Introduction

The Indian
Partnership Act, 1932 defines and amends the law relating to Partnership. This
Act is based on the Provisions of English Partnership Act, 1890. The Law
relating to partnership was contained in chapter XI [section 239-266] of the
Indian contract Act, 1872. Those Provisions were found unsuitable and
unsatisfactory, as a result, chapter XI was repealed and in 1932, Indian
Partnership Act was enacted.

Definition of
Partnership Section & defines

“Partnership is
medium between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all.”

There are three essential elements to form partnership

1. An agreement
between all the persons

2. Sharing of
Profit

3. Carrying on of
business by all or any of them acting for all.

Modes of Dissolution of Partnership Firm

1. Dissolution by
agreement (consent of all Partners partnership for final period.)

2. Compulsory
dissolution

3. Contingent
dissolution

4. Dissolution by
Notice.

5. Dissolution by
court.    

Note: The relation of Partnership
arises from contract, not from status for example join family business,
successions does not form partnership.

Note: The partnership agreement may be
in oral or written form a formal or written agreement is not required to from
Partnership.

Q. What is partnership deed?

A formal and written agreement
between the parties is called partnership deed.

Q. Is capital contribution compulsory?

 
No, capital contribution is not compulsory a partner may contribute his
skills, intelligence experience etc. in partnership.

Q. What is the effect of partner’s death on
Partnership business?

 The Partnership firm dissolves on the death of
partner. The other Partner’s have to enter a fresh agreement.

Q. Are partners entitled to share profits
only? What if loss in incurred by the firm?

The Partners have to bear the
loss in the same ratio ie. Profit sharing Ratio. Into agreement with third
party on the name of Partnership firm. The agreement binds the firm and all
partners.

Limitations:

A partner cannot
take any such decisions, which may affect the Partnership firm badly, or larger
interest of Partnership firm may get affected.

1. Submit a
dispute relating to business of the firm to arbitration.

2. Compromise or
relinquish any claim or portion of claim.

3. Withdraw a
suit or proceeding on behalf of the firm.

4. Cannot acquire
immovable property on behalf of the firm

5. Enter into
partnership on behalf of the firm.

Q. Does the principle of mutual agency
exist between partners?

According to the definition of
Partnership, “a business may be carried on by all or one of them acting for
all.”  It means a person is acting on
behalf of others also. This relationship in called as relationship of Principal
and agent. So, yes, mutual agency exists among partners.

Duties of Partners:

1. The partners
are bound to carry on the business of the firm to the greatest common advantage.

2. To be just and
faithful towards each other.

3. To render true
accounts, not to make hidden profits and to disclose all relevant information
affecting the firm to partner or to the Legal Representative.

Authority of Partner:

1. Express   

2. Implied: A
partner have on implied authority to act on behalf of other Partner and to enter
into agreement with third party on the name of partnership firm. The agreement
binds the firm and all partners.

Example:

1. He may borrow
money.

2. He may buy,
sell Partnership property

3. He can pledge
the goods.

4. He may make or
draw the cheques.

5. He may engage
servants for Partnership business etc.

Note: A Partner has an implied
authority to act and to take decision for the firm in case of emergency and
during the usual course of business.

Doctrine of Holding out:

This Doctrine
makes a person liable as a partner if he (i) by words spoken or written or by
conduct represented himself to be a partner or knowingly permitted himself to
be represented as a partner.

And as a result
of such representation the other person gave credit to the firm. Later on the
person who represented himself to be a partner owes liability towards the
creditor because the creditor gave credit on the faith of representation.

Position of minor in Partnership

According to section
30 of Indian Partnership Act, he may be admitted for the benefits of
partnership.

1. Minor shares
profit

2. Minor in not
personally liable.

3. Minor may not
sue and be sued.

PRACTICE EXERCISE:

1.  _________________ defines and amends the law relating
to Partnership

A. The Indian
Partnership Act, 1932

B. Indian
Contract Act, 1872

C. Code of Civil
Procedure

D. None of the
above

Ans: A

2. __________ is
a medium between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all.

A. Bailment

B. Agency

 C. Partnership

D. None of the
above

Ans: C

3.  Which of the following are essential elements
to form a partnership?

A. An agreement
between all the persons

B. Sharing of
Profit

C. Carrying on of
business by all or any of them acting for all

D. All of the
above    

Ans: D

4. What is
partnership deed?

A. An oral
agreement between the parties

B. A newspaper
article

C. A formal and
written agreement between the parties

D. None of
above    

Ans: C

5.  What are the ways in which a partner can
contribute?

A. Capital

B. Skill

C. Intellect

D. All of the
above 

Ans: D

6. Is capital
contribution compulsory?

A. Yes

B.  No

C. Maybe

D. None of the
above

Ans: B

7. What is the
effect of partner’s death on Partnership Business?

A. No effect

B. The
Partnership firm dissolves on the death of partner

C. The other
Partner’s have to enter a fresh agreement

D. Both B. and
C. 

Ans: D

8. Are partners
entitled to share profits only? What if loss in incurred by the firm?

A. No effect

B. Only the one
who made the mistake will be responsible for the loss

C. Profits or
losses will be shared as per the profit sharing ratio

D. None of the
above

Ans: C

9. A partner
cannot

A. Submit a
dispute relating to business of the firm to arbitration.

B. Compromise or
relinquish any claim or portion of claim.

C. Withdraw a
suit or proceeding on behalf of the firm.

D. All of the
above

Ans: D

10.  Does the principle of mutual agency exist
between partners?

A. Yes

B.  No

C. Maybe

D. None of the
above

Ans: A

11. Which of the
following are duties of partners?

A. The partners
are bound to carry on the business of the firm to the greatest common
advantage.

B. To be just and
faithful towards each other.

C. To render true
accounts, not to make hidden profits and to disclose all relevant information
affecting the firm to partner or to the legal representative

D. All of the
above

Ans: D

12. Which one of
the following is not a mode of dissolution of partnership?

A. Contingent
dissolution

B. Dissolution by
Notice.

 C. Dissolution by court

D. None of the
above

Ans: D

13. Akash and
Sonu are partners in a firm. It was Sonu’s idea that the firm should
manufacture shirts. This caused them losses. How will the losses be shared if
they had an equal share in the firm?

A. Akash has to
bear 10% and Sonu has to bear the rest

B. Sonu has to
bear all the losses since it was his idea

C. Equally

D. None of the
above

Ans: C

14. Position of a
minor has been discussed in which Sec. of the Indian Partnership Act?

A. 13

B. 16

C. 34

D. 30

Ans: D

15.  Minor maybe admitted into the partnership if

A. Minor shares
profit

B. Minor in not
personally liable

C. Minor may not
sue and be sued

D. All of the
above

Ans: D