BBA 1st Semester Business Low Notes

 

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BBA 1st Semester Business Low Notes

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THE INDIAN PARTNERSHIP ACT, 1932

The law of partnership is contained in the Indian Partnership Act, 1932, which came into force on 1st Oct., 1932. This is based on the English Law on the subject as contained in the Partnership Act, 1890. The main principles are the same. The most important change is regarding provision for registration of firms.

Definition and Nature of Partnership : Section 4 of the Partnership Act defines Partnership as “the relatio-i between persons who have agreed to share the profits of a business carried on   hy all or any of them acting for all”. The English Partnership Act defines Partnership as “the relation which subsists between persons carrying on business in common with a view of profit”. If we elaborate we find this definition points out the following essential elements of partnership:

1. There must be at least two
2. That it is the result of an
3. That it is organised to carryon a
4. That the persons concerned agree to share the profits of the
5. That the business is to be carried on by all or anyone of them acting for
6. Association of at least Two Persons: In order to constitute a partnership legally there must be an association of at least two persons. Regarding the maximum number of Partners in a firm Sec. II of the Companies Act provides that the number of partners in a firm carrying on hanking business should not exceed 10 and in any other business
7. Agreement: According to Sectio, 5 a partnership is created by contract and not by status. It is however, not necessary that there should be a very formal or written agreement. The agreement to create a partnership may as well arise from the conduct of the parties concerned. Where, the parties agree to enter into partnership at some future date, the relation of partnership does not arise until that
8. Business: A partnership can be formed only for the purpose of carrying on business. Business includes every trade, occupation and profession. The word business generally conveys the idea of running business involving numerous transactions. The business to be carried on by the firm must be
9. Sharing of Profits: The word Partnership is derived from the word “to part” which

means “to divide”. Thus division of profits is an essential condition of the existence of a partnership. The object of partnership should be to make profits and distribute among the partners.

5. Mutual Agency: The business of partnership may be carried on by all of anyone of them acting for Thus, if a person carrying on the business acts not only for himself but for others also, so that they stand in the position of principles and agents, they are partners. It     is not necessary that all of them should actively participate in the affairs of business. The necessary element is that the business must be carried on, on behalf of all the partners.

Test of Partnership: In a partnership, all the elements mentioned above must be present. Thus, although sharing of profits is a strong evidence of the existence of partnership, yet the true test is the element of agency. For this reason, creditor who advances money on the understanding that he would have a share in the profits of business in lieu of interest is not a partner.

Similarly, an employee getting a share of profits as a part of his remuneration, or the seller of goodwill of the business receiving a portion of the profits, is not a partner. In all these cases the third element of partnership, namely, agency is absent. A creditor or an employee or the seller of the goodwill cannot bind the firm by their actions, can be called partners.

Thus, in the absence of definite partnership agreement the Court, in order to determine the existence of partnership, must take into account all the relevant circumstances, such as, the conduct of parties; the mode of doing business; who controls the property; the mode of keeping accounts; the manner of distribution  of profits; evidence of employees and correspondence.

Business Low Notes :-

To sum up, for determining the existence of partnership, the following must c considered:

• There must be an agreement-oral or written;
• the agreement must be to share the profits ;
• those profits must arise from a business; and
• that business must be carried on by all or anyone of them acting for all.

( BBA 1st Semester Business Low Notes )

Partnership distinguished from other Associations

Business Low Notes :-

Partnership and Co-ownership : Co-ownership means joint ownership. A and B jointly buy a horse for their riding. They are co-owners of the horse and not partners.

(1) Co-ownership is not always the result of agreement. It may arise by the operation of law or from status, e.g., co-heirs of a property, persons to whom property is jointly, given. Partnership, on the other hand, is necessarily the result of agreement, express or implied.

(2) Partnership necessarily involves working for profit. Co-ownership does not.

(3) One co-owner can, without the consent of the others, transfer his rights and interest to stranger; a partner cannot do so without the consent of all the partners.

(4) A partner is the agent of the partnership to bind the firm. A co-owner has no implied authority to bind the other co-owners.

(5) Partnership always implies a business. Co-ownership can exist without any business, e.g., joint ownership of a residential house.

(6) A partner, being an agent of other partners has a lien on the partnership property. A co-owner has no such lien on the joint property.

Business Low Notes

Partnership and Company : The points of distinction between the two may be summed up as follows :

1. A company comes into existence after registration under the Companies Act. In the case of partnership, registration is not
2. The maximum number of persons required to form a company is seven in the case of public company and two in the case of a private A partnership can be formed with two persons.
3. A public company may have any number of A private company cannot have more than 50 members. A partnership carrying on banking business cannot have more than 10 members and a partnership carrying on any other business cannot have more than 20 partners.
4. A company is regarded by law as a single person separate from the members, who constitute it. It has a legal personality. The partnership is a collection of partners. It is not a legal entity and has no rights and obligations separate from its.
5. The property of a partnership is the joint property of the partners. Each partner has authority to bind the firm by his acts. The property of a company belongs to the A shareholder in his individual capacity cannot bind the company by-his acts.
6. A company has perpetual succession. The death or insolvency of a member does not affect its existence. A partnership firm, in the absence of a contract to the contrary, comes to an end when a partner dies or becomes
7. The liability of partners for the debts of the firm is always unlimited. The liability of the members of a company is usually
8. The creditors of a partnership firm are creditors of the individual partners, and a decree obtained against a firm can be executed even against the individual partners. The creditors of a company are not creditors of individual shareholders. A decree obtained against a company can be executed only against the company, and not against the
9. A partner of a firm cannot transfer his interest in the firm to an outsider and make the transferee a partner without the consent of aU the others. A shareholder of a company can transfer his shares and the transferee can become a member of the.

Business Low Notes :-

Partnership and Joint Hindu Family Firm. A joint Hindu family which carries on a business handed down from its ancestors is called a Joint Hindu Family Firm. The interest in the business passes by survivorship to the surviving members, and every member acquires by birth an interest in the profits and assets of the business.

This is not partnership, but a co-parcenery,    a relationship created by Hindu Law, and each member is called a co-parcener. The points of distinction between Hindu family firm and a partnership may be enumerated as follows:

1. A partnership is created by agreement: A Joint Hindu family firm comes into existence by operation of Membership of joint family firm is the result of status, i.e. position of the person concerned as member of a joint family.
2. In a partnership, the death of a partner dissolves the firm, the death of a coparcener does not dissolve the joint family
3. In a joint family firm only the manager or Karta has authority to bind the members by his acts, in a partnership each partner can do
4. In a partnership every partner is personally liable to an unlimited extent for the debts of the firm. In a joint Hindu family firm, only the Karta has unlimited liability. The other members are liable only to the extent of their share in the joint family business. Minor members are not
5. Minor members of a joint family are members of the firm from the date of their

In a partnership a minor cannot be a partner, as a partnership is the result of an agreement and a minor does not have capacity to enter into a contract.

6. The partners have a right to demand accounts of the partnership firm, a co-partner cannot ask for an account of past dealings; his only right is to ask for partition of the assets of the
7. A partnership is governed by the Partnership Act; a joint Hindu family firm is governed by Hindu

Business Low Notes :-

Partnership and Club. A club is an association of persons formed for social purpose. It   is not formed for gain and is not, therefore, a partnership. A club differs from a partnership in  the following respects :

1. A club is not a business, and there is no motive of earning profits and sharing them. A partnership is formed to carry on business and to share profits of the business. A club may be having profit by running a club canteen but it can not be called partnership because its object is not to carry on a business and share its
2. A member of a club is not the agent of the other members and so members of a club are not liable for each other’s acts. A partner is an agent of the other partners and all partners are liable for the acts of a
3. A member of a club is not liable for the debts of the club, but a partner is liable for the debts of the
4. The death or resignation of a member does not affect the existence of the club. The death or insolvency of a partner dissolves the firm .
5. A member of a club has no transmissible interest in the club so that on his death his heirs cannot claim to inherit any of his rights. A deceased partner’s heirs inherit his interest in the partnership

( BBA 1st Semester Business Low Notes )

Business Low Formation of Partnership Notes

In a contract of partnership all the elements of a valid contract must be present. There must be free consent, consideration, lawful object and the parties must have capacity to contract. Thus an alien friend can enter into partnership, an alien enemy cannot. A minor is not competent to   be a partner. A minor can, however, be admitted to the benefits of partnership, if all the partners agree to do so.

A partnership agreement may be oral or it may be implied or inferred from the conduct of the parties. When it is reduced to writing it is incorporated in a document known as the Deed    of Partnership or Articles of Partnership. The deed must be stamped according to the provisions of the Stamp Act.

Thereafter, the firm may be registered with the Registrar of Firms, although registration is not compulsory. Because of the disabilities suffered by an unregistered firm, it is advisable to register every firm.

According to S.58 the registration should be made in the form of a Statement signed by all the partners and giving :

• the name of the firm;
• the principal place of business of the firm;
• name of the other place (if any) where the firm carries on business;
• the date on which each partner joined the firm;
• the names in full and addresses of the partners:
• the duration of the firm. Furthermore, every change in the names and addresses of the partners or place of business should be notified to the Registrar of Firms from time  to

( BBA 1st Semester Business Low Notes )

Business Low Registration of a firm

Business Low Notes :-

Effect of Non-registration of a Firm: Unlike Fnglish law registration is optional under Indian Partnership Act, But it becomes indirectly necessary, so that if a firm is not registered, the following consequences will ensue :

1. A partner of an unregistered firm cannot file a suit against the firm or any partner to enforce a right arising from a contract or conferred by the Partnership Act [S.69(l)] Where A, B, C and Dare partners in an unregistered firm. D is wrongfully expelled from the firm by the rest of partners D can not file a suit for his wrongful expulsion, the only remedy available to him is to file a suit for the dissolution of
2. An unregistered firm cannot file a suit against any third party to enforce a right arising from a contract. [S, 69(2)]. This clause does not prohibit an unregistered firm to enter into contract with third parties, the bar is only against taking action against third However, the third parties are free to take action against unregistered partnership.
3. An unregistered firm cannot claim a set off above 100 in a suit [S.69(3)].

According to Section 69 of the Partnership Act the non-registration of a firm does not affect the following :

1. The right of a third party to sue the firm or any
2. The right of a partner to sue for dissolution of the firm or for settlement of accounts if the firm is already dissolved or for his share of the assets of the dissolved
3. The right of an unregistered firm to sue to enforce a right arising otherwise than out of contract, e.g., for an injunction against a person wrongfully using the name of the firm; or for wrongful infringement of a trade mark. Registration is not necessary for    a suit in respect of tort committed by a
4. The power of an Official Assignee or Official Receiver to realise the property of an insolvent
5. A suit or set-off not exceeding 100 in amount
6. The rights of firms or partners of firms having no place of business in

Business Low Notes :-

Registration Time: An unregistered firm can get itself registered at any time before it is actually dissolved. But in any case it should be registered before filling a suit in the court, otherwise the court will reject such suit. In order to institute a suit not only the firm must be a registered one, but all the partners suing must also be shown as partners in the register of firms.

Example: A partnership firm consisting of A, Band C as partners was formed and it commenced its business before getting itself registered. The firm filled a suit against X for a claim of Rs.5000 for goods supplied to him and immediately after filling the suit, the firm was registered. The court will dismiss the suit because the firm was unregistered at the time of filling the suit.

But where a suit is dismissed because of the non-registration of a firm or it is with-drawn before it is dismissed by the court, the firm can subsequently get itself registered and file the suit again provided the suit has not become time barred.

Firm and Firm Name: Persons who have entered into partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm name” (Sec. 4).

A firm is not an artificial and legal person like a company. It is merely a collective name for the partners. It is just a convenient way of describing the partners. The rights and obligations of the partnership firms are really the rights and obligations of the partners constituting it.

Duration of Partnership: The parties may fix the duration of the. partnership or say nothing about it. Where the partners decide to carry on the business for a certain period of time, it is called a “partnership for a fixed period”.

When the period is over, the partnership comes to an end. Where the partnership is formed for the purpose of carrying on particular venture, it is called a “particular partnership”.

It comes to an end on the completion of the venture. It is also open to partners to say nothing about the duration or to agree that the business shall be carried  on not for a fixed period, but so long as the partners are inclined to carry it on. Such a partnership is called “Partnership at will”. It is dissolved by notice by a partner to his copartners.

Partnership Property: The property of the firm includes (i) all property and rights and interests in property originally brought .into the stock of the firm, or subsequently added thereto;

• the property acquired in the course of the business with money belonging to the firm; (iii) the goodwill of the business, the property of the firm is acquired to be used by the partners for the exclusive use of the

( BBA 1st Semester Business Low Notes )

Examples of Partnership Property

Business Low Notes

• A partnership is formed with A, Band C as partners. A contributes to the stock of the firm a plot of land. B a motor lorry and C the sum of Rs. 10,000. Subsequently, the firm purchases, out of its earnings, a house. All these properties and the goodwill of the business are properties of the
• A colliery owned by A was taken on lease by a firm consisting of A and B as partners and was worked. The profits were shared by the partners. The colliery was taken to be property of the firm for the time being. But if the colliery were only worked in partnership by A and B who shared profits of the venture, the colliery remained the property of A, and did not become the property of the

Partnership Deed. The agreement creating partnership may be express or implied, and the latter may be concluded from the conduct or the course of dealings of the parties or from the circumstances of the case. But it is in the interest of the partners that the agreement must be in writing. The document which contains this agreement is called Partnership Deed.

It contains provisions relating to the nature and principal place of business, the name of the firm, the names and addresses of the partners, the duration of the firm, profit sharing ratio, interest on capital and drawings, valuation of goodwill on the death or retirement of a partner, management, accounts, arbitration, etc. The Indian Stamp Act, 1889, requires that the Deed must be stamped.

( BBA 1st Semester Business Low Notes )

Who can become a partner

Any person who is .competent to contract can enter into partnership agreement. The position of following persons need special consideration :

1. Minor: A minor is not competent to contract, hence he can not enter into partnership contract. However he may be admitted to the benefits of partnership, if all the partners agree to do
2. Alien: An alien enemy can not be partner in an Indian
3. Person of unsound mind: A person of unsound mind, not being competent to contract can not enter into’a partnership
4. Company: A company, if authorised by its articles of association can enter into partnership because it is a person competent to contract in the eyes of
5. Firm: A firm can not enter into partnership contract. If a firm, at all enters into partnership in that case, the members become partners in the other firm in their individual.