of the firm in his own name
No not without others permission
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Can a partner on his own compromise or relinquish any claim or portion of a claim by the firm
No not without others permission
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Can a partner on his own withdraw a suit or proceeding filed on behalf of the firm
No not without others permission
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Can a partner on his own o wn admit any liability in a suit or proceedings against the firm
No not without others permission
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Can a partner on his own acquire immovable property on behalf of the firm
No not without others permission
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Can a partner on his own o wn transfer immovable property belonging to the firm
No not without others permission
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Can a partner on his own o wn enter into a partnership on behalf of the firm
No not without others permission
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What is the difference between dissolution of partnership and dissolution of firm ?
A firm may continue on dissolution of partnership, but on dissolution of firm, partnership will automatically end
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What are rights of partners ? See the accounts take ordinary business decisions participate in regular business to know about businesss to stop other partner from making secret profit / illegal work / doing similar personal business 5 DECEMBER 09
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What are duties of partners ?
To disclose correct information / profit / accounts to not to do any competitive business to work with trust, honesty, integrity and collaboration
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Is a firm liable or the tort carried out by a partner ?
Yes firm is liable where a partner commits a tort with the authority of his co-partners. (Section 26)
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When will a partnership dissolve by operation of law ?
If the business of the firm becomes illegal because of some subsequent events, such as change of law, it is automatically or compulsorily dissolved by the operation of law. [Section 41(b)] 5 DECEMBER 09
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Partners sell the goodwill of the firm. How should they share the proceeds ? Where goodwill is sold, either to a partner or to an outsider, the value is divisible among the partners in the same manner as they share profits and losses, unless otherwise agreed. 5 DECEMBER 09
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Is an unregistered firm an illegal association ?
No An unregistered firm is not an illegal association.
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Can a partner go to court for specific performance of partnership agreement ? No
there can be no specific performance of a partnership agreement (Scott (Scott v. v. Raymont, 1868, 7 Fq. 112).
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Can a partner sue and unregistered firm for its dissolution ? Yes a partner of an unregistered firm cannot institute a suit to compel the other partner or partners to join in the registration of firm.But such a partner can institute a suit for its dissolution (Keshav (Keshav Lal v. Lal v. Chuni Lal, AIR 1941 Rangoon 196) 5 DECEMBER 09
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What types of suits can a partner of unregistered firm bring ? A suit for rendering of accounts of a dissolved firm. A suit for realisation of the property of a dissolved firm. A suit or claim of set-off, the value of which does not exceed one hundred rupees, A proceeding in execution or other proceeding incidental to or arising from a suit or claim for not exceeding one hundred rupees in value. A suit by a firm which has no place of business in the territories to which the Indian Partnership Act extends. A suit for the realisation of the property of an insolvent partner. 5 DECEMBER 09
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What do you understand from dissolution by contract ? A partnership may end on any of the following occasions : 1. when partnership is at will - it may come to an end on the desire of the partners 2 when partnership is for a specific time – it will come to an end on completion of that time 3. when partnership is for specific purpose – it will come to an end on completion of purpose partnership is a contract and all the parties can close this contract by mutual consent. 5 DECEMBER 09
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