best partnership act summary notes

Chapter 3 The Indian Partnership 1932


  • Various form of business.

  • In partnership two or more person hence misunderstanding may arise.

  • No single person is responsible.

  • To control rights and duties of partners, partnership and person dealing, above act is required.

  • It is a branch of agency, it means every partners is a general agent of partnership

  • He is liable for firm’s transactions in his ratio of sharing of profit, hence he is also principal.


Unit -1  General nature of partnership


  • Section: 4

  • Two or more persons agreed to share the profits of business carried by all or any one of them acting for all.

  • All elements must coexist.

Essential elements of partnership


  • Arise from contract not from status like HUF.

Two types of HUF:

Dayabhaga west Bengal son will get right after death of father. Kansh may be king after death of Ugrasen.

Mitaksha Son will get right in family business with the birth only.

  • It may be express or implied.

  • It may be oral or in writing.

  • Sharing profit of business:

  • No partnership no business or no intention of sharing profit.

  • Co ownership of land is not business.

  • Charitable trust, club cannot form partnership but may form non-economic purpose company.

  • Purchase and sale by x and y jointly for earning profit is a partnership.

  • Sharing of profit is a condition of partnership not sharing of loss.

  • If deed is silent, loss will be shared in the ratio of profit only.

Carried by all or any of them:

  • Sharing of profit is a prime facie evidence which can be rebutted by mutual agency.

  • Mutual agency is a conclusive evidence.

  • Every partner is a principal as well as agent due to mutual agency

True test of partnership:

  • in following cases although there is a sharing of profit but partnership is not exist.

  • A lender of money

  • Employee or agent

  • Widow or child of deceased partner.

  • Sharing of profit is a prime facie evidence which can be rebutted by mutual agency.

  • Mutual agency is a conclusive evidence.

  • Every partner is a principal as well as agent due to mutual agency

  • If no agreement , real intention, conduct of parties and surrounding circumstances will be considered.

Distinction between partnership and firm :

Partnership                                                firm

  • Individually                                     Collectively

  • Abstract relationship                      concrete

  • Invisible                                                   visible

Partnership and joint stock company

Partnership                             –           joint stock company

  • No separate legal entity          –           yes

  • Every partners agent of other  –  members not Partner

  • Must distribute as per deed  – some portion as Dividend

  • Unlimited liability-limited by share,Guarantee and unlimited

  •  Joint estate           –   separate with name of Company

  • Transfer with consent  – private as per article

         of all partner                         public unrestricted.

  • Management by partner        –  only in general meeting

  • Act – members 100   –   private – 2 to 200

       Rule – members 50  –    public   –  7 to unlimited

  • Due to death, insolvency   –  perpetual succession

        Or retirement firm May


  • Audit not compulsory         –    obligatory

Difference between partnership and club

Partnership                                         club

  • Meaning – purpose        –    it is association having

       Earning profit                         no object of earning

                                                              Of profit but health or


  • Partners are agent       –    members are no agent

       Of each other

  • Having interest in        –    no interest    of member

        Property of the firm

  • Change affect to firm    –   not affect

Difference between Partnership and HUF

Partnership                             HUF

  • By agreement               –   By status due to birth

  • Death of partner          –   death of member not

                                                         Leads to dissolution

  • All partners manage  – karta governing male                                                                                    Member.

  • Every partner bind      –    Only Karta can bind to

         the firm                               to HUF.

  • Partners Generally     – Karta unlimited,

       Unlimited Liable            members up to share in


  •  Can call account          –   can not

  • Partnership act            –   Hindu law

  •  Minor in benefit with – member of ancestral

        The consent of all              business by birth

  • May dissolve by         –  continue until divide

       Death or insolvency

 Difference between partnership and coownership:

       Partnership                 –               Co ownership

  • Express or implied     – agreement, operation of

        Contract                            law like inheritance

  • Partners are member   –   co owner not

  • Community of interest  –  no interest in others.

  • Transfer share with      –   transfer his share

       Consent of other                without consent of

        Partners                                others

Difference between partnership and association.

          Partnership                                    association

Meaning                         –         social cause no profit motive

Runs  a business          –       charitable, religious

                                                     Or improvement scheme

                                                     Mutual insurance,

                                                     Building corporation

                                                     Trade protection association

Types of partnership:

At will  –

  • no duration of partnership in a contract.

Particular partnership:

  • For   particular undertaking, or venture, construction of road or railway lining.

 Types of partners:

Active/actual/ostensible partner:

  • by agreement

  • All the acts in the ordinary course of business

  • liable up to public notice.

Sleeping or dormant partner:

  • By agreement

  • Not in the conduct of business

  • Liable for the all act of firm up to retirement

  • No need of public notice in case of retirement.

Nominal partner:

  • gives his name to the firm

  • no real interest in the business.

  • No profit, no investment on part in business but he is liable to third party.

Partner in profits only

  • Not liable in loss

  • Liable to third parties for all acts of the profit only.

Sub partner

  • Share the profit of firm with outsider

  • Such outsider known as sub partner

  • No rights and duties against the debt of firm.

Incoming partners

  • Admitted in existing firm with the consent of all.

  • Not liable for any act done before his admission.

Outgoing partner:

  • One leaves other continue.

  • He is liable up to public notice except death and insolvency.

Partners by holding out (estoppel):

  • Represents himself by word or conduct or

  • Allow others to represent him as a partner

  • Third party on the faith of such representation

  • enter into transaction with firm, such partner is liable to third party.

  • X and Y are partner. They introduce to A as a partner before supplier Z. A has not refused. If Z supplies TV  sets due to A as a partner

  • A is liable for the transactions with Z.

  • Such representation may or may not with fraudulent intention.

  • Above rule applicable to retiring partner also. He is liable up to public notice if third party deals with firm due to such partner.

  • Retiring partner is not liable if third party  was not aware that he was a partner.


  • Partnership is based on contract,

  • contract with minor is void,

  • minor can enter as a partner in profit with the consent of all partners.


  • Share of profit

  • Access, inspect and copy of accounts

  • Sue for accounts if severing his connection with firm  

At the time of majority:

  • Elect to become partner within 6 months – entitle share as like was minor

  • Not to elect to become partner within 6 months – not liable after public notice.


Before attaining majority

  • Up to share of profit and property but no personal property

  • Cannot be insolvent

After attaining majority

  • Within 6 month after majority or coming knowledge of partnership which is later

If elected to be a partner

  • Personally liable from the date of entering into partnership as a minor

  • Share of property and profit will be same as minor

Not to elect as a partner

  • Liable up to giving public notice

  • Sue for share of profit and property

  • Notice to the registrar

Relations of partners

  • Section 9 to 17 of partnership Act governs the mutual relations of partners.

  • It can be created  by  contract which is implied or express during course of dealing.

  • It also changed with the consent of all partners.

  • Example: contract may provide the condition in deed partner cannot do other business while he is a partner.

Right to take part in the conduct of the business:

  • Management powers are coextensive.

  • Any partner wrongly precluded, court will not allow such restrictions.

  • If any partner is wrongly precluded to take part in business, he may sue for dissolution, and sue for accounts.

  • Above rule apply, if no contrary intention in the deed.

  • Generally in agreement, limited powers will be given to any partners, then court cannot interfere except illegal act or breach of trust reposed.

Right to be consulted:

  • Routine matters with majority and but crucial decision like change in nature of business with the consent of all

Right of access of books:

  • Any partner including sleeping partner can inspect or take the copy in good faith

Right to remuneration:

  • No partner is entitled except express agreement or custom.

  • Generally managing partner receives the remuneration in practice.

Right to share profits:

  • No agreement. It is equally. Party not agree must prove that how it is unequal

  • No connection between capital contribution and ratio of profit and loss.

Interest on capital:

  • If express in agreement or usage then only it can be paid out of profit.

  • If specifically given in deed then only interest will be paid in case of loss also.

  • In case of insufficient profit, interest will be paid in capital ratio.

  • Partners are adventurer not the creditors.

Interest on advances:

  • No express agreement, 6% interest will be paid.

  • Interest on capital will be paid up to dissolution of partnership and interest on loan will be paid up to date of payment.

  • Interest on loan is paid whether there is a profit or loss.

Right to be indemnified:

  • In emergency, for protecting of firm as like prudent man, as own case paid or accepted liabilities by any partner, firm will reimburse or indemnify to partner.

To  stop admission of a new partner:

  • New partner can be admitted with the consent of all.

  • Any partner has objected, new partner cannot be admitted.

Right to retire:

  • Partners of partnership at will can retire by giving notice to other partners.

  • Not to be expelled:

  • Allowed in deed, Majority, good faith and for the benefit of firm.

Outgoing partner to carry competing business:

  • Advertise for his business

  • But he cannot use the firm name or representing himself as old firm or solicit the customers of old firm.

Outgoing partner to share subsequent profit:

  • After death or cease as a partner, firm continues the business without settle the account of such partner; he is entitled to receive 6% of outstanding balance or share of profit up to settlement.

Dissolve the firm:

  • with the consent of all firm can dissolve.

  • Partnership at will – it can be dissolve by giving notice to all other partners.


  • Greatest common advantages

  • Faithful to each other

  • Render true accounts

  • Indemnify to firm for his fraud or willful negligence

  • Use skill and knowledge without remuneration

  • Share the loss also.

  • Any profit received from the transaction, property, business connection and firm name must refund to the firm.

  • If partner carries competing business, profit of such business should pay to the firm.

  • Firm is not liable for any loss of such business.

Partnership property:

  • Known as partnership asset, joint assets, joint stock, common stock or joint estate.

It includes:

  • Property, right and interest brought as a contribution

  • Property, right and interest purchased for the firm

  • Goodwill

  • Only property used for firm does not mean it is a property of firm, real intention of partner will be considered.


  • Reputation due to which over and above normal profit enterprise can earn

  • At the time of dissolution, goodwill will be sold for the benefit of all partners.

  • It can be sold separately or along with other property.

  • Seller of goodwill cannot do the same business within specified limit and specified time.

  • Use of property for business will not make it is of the firm. But intention of parties and agreement is relevant.

personal profit earned by partner

  • Profit earned from the transaction or property of firm or by using the   firm name should be given to the firm.

  • A, B,C and D are partners of sugar refining business.

  • A was aware of price fluctuation of sugarcane. He purchased at lower price and sold at higher        price         when price is increased without notice of other partners. A must account profit to the firm.

Rights and duties after change in constitution:

  • Change in constitution includes:

  • Admission, retirement, carries other business and continues business after expiry of term.

  • Rights and duties are similar to earlier except business continue after fixed term it will become at will.

  • Inconsistent provision with partnership at will,

       Will be deleted.

Relation of partners with third parties:

  • Partner is a agent as well as principal.

  • For his act other partners are also liable hence he is an agent.

  • For others act he is also liable hence he is principal.

  • Above rule is applicable if such act is for the purpose of business.

  • In agency, agent is not liable in ordinary course of business, but in partnership partners are liable up to his share.

Implied authority of partners:

  • Any act of partner with firm name bind to the firm is known as implied authority.

  • Act done relate to the usual business within scope of authority.

  • Usual way depends on nature and circumstances of each case.

  • Implied authority of a partner may differ in different kind of the firm.

  • In case of solicitor business, to draw, accept and endorse the bill is not within implied authority but in case of banker it is within implied authority of firm.

  • In case of commercial nature partnership, buy goods, borrow money, repay debt and issue or receive negotiable instrument

Acts beyond implied authority:

  • Submit a dispute to arbitration

  • Open a bank account with his own name

  • Compromise any claim against third party

  • Withdraw a suit filed

  • Admit any liability in a suit

  • Acquire immovable property for the firm

  • Transfer immovable property of the firm

  • Enter in to partnership for the firm

Extension or restriction of partner’s implied authority:

With consent of all partners

  • By agreement

  • Usage or custom

Restrictions imposed effective if

  • Third party knows such restriction

  • Third party does not know he was a partner

  • If such authority is restricted and third party dealing with firm knows it, firm is not liable and vice versa.

Rights in emergency:

  • Do all acts for protecting the firm

  • With ordinary prudence

  • Similar circumstances in own case

  • A borrows Rs 1,000 for business purpose which is within implied authority of partner.

Admission by partners:

  • Firm is liable for the act of partner

  • In relation to partnership transactions.

  • Unless authority is restricted and third party know such restriction.

  • Z purchases a spare part of Yamaha from x who is a partner, but it was not suitable to Yamaha, Other partners are not aware of such sale. Firm is liable.

Notice to active partner and its effect:

  • Except partner involved in the fraud, notice given to any partner will be treated as notice given to firm, as notice given to agent will be treated as notice given to principal.

  • P purchased a stolen car from x, all partners are liable.

  • Matter should be related to firm.

Liabilities to third parties

  • Jointly and severally for the act of implied and express authority done towards the business of firm.

Contractual liability:

  • Infringement of trademark by firm – damage arises after dissolution all partners are liable.

Tort or wrongful act:

  • Firm is liable for the wrongful act, negligence or omission of any partner in the ordinary course of business and within authority although method used is unauthorized.

  • A partner omits to fence the shaft of mines. Workmen are injured. Firm is liable.


  • If it was within his apparent authority to receive money or bring it within firm’s custody, then misapplies, firm is liable.

  • A, B and C are partners of car parking business. P parks his car in parking. A sold the car of P, Firm is liable.

Right of transferee of a partner’s share:

  • Share in partnership is an asset of partner, it can be transferred but partnership is based on confidence hence assignee cannot enjoy same rights as original partner. He has limited rights given as below:

During continuance not to

  • Interfere the conduct of business

  • Require the accounts

  • Inspect the books.

  • He can only receive share of profit

On the dissolution

  • Receive share of assets, for determining share entitled an account.

  • New partner can be admitted with the consent off all partners hence assignee has no any right as like original partner.

  • If any partner has given right to transfer   his share in deed, it will be treated as admission cum retirement.

Legal consequence of coming in or going out:

  • It may be in the form of admission, retirement, expulsion or insolvency.


  •  with consent of all partners

  • Liability commence from the date of admission unless agreed for prior act.

  • For the prior act consent of creditors also required then only new firm is liable, because it is a novation


  • At will by giving notice to other partner or in other case with consent of all partners, any partner can retire.

  • Retiring partner is liable up to public notice.

  • If third party is not aware that retiring person was a partner, after retirement before public notice for the transaction with such third party, retiring partner is not liable.

 Rights of outgoing partner:

  • Carrying competing business unless there is a restriction in agreement for a specified period within specified limit.

  • He may advertise but cannot use the name of firm or represent himself on behalf of old firm or solicit the old customers.

  • Retiring partner will receive share of property and goodwill at fair value.

  • If new firm carries old business without settlement of final claim of retiring partner, he may claim share of profit or 6% interest up to the date of settlement.

  • Retiring partner gives option to surviving partner to purchase his interest

Liabilities of outgoing partner:

  • Liable up to public notice except

  • Third party was not aware regarding such person is a partner

  • At will partnership gives notice to all partners

  • Death

  • Insolvency

Exclusion of partners:

  • Power given in contract

  • Majority in good faith

  • For the benefit of firm

  • Opportunity of being heard is given

  • Any partner cannot be expelled due to personal bias. Spouse of A, B and C in club.

Insolvency of a partner

  • Ceases as a partner from the date of order of adjudication

  • His estate also not liable from the order of adjudication

  • Generally firm is dissolved due to insolvency of any partner, but it is not compulsory, if remaining partner is able to continue they may continue the business.

Death of a partner:

  • After death if business is continued, estate of decease partner is not liable without public notice.

  • Ordinarily, firm is dissolved due to death.

  • But partners are competent and agreed to continue, it can be continued.

  • Although order given during life time of partner, but goods is delivered after death of any partner, remaining surviving partners are liable for payment. Estate of deceased partner not liable for these dues.

Revocation of continuing guarantee by change in the firm:

  • Guarantee given to the firm or third party is revoked if there is a change in the constitution if no contrary intention is shown.

  • Unit 3

Registration and dissolution of firm:

  • Registration means to get partnership registered with registrar of firms.

  • Before this act there was no provision of registration.

  • It was difficult to identify the firm

  • It is optional at the discretion of partners.

  • Unregistered firm has several disabilities.

Mode of effecting registration:

  • It can be registered at the beginning of firm or afterwards.

  • By post or delivery to registrar

  • Area in which place of business situated or proposed to be situated

  • In prescribed form which includes.

  • Firm name

  • Principal place of business

  • Other place of business

  • Date of joining

  • Full and permanent address of partners

  • Duration of firm

  • Signed by partner or his agent and verified.

  • If registrar is satisfied all provisions are duly complied, record entry in register and file statement.

  • Any alteration in name, place and constitution also is registered.

When registration is complete?

  • Deemed complete when application in prescribed form with prescribed fees.

  • Recording of an entry in register is a routine duty.

Consequences of non-registration:

  • In English law registration of firm is compulsory and penalty is levied due to non-registration of firm.

In India certain disabilities are provided for non-registration of firm given as below:

  • Firm or partner cannot sue to third party

  • Partners cannot sue on each other.

  • Firm can set off up to Rs.100 if third party sue on firm.

Rights of unregistered firm:

  • Third party sue on the firm

  • Partner can sue for – Dissolution of firm, settle of accounts

       Realization of firm’s property

  • Official assignees release the property of insolvent partner and bring an action.

  • Set off up to Rs. 100.

For sue on the third party, firm name and names of partners should be registered.

  • Retirement of partner is not informed to registrar, suit is valid.

  • If admission of partner is not informed to registrar, suit is not valid. A, B C and D.

Dissolution of firm:

  • Discontinue of jural relations existing between partners. Terminates partnership between each and every partners of firm.

  • Any partner is retired due to death, insolvency or other reason is known as dissolution of partnership. Relationship of such partner and other partners is dissolved.

Mode of dissolution

Without intervention of court


    By agreement 

Compulsory dissolution:

  • All partners or all except one partner becomes insolvent

  • Business becomes unlawful due to happening of event.

  • Chemical business banned by law must be dissolved

Due to certain contingencies

  • Expiry of fixed term

  • Completion of one or more adventure

  • Death of partners

  • Adjudication of partner as insolvent

Partnership at will

  • By giving notice to all partners

  • Date which is mentioned in notice, if date is not mentioned in notice from the date of notice

  • Dissolution is effective.

Dissolution by court:

Insanity/unsound mind

  • Suit by other partner or next friend of insane

Permanent incapacity 

  • incapable to perform his duties


  • Guilty of conduct which is prejudice to carry the business.

Persistent breach of contract

  • Willfully commits the breach of agreement

  • Not practicable to carry business

  • Due to none recording of receipt in books, quarrel arise between partners, destroy the confidence, court may order for dissolution.

Transfer of interest:

  • transfer his interest to third party, charged or sold by court as arrears of land revenue. Court may dissolve the firm.

Continuous loss:

  • Business will be carried at a loss in future.

Just and equitable grounds:

  • court may consider other grounds for dissolution.

  • Deadlock in the management

  • Not talking terms

  • Loss of substratum

  • Gambling by a partner…

Consequence of dissolution:

Continue liability up to public notice

  • X and y were partners. Executed dissolution deed was executed on 1st December but public notice was not given. Mr. x borrowed fund on 20th December, y is also liable.

  • In following cases public notice is not required

  • Estate of a deceased partner

  • Insolvent partner

  • Dormant partner (sleeping partner)

Enforce winding up:

  • On partnership being dissolved, partner or his representative have right to receive surplus from property after applying for firm’s debt.

Continue authority of partners after dissolution:

  • Rights and duties continue for winding up of firm or complete unfinished transactions on the date of dissolution.

Settlement of partnership accounts:

  • Deficiencies of capital first from profit and at last partners personally in their p & l ratio.

  • If specific agreement then in their capital ratio.

  • Asset of firm is applied in following sequence:

  • Debt of third party

  • Advances of partners

  • Capital

  • Surplus in p & l ratio

  • If equal standing pay proportionately

  • Loss due to insolvency of any partner will be borne by partners in capital ratio.

  • A, B and C are partners. Balance of capital 10,000.  5,000 and 1,000

  • But assets realized  7,000

  • Deficiency 16,000 – 7,000 = 9,000

  • Each partner will borne 9,000/3= 3,000

  • A 10,000-3000=7,000

  • B   5,000-3000=2,000

  • C   1,000-3000=(2,000)

  • Firm will pay to A and B while C will pay to the firm.

  • If c became insolvent, deficiency of c will be borne  by A and B in the ratio of 2 : 1

  • Deficiency of A 3,000+1,333=4,333

  • Deficiency of B 3,000+667=4,667

Firm’s debt as well as partner’s personal debt

  • From the firm’s asset first pay firm’s debt and from surplus pay partner’s person debt.

  • From personal assets first pay personal debt and if excess than pay firm’s debt.

Personal profits earned after dissolution

  • before complete winding up, any partner earns personal profit must be given to the all partners (firm)

  • lease expired after death of partner is renewed by other partners will be of the firm.

  • Partner or his representative may restrain to other partners form using firm’s property or name for own benefit till wound up.

Return of premium due to premature dissolution

  • Any partner is admitted for fixed term with premium, partnership is dissolved before fixed term.

  • Proportionate premium will be refunded except in following circumstances.

  • Death of any partner

  • Misconduct of partner paying premium

  • Agreement contains provision of non refund.

  • Proportionate premium will be refunded in following cases

Dissolved due to

  • Without fault of either party

  • Fault of both parties

  • Fault of party receiving of premium

  • Insolvency of receiving partner – not aware of such circumstances when premium was paid.

Rescission of partnership for fraud act. It is based on confidence

  • partner affected by fraud

  • Resign from partnership

  • Lien on surplus after payment of debt  for his capital contribution

  • Same rank for any payment of firm debt.

  • Indemnify from partners guilty of fraud or misrepresentation.


purchaser can use

  • Old name

  • Represent to the customer of old firm

Seller of goodwill

  • Carry similar business

  • Compete to the purchaser

  • Advertise of his business

  • But cannot use firm name or solicit the customer of old firm.

Mode of giving public notice:

  • Publication of Official Gazette

  • At least one vernacular newspaper circulating in district in which principal place of business.

  • Registered firm served notice to the ROF relates retirement, expulsion, dissolution of firm, election as a partner while attaining majority

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