Partnership Act

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The Indian Partnership Act, 1932:

The Indian Partnership Act, 1932 BY- Parimita Panda

Definition:

Definition Section 4 of the Indian Partnership Act, 1932 defines Partnership as the relation between persons who have agreed to share the profits of a business carried on by all or anyone of them acting for all. ” The persons who enter into such relationship are called ‘ PARTNERS ’

Essential Elements of Partnership:

Essential Elements of Partnership Association of two or more persons Max. limit : 10 for banking; 20 for other business Result of an agreement Partnership relation based on Contract. Implied or Express (Oral or Written) Must carry on some business Trade, Occupation or Profession Share profits of the business Business is carried on by all or any one of them acting for all (mutual agency)

Meaning of ‘Partner’ ‘Firm’ and ‘Firm Name’ :

Meaning of ‘ Partner ’ ‘ Firm ’ and ‘ Firm Name ’ Section 4 of Indian Partnership Act, 1932 provides that: Persons who have agreed into partnership with one another are called individually ‘ PARTNERS ’ and collectively ‘ FIRM ’ and the name under which their business is carried on is called the ‘ FIRM NAME ’ “ Partnership is thus Invisibility which binds the partners together and firm is the visible form of those partners who are thus bound together ” .

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Two or more persons An agreement Sharing of profit Business Mutual agency Essential elements of Partnership

Formation of partnership:

Formation of partnership Based on agreement Agreement may be express or implied In Writing : helpful in times of adversity Written agreement : “Partnership Deed”

Formation of partnership:

Formation of partnership Essence of Partnership : Trust & Confidence Drafted with care and signed by all partners Firm should be registered and copy of the Deed to be filed with the

Partnership Deed:

Partnership Deed Prepared for resolving mutual differences Usual Contents : Date of Agreement Name and Address of the Firm Name and Address of the Partners Nature of Business Duration of Partnership Capital invested by each partner Ratio to divide profits and loss

Partnership Deed:

Partnership Deed Usual Contents Contd. : Appointment of Auditor and remuneration Drawing by partners and interest Interest on Capital and Advances Salary and Commission payable to partners Duties, Functions and Powers of Partners Rules regarding admission, retirement and death Dissolution Arbitration Method of valuation of Goodwill

Test for determining the existence of partnership:

Test for determining the existence of partnership There was an agreement between persons . Agreement was to share the profits . Business must be carried by all or any one acting for all.

Types of Partnership:

Types of Partnership Partnership at Will (Sec.7) Particular Partnership (Sec.8) On the Basis of Duration

Types of Partnerships:

Types of Partnerships Partnership at Will No provision in contract between the partners for Duration of Partnership Determination of Partnership If any partner gives notice of dissolution in writing, the partnership is dissolved.

Types of Partnerships:

Types of Partnerships Particular Partnership A person may become a partner with another person in particular adventures or undertakings . On completion of such a venture, the partnership comes to an end.

Slide 14:

Co-ownership and Partnership Co-ownership Partnership Co-ownership may or may not be based on agreement. It can also arise by operation of law, such as by inheritance. A co-ownership does not involve sharing of profits and losses. A co-owner is not the agent of the other co owner/co-owners. Partnership always arises out of contract. A partnership is always entered into for business, it involve sharing of profits and losses A partner is an agent of the other partners.

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Co-ownership and Partnership Co-ownership Partnership 4. A co-owner can transfer his right and interest without the consent of the other co-owners. 4. A partner cannot transfer his right and interest to any person without consulting his partners

Change in a firm:

Change in a firm Change in the constitution of a firm . Change in the nature of a business of undertaking . Changes in the duration of firm .

A change in the constitution of a firm takes place when:

A change in the constitution of a firm takes place when A new partner is introduced as a partner in a firm. A partner retires from a firm. A partner is expelled from a firm. A partner is adjudicated as an insolvent. A partner dies.

Partnership property:

Partnership property The source of the purchase money. The reason due to which the property was purchased or acquired. The object for which the property was purchased or acquired. The mode in which the property was obtained. The mode in which the property was dealt with. The use to which the property was put to.

Kinds of Partners:

Kinds of Partners Actual or Active Partner Engaged in actual conduct of the business His acts binds the firm and other partners Notice to be given in case of retirement Sleeping or Dormant Partner Does not take part in the conduct of business Contributes his share of capital and enjoys profits and losses Not known to outside world Not liable to third parties for the acts of the firm. Not required to give notice in case of retirement

Kinds of Partners:

Kinds of Partners Nominal Partners No real interest in business, Does not contribute any capital, Lends his name only No share in profits but liable to third parties for all acts of the firm Partner in Profits only Shares the profits but not losses No interest in the management of the firm Liability for the acts of the firm is unlimited

Kinds of Partners:

Kinds of Partners Partner by Estoppel or Holding Out Represents himself as a Partner, by words spoken or written or by conduct Liable as a partner if credit is given to the firm based on his representation. He cannot deny. If a partner does not give public notice and his name is still used in the business, he is also liable to third parties Deceased partner is an exception to this rule.

Partnership by Holding Out:

Partnership by Holding Out Represent himself as a partner, by words spoken or written or by conduct. Liable as a partner if credit is given to the firm based on his representation. He cannot deny. If a partner does not give public notice and his name is still used in the business, he is also liable to third party. Deceased partner is an exception to this rule.

Effects of holding out:

Effects of holding out The holding out partner becomes personally and individually liable for the acts of the firm. He does not become a partner in the firm and is not entitled to any rights or claim upon the firm. An outsider ,who has given the credit to the firm thinking him to be a partner, can hold him liable as if he is a partner in that firm. As the liability of the partner is joined and several he can be held liable to pay the entire amount. Under the doctrine of subrogation as well as on the basis of quasi-contract, he can recover the amount so paid from the partners of the firm, if they are solvent.

Exception Of Holding Out:

Exception Of Holding Out The doctrine of holding out is not applicable in the following cases : It does not apply to cases of torts committed by partners. It does not extend to bind the estate of a deceased partner , where after a partner’s death the business of the firm is continued in the old firm name. It also does not apply where the holding out partner has been adjudicated insolvent.

Minor:

Minor Sec 30(1), A person who is a minor according to law to which he is subject may not be a partner in a firm, but with the consent of all the partners for the time being, he may be admitted to the benefits of partnership . A minor can only be admitted to the benefits of an already existing partnership

Minor:

Minor During his Minority Rights Right to receive agreed share of profits and property Have access to and inspect and copy the accounts of the firm If share in profits is not given, can sue (can do if he wants to sever his connection) Liabilities Only to the extent of share in profits and properties (not personally liable)

Minor:

Minor On Attaining Majority Within six months should give notice whether he is joining the partnership or not . If notice not given he shall become a partner

Minor:

Minor When a Minor elects to become a partner Rights Share remains the same Rights and Liabilities as that of a full fledged partner Rights will be the same till the date on which he becomes a partner Liabilities Liabilities will be the same till the date on which he becomes a partner Personally liable to third parties for all acts of the firm from the date of becoming a partner

Minor:

Minor When a Minor elects not to become a partner Rights Rights will be the same till the date of notice Entitled to sue for his share of property and profits Liabilities Liabilities will be the same till the date of notice His share of property and profits will not be liable for any acts of the firm after the date of notice

Rights of the Partners :

Rights of the Partners Right to take part in the conduct of the business . Right to express his opinion. Right to have access to and to inspect and have copy of any of the books of the firm. Right to share equally in the profits earned, and shall contribute equally to the losses sustained by the firm.

Rights of the Partners :

Rights of the Partners Entitled to interest on the capital subscribed Right to be indemnified No partner is entitled to receive any r emuneration in addition to his share of profits of the firm for taking part in the business of the firm unless otherwise an express agreement is there

Duties of a partner:

Duties of a partner To carry on the business of the firm to the greatest common benefit To be just and faithful to each other in their mutual dealings To render true accounts and full information of all things, affecting the firm, to any partner or to his legal representative

Duties of a partner:

Duties of a partner A Duty to indemnify the Firm for Any Loss, Caused by Fraud. A Duty of a Partner to attend Diligently to His Duties. A Duty of a Partner to indemnify the Firm for Any Loss, Caused by His Willful Neglect. A Duty of a Partner to account for Private Profits A Duty of a Partner to account for Profit in Competing Business No Remuneration to Partners

Duties of a partner:

Duties of a partner A Duty of a Partner to account for Private Profits A Duty of a Partner to account for Profit in Competing Business No Remuneration to Partners

Authority of a partner:

Authority of a partner Express authority of a partner: when the partner is expressly authorized by an agreement of all the partners to do certain act on behalf of the firm, it is called authority of a partner.

Implied authority of a partner:

Implied authority of a partner By selling firm’s goods ; By purchasing goods for the firm ; By accepting any payment of debts due to the firm ; By engaging and discharging employees;

No/Restriction on implied authority :

No/Restriction on implied authority Submit a dispute relating to the business of the firm to arbitration , O pen a banking account on behalf of the firm in his own name , C ompromise or relinquish any claim or portion of a claim by the firm , W ithdraw a suit or proceeding filed on behalf of the firm,

No/Restriction on implied authority :

No/Restriction on implied authority Admit any liability in a suit or proceeding against the firm , Acquire immovable property on behalf of the firm , To transfer immovable property belonging to the firm, or Enter into partnership on behalf of the firm.

Dissolution:

Dissolution Dissolution of a firm: The dissolution of partnership between all the partners of a firm is called the ‘dissolution of the firm’.

Dissolution of partnership:

Dissolution of partnership (a) If constituted for a fixed term, by the expiry of that term ; (b) By the completion of the adventure . (c) by the death of a partner . (d) by the insolvency of a partner. (e)By the retirement of a partner.

Dissolution of the firm:

Dissolution of the firm Without the order of a Court By mutual agreement By insolvency of all the partners but one By business becoming illegal By notice of dissolution

Dissolution of the firm:

Dissolution of the firm (B) With the order of a Court When a partner becomes of unsound mind; Permanent in capacity of partner; Misconduct of a partner affecting the business; Persistent breach of partnership agreement by a partner. Transfer of interest or share by a partner. Business working at a loss. Where just and equitable.

Goodwill:

Goodwill Goodwill is the advantage which is acquired by a business beyond the mare value of the capital . It is an intangible assets , so it most be sold .

Sale of goodwill:

Sale of goodwill Buyer’s rights Represent himself in continuing the business. Maintain his exclusive right to use of the firm name. Solicit former customers of the business and restrain the seller of the goodwill from doing so. Seller’s right The vendor may enter into competition with the purchaser unless he is prevented by a valid clause in the contract of sale.

Registration of a firm:

Registration of a firm The name of the firm; The place of principle place of business of the firm; The names of any other places where the firm carries on business; The data when each partner joined the firm; The names in full and permanent addresses of the partners; The duration of the firm.

Effects of non-registration:

Effects of non-registration The following are the effects of Non-Registration: No suit by a partner against the firm or other partner. No suit by a firm against the third party. No right to claim of set-off in excess of Rs.100/-

Rights not affected by non- registration:

Rights not affected by non- registration Right of unregistered firm or partners there of: Having no place of business in India. Right to claim set-off if the value does not exceed Rs.100/- Right of partner to sue.

Rights not affected by non- registration:

Rights not affected by non- registration Right of partner to sue – For dissolution of the firm. Account of the dissolution of the firm. For claiming share of the assets of a dissolved firm. Right to file a suit to restrain the third party for misusing the patent Right. Right by a third party to file a suit against the firm. Power of an Official Assignee/Receiver/Or Court to realize the property of an insolvent partner.

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