UNIT VII

The Indian Partnership Act, 1932

The Indian Partnership Act, 1932

An Act was enacted in 1932 and it came into force on the 1st day of October 1932. The present Act
superseded the earlier law, which was contained in Chapter XI of the Indian Contract Act, 1872.

Partnership Meaning
According to Section 4 of the Partnership Act,1932

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

Features of Partnership:

Following are the few features of a partnership:

1. Agreement between Partners: It is an association of two or more individuals, and a

partnership arises from an agreement or a contract. The agreement (accord) becomes
the basis of the association between the partners. Such an agreement is in the written
form. An oral agreement is evenhandedly legitimate. In order to avoid controversies, it
is always good, if the partners have a copy of the written agreement.

The partnership agreement becomes the foundation or the basis on which it is based. It can be either written
or oral. The written agreement is known as a partnership deed. Partnership deed mainly consists of the
following details:

 Name and address of its firm and business

 Name and address of its partner
 Capital contributed by each partner
 Profit and loss sharing ratio
 Rate of interest on capital, loan, drawings etc
 Rights, duties and obligation of partners
 Settlement of accounts on the dissolution of the firm
 Salaries, commission payable to partners
 Rules to be followed in case of admission, retirement and death of a partner
  Mode of settlement on disputes among partner.
 Any other affecting the rights of the partners

2. Two or More Persons: In order to manifest a partnership, there should be at least

two (2) persons possessing a common goal. To put it in other words, the minimal number
of partners in an enterprise can be two (2). However, there is a constraint on their
maximum number of people.

The Indian Partnership Act 1932 governs partnership but does not regulate the maximum
no of partners in a partnership firm.

 It is determined by the Companies Act 2013 (section 464), which allows up to 100 as
the maximum no of partners in partnership firms.
 According to Rule 10 of Companies (Miscellaneous) Rules, 2014 states, the maximum
no of partners in partnership firms should not exceed 50.
 A partnership firm is formed by a minimum of two people.
 The central government stated that the maximum no of partners in partnership firms
could not exceed 50 as per Rule 10(2014).

According to section 11 of the Companies Act, 1956 a partnership for a banking business
must not have more than 10 partners and for other business it must not exceed 20.

3. Sharing of Profit: Another significant component of the partnership is, the accord
between partners has to share gains and losses of a trading concern. However, the
definition held in the Partnership Act elucidates – partnership as an association between
people who have consented to share the gains of a business, the sharing of loss is
implicit. Hence, sharing of gains and losses is vital.

4.Business Motive: It is important for a firm to carry some kind of business and should
have a profit gaining motive.

5. Mutual Business: The partners are the owners as well as the agent of their firm. Any
act performed by one partner can affect other partners and the firm. It can be concluded
that this point acts as a test of partnership for all the partners.

6. Unlimited Liability: Every partner in a partnership has unlimited liability.

 Formation of partnership
A partnership is formed when two or more people agree to share profits and losses of a
business. The partners can be individuals, corporations, trusts, or other partnerships.

Steps to form a partnership

Agree on the partnership: Partners can agree orally, but it's recommended to put the
agreement in writing.

Choose a business name: Select a name for the partnership.

Register the business: Register the partnership with the Registrar of Firms in the state
where the business is located.

True Test of Partnership

The Indian Partnership Act 1932 clearly defines a partnership. But how can we decide if a given association of
persons is truly a partnership or not? So the Act has also given us a litmus test to determine if a firm is a
partnership. This is known as the True Test of a Partnership. Let us study this.

True Test of a Partnership

The true test of a partnership is a way for us to determine whether a group or association of persons is a
partnership firm or not. It also helps us recognize the partners of the firm and separate them from the third
parties.

The idea behind such a true test is to examine the relevant facts and determine the real relations between
parties and conclude about the presence of a partnership.

Let us take a look at the three important aspects of a true test of a partnership, namely agreement, profit
sharing and mutual agency.

1] Agreement/Contract between Parties

For there to be a partnership between two or more persons there has to be an agreement of partnership
between them. The partnership cannot arise family status or any operation of law. There has to be a specific
agreement between the partners.
So if family members of a HUF are running a business together this is not a partnership. Because there is no
agreement of partnership between them. The members of HUF are born into the HUF, so they cannot be
partners.

2] Profit Sharing

Sharing of profits is an aspect of the true test of a partnership. However, profit sharing is only a prima facie
evidence of a partnership. The Act does not consider profit sharing as a conclusive evidence of a partnership.
This is because there are cases of profit sharing that are still contradictory to a partnership. Let us see some
such cases

 Sharing of profits/ gross receipts from a property that two or more persons own together or have a
joint interest in is not a partnership

 A share of profits given to an agent or servant does not make him a partner

3 Mutual Agency

This is the truest test of a partnership, it I the cardinal principle of a partnership. So if a

partner is both the principle as well as an agent of the firm we can say that mutual
agency exists. This means that the actions of any partner/s will bind all the other
partners as well.

So whenever there is a confusion about the existence of a partnership between people

we check for the presence of a mutual agency. If such an agency exists between the
parties who run a business together and share profits it will be deemed that a
partnership exists.
partnership and other associations

Here’s a table summarising the differences between a partnership and a company based on the key
aspects discussed: discussed:

Basis of
Partnership Company
Difference

A contract between two or more persons

A legal entity where a group of persons
Meaning to share profits, losses and
share ownership but not management.
responsibilities.

Governed By Partnership Act, 1932. Companies Act, 2013.

Compulsory with the Registrar of

Registration Not compulsory.
Companies.

Members Known as Partners. Known as Shareholders.

Number of Public: Minimum 7, no maximum.
Minimum 2, maximum 50.
Members Private: Minimum 2, maximum 200.

Limited to the value of shares held

Liability Unlimited. (except in companies with unlimited
liability).

Profit As per Articles of Association or

As per partnership deed or equally.
Distribution directors’ decisions.

Regulatory Registrar of Firms under State Registrar of Companies under Central

Authority Government. Government.

Memorandum of Association and

Documents Partnership deed.
Articles of Association.

Separate Entity Not a separate entity. Separate legal entity.

Audit Not mandatory. Mandatory.

Managed by partners themselves or any Managed by directors elected by

Management
of them acting for all. shareholders.

Transfer of
Not allowed without consent of partners. Allowed, except in private companies.
Shares

Limited to activities permitted by

Type of
Any type, with consent of all partners. Objects Clause of Memorandum of
Business
Association.

By agreement or court order under

Winding Up As prescribed in Companies Act, 2013.
Insolvency Act.
 Affected by death, retirement or Not affected by death, insolvency or
Continuity
insolvency of a partner. share transfer of shareholders.

Common Seal Not required. Required.

Change in Requires prior approval from Central

Easy with consent of all partners.
Name Government.

Minimum Private: Minimum ₹1 lakh. Public:

No requirement.
Capital Minimum ₹5 lakhs.

Partnership VS. Hindu Undivided Family

Basis Partnership Hindu Undivided Family

A partnership is

Mode of creation created through The right to a Hindu Undivided Family is formed by status. It is created by birth into such a family.

an agreement.

Death of a partner

in the firm would

Death of a
lead to the The death of a family member in a HUF does not end in the dissolution of the family business.
member
dissolution of the

partnership.

All the partners of

the firm are

equally entitled to
Management The right of management of a HUF is vested with the Karta, the governing male member of the family.
take part in a

partnership

business.

Authority to bind By an act, a The Karta or the manager holds the authority to contract for the business and the rest of the members of the family
 partner can bind

the firm.

The liability of a

partner in a In a HUF, the liability of the Karta alone is unlimited. The rest of the co-partners are only liable to the extent of their
Liability
partnership is in the profits of the family business.

unlimited.

A partner can file

a suit against the

firm for matters

Calling for related to

accounts on the accounts, When a HUF splits up, a member is not entitled to ask for accounts concerning the family business.

closure provided he also

seek for the

dissolution of the

firm.

The Partnership

Governing Law Act governs a The Hindu Law governs a HUF.

partnership.

A minor cannot

be a part of a

partnership.

Although, a minor

can be admitted In a HUF business, a minor becomes a member of the family business by birth. The favour of the majority is not r
Minor’s capacity
to the benefits of to take part in the business.

the partnership

based on the

consent of all the

partners.

Continuity A firm gets A HUF can continue until it is divided. The states of a HUF is not affected by the death of a member.

dissolved by the

death or

insolvency of a

partner subject to

a contract

between the
 partners.

Types of Partners1

1] Active Partner/Managing Partner

An active partner is also known as Ostensible Partner. As the name suggests he takes
active participation in the firm and the running of the business. He carries on the daily
business on behalf of all the partners. This means he acts as an agent of all the other
partners on a day to day basis and with regards to all ordinary business of the firm.

Hence when an active partner wishes to retire from the firm he must give a public
notice about the same. This will absolve him of the acts done by other partners after
his retirement. Unless he gives a public notice he will be liable for all acts even after
his retirement.

2] Dormant/Sleeping Partner

This is a partner that does not participate in the daily functioning of the partnership
firm, i.e. he does not take an active part in the daily activities of the firm. He is
however bound by the action of all the other partners.

He will continue to share the profits and losses of the firm and even bring in his share
of capital like any other partner. If such a dormant partner retires he need not give a
public notice of the same.

3] Nominal Partner

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 This is a partner that does not have any real or significant interest in the partnership.
So, in essence, he is only lending his name to the partnership. He will not make any
capital contributions to the firm, and so he will not have a share in the profits either.
But the nominal partner will be liable to outsiders and third parties for acts done by
any other partners.

4] Partner by Estoppel

If a person holds out to another that he is a partner of the firm, either by his words,
actions or conduct then such a partner cannot deny that he is not a partner. This
basically means that even though such a person is not a partner he has represented
himself as such, and so he becomes partner by estoppel or partner by holding out.

5] Partner in Profits Only

This partner will only share the profits of the firm, he will not be liable for any
liabilities. Even when dealing with third parties he will be liable for all acts of profit
only, he will share none of the liabilities.

6] Minor Partner
Section 30 of the Indian Partnership Act 1932 contains legal provisions about a minor
in a partnership

A minor cannot be a partner of a firm according to the Contract Act. However, a

partner can be admitted to the benefits of a partnership if all partner gives their consent
for the same. He will share profits of the firm but his liability for the losses will be
limited to his share in the firm.

Rights of a Minor Partner

Once the minor is given the benefits in a partnership there are certain rights that he
enjoys. Let us take a look at the rights of a minor partner.

i. Sharing profit-A minor partner will obviously have the right to his share of the
profits of the firm. But the minor partner is not liable for any losses beyond
his interests in the firm. So a minor partner’s personal assets cannot be liquidated to
pay the firms liabilities.
ii. Inspection of books-He can also like any other partner inspect the books
of accounts of the firm. He can demand a copy of the books as well.
iii. Right to sue-If necessary he can sue any or all of the other partners for his share of
the profits or benefits.
iv. Option on attaining majority-A minor partner on attaining majority has the right
to become a partner of the firm. He has six months from attaining majority to decide
if he will execute this right. Whether he decides to become a partner or not he must
give public notice about the same.

Liabilities of a Minor Partner

i. A minor cannot be held personally liable for the losses of the firm. And if the firm
declares insolvency the minor’s share is kept with the Official Receiver
ii. After turning 18 the minor partner can choose to become a partner of the firm. But
he may choose to not become a partner. In this case, the minor partner has to give a
public notice about this decision. And the notice has to be given within 6 months of
gaining a majority. If such a notice is not given even after 6 months then the minor
partner will become liable for all acts done by the other partners till the date of such
notice.
iii. Should the minor partner choose to become a partner he will be liable to all the third
parties for the acts done by any and all partners since he was admitted to the benefits
of the partnership.
iv. If he becomes a full-time partner he will be treated as a normal partner and have all
the liabilities of one. His share in the profits and property of the firm will remain the
same as it was when he was a minor partner.

Partnership Property (Section 14)

The property of a firm is also known as partnership property, partnership assets, joint
stock, common stock, or joint estate. A partnership property includes all property and
rights, and interest in property that the partnership firm purchases.

These purchases can also be made for the purpose and in course of the business of the
firm, including the goodwill of the firm. All partners collectively own such properties.

Hence, a partnership property comprises of the following items if there is no

agreement between the partners showing any contrary intention:

 All property and rights and interest in property that the partners purchase in the
common stock as their contribution to the common business.
  All property and rights and interest in property that the firm purchases either for
the firm or for the purpose and in course of the business of the firm.

 Goodwill of the business.

Determining whether a particular property is partnership property depends on the true

intention or agreement between the partners.

Hence, if a firm uses the property of a partner for its purposes, it does not make it a
partnership property unless that was the real intention. At any time, the partners may
agree to convert the property of a partner or partners into partnership property.

Relation of Partners with One Another

All partners are free to form their own terms and conditions with
respect to functioning in their partnership deed. The Indian
Partnership Act, 1932 has also prescribed provisions to govern their
relationship inter se (amongst them), and these provisions are
applicable if no such deed exists.

Agreement in Restraint of Trade is Valid

Section 27 of the Indian Contracts Act, 1872 declares contracts in

restraint of trade as void. All agreements restraining exercise of a
lawful profession, trade or business are invalid.

Section 11 of Partnership Act, however, states that partners can

validly levy such a restraint on each other, but such restraint must be
provided for under the partnership deed. Partners can use this
agreement to prohibit each other from carrying on any business other
than that of the firm.
Let us take a look at the duties and the rights of partners.

Rights of the Partners

 Right to participate in the conduct of business (Section
12(a)): each partner has a right to participate in the conduct
of the business. A partner right to participate in business is
curtailed in a case where some of them only participate in the
business affairs of the firm. this right can be curtailed only
when the partnership deed states so.
 Rights to access and inspect books and
accounts (Section 12(d)): This right is also given to the
active and dormant partner. Each partner has a right to
access and inspect the book of account of the firm. In case of
death of a partner, his legal heir can inspect the copies of
accounts.
 Right to be indemnified: The partners have a right to be
indemnified for the decision taken in the course of the
business. But such a decision is to be taken in the case of
urgency and should be of such nature that the ordinarily
prudent person would take.
 Rights to express his opinion (Section 12(c)): Each
partner has a right to express his opinion with regard to the
business affairs. They also have the right to participate in the
decision-making process.
  Rights to get interest on capital or advances: Generally,
partners are not entitled to get any interest on the capital that
they invest .but when they agree to give interest, then such
interest would be paid from the capital. They are also entitled
to 6%interest on the advances made towards the business of
the firm.
 Right to share profit and loss: The partners share the profit
and losses equally in the absence of any deed. But when there
is a partnership deed prescribing the ratio of profit and losses
it will be shared in accordance with the partnership deed.

Duties of partners
The rights and duties are correlated with each other. When the
rights are given to the partners then there must be some which the
partners should perform..the various duties of partners are as
follows:

 Duty to act diligently (Section 12(b)): It is the duty of the

partners to act with due care and diligence because his
actions will affect all other partners. If his wilful act causes a
loss or injury to other partners he is entitled to pay
compensation to the affected partners.
 Duty to indemnify fraud (Section 10): whenever any fraud
is committed by partners then every partner is liable to
indemnify the firm for losses because the firm is liable for the
wrongful acts of the partners. If the fraud causes the losses to
other partners he is entitled to indemnify for the loss caused.
  Duty to use the firm property exclusively for the purpose
of business (Section 15): The partners can use the firm
property for the purpose of the business but not for its
personal purpose. The partner must use the property in a
lawful manner. they must not earn a person gains from such
property.
 Duty to hand over personal gains (Section 16): All the
partners should act towards achieving the common goal. they
must not engage in other profession or engage in any
competitive business venture. If they earn any personal gains
from the conduct of business then they should hand over to all
the partners.
 General duties (Section 9): It is the duty of all partners to
make all the efforts to achieve a common goal, to render a
true account and provides all the information affecting a firm
to partners, or his representative

Relation of Partners to Third Parties2

 . Sections 18 to 22 of the Indian Partnership Act, 1932, offer details of different
scenarios under which partners can have different relations with a third party.

A Partner is an Agent of the Firm (Section 18)

A partnership is a relationship between partners who agree to share the profits of the
business. The business can be carried on by all of them or any of them acting for all.
This definition suggests that a partner can be an agent of the others.

Implied Authority of a Partner (Section 19)

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If a partner does an act in the usual course of business of the firm, then his act binds
the firm. This authority of a partner to bind the firm is Implied Authority. Unless a
contrary agreement exists, implied authority does not empower a partner to (Section
19 – subsection 2 of the Indian Partnership Act, 1932):

 Submit a dispute, relating to the business of the firm, to arbitration

 Open a bank account in his name, on behalf of the firm
 Compromise or relinquish, full or part of a claim by the firm
 Withdraw a suit or proceedings filed on behalf of the firm
 Admit any liability in a suit or proceedings against the firm
 Acquire an immovable property on behalf of the firm
 Transfer an immovable property belonging to the firm
 Enter into a partnership on behalf of the firm
Section 22 of the Indian Partnership Act, 1932, adds that the act which was done by
the partner to bind the firm must be done in the name of the firm or in any other
manner which implies an intention to bind the firm.

Partner’s Authority in an Emergency (Section 21)

As per Section 21 of the Indian Partnership Act, 1932, if there is an emergency, then
every partner has the authority to do all such acts that a person of ordinary prudence
would do to protect the firm from a loss. Such acts bind the firm.

Rights of Outgoing Partner

A partner who leaves the partnership firm in which the remaining partners continue
the business is an outgoing partner. Such a partner has certain liabilities and rights as
prescribed by the Partnership Law. In this article, we will focus on the rights of an
outgoing partner.
Right of an Outgoing Partner to Carry on a Competing Business

Section 36 (1) of the Indian Partnership Act, 1932 (Partnership law), imposes certain
restrictions but allows an outgoing partner to carry on a business and advertise it,
which competes with the partnership firm. However, it restricts him from:
  Using the name of the partnership firm

 Representing himself as a partner of the firm

 Soliciting the custom of persons who were dealing with the firm before he
ceased to be a partner.

Section 36 (2) talks about an agreement in restraint of trade. According to this

subsection, an outgoing partner may make an agreement with his partners that when
he ceases to be a partner of the firm, he will not carry on any business similar to that of
the firm within a specified period or local limits. This is notwithstanding anything
contained in Section 27 of the Indian Contract Act, 1872.
Right of an Outgoing Partner to Share Subsequent Profits

According to Section 37, of the Partnership Law, if a member of the firm dies or
otherwise ceases to be a partner of the firm, and the remaining partners carry on the
business without any final settlement of accounts between them and the outgoing
partner, then the outgoing partner or his estate is entitled to share of the profits made
by the firm since he ceased to be a partner.

Dissolution of a Firm
When the partnership between all the partners of a firm is dissolved, then it is called
dissolution of a firm. It is important to note that the relationship between all partners
should be dissolved for the firm to be dissolved. Let us look at the legal provisions for
the dissolution of a firm.

Modes of Dissolution of a Firm

1] By Agreement (Section 40)

According to Section 40 of the Indian Partnership Act, 1932, partners can dissolve the
partnership by agreement and with the consent of all partners. Partners can also
dissolve the partnership based on a contract that has already been made.

2] Compulsory Dissolution (Section 41)

 The compulsory dissolution of the firm takes place in the following cases:
 When all the partners or all but one partner are declared insolvent
 When the business of the firm becomes illegal due to some reason.
 When the business of the firm becomes unlawful due to the happening of an event.

3] On the happening of certain contingencies (Section 42)

This section focuses on the dissolution of the firm on happening of certain events. Dissolution of
the firm can take place if the following events take place:

 Expiry of fixed term: If the contract of a partnership firm is on a fixed term. Then,
dissolution of that firm will take place on the expiry of that contract. when the contract
expires dissolution will take place.
 If the firm was formed for a certain number of task. Then on completion of that task,
the firm ceases to exist. If the firm is constituted for a particular task then on
completion of that task firm will dissolve, unless there is a contract or agreement.
 Dissolution can also take place with the death of a partner. Dissolution of the firm can
take place only when the other partner chooses too. If he wants to continue the firm
even after the death of a partner then there will be no dissolution of the firm. Only the
partnership will be dissolved.
 When one of the partners or all the partners is insolvent then dissolution can take
place. Even the insolvency of one partner can dissolve the firm.
 Dissolution can also take place if any one of the partners resigns. If one partner thinks
not to continue further then he/she can resign but this will also dissolve the firm

4] By notice of partnership at will (Section 43)

 According to Section 43 of the Indian Partnership Act, 1932, if the partnership is
at will, then any partner can give notice in writing to all other partners informing
them about his intention to dissolve the firm.
 In such cases, the firm is dissolved on the date mentioned in the notice. If no date
is mentioned, then the date of dissolution of the firm is the date of
communication of the notice.

5)Dissolution of a Firm by the Court

According to Section 44 of the Indian Partnership Act, 1932, the Court may dissolve a
firm on the suit of a partner on any of the following grounds:

1] Insanity/Unsound mind
If an active partner becomes insane or of an unsound mind, and other partners or the
next friend files a suit in the court, then the court may dissolve the firm. Two things to
remember here:

 The partner is not a sleeping partner

 The sickness is not temporary
2] Permanent Incapacity

If a partner becomes permanently incapable of performing his duties as a partner, and

other partners file a suit in the court, then the court may dissolve the firm. Also, the
incapacity may arise from a physical disability, illness, etc.

3] Misconduct

When a partner is guilty of conduct which is likely to affect prejudicially the carrying
on of the business, and the other partners file a suit in the court, then the court may
dissolve the firm.

Further, it is not important that the misconduct is related to the conduct of the
business. The court looks at the effect of the misconduct on the business along with
the nature of the business.

4] Persistent Breach of the Agreement

A partner may willfully or persistently commit a breach of the agreement relating to

 the management of the affairs of the firm, or

 a reasonable conduct of its business, or
 conduct himself in matters relating to business that is not reasonably practicable for
other partners to carry on the business in partnership with him.
In such cases, the other partners may file a suit against him in the court and the court
may order to dissolve the firm. The following acts fall in the category of breach of
agreement:

1. Embezzlement
2. Keeping erroneous accounts
3. Holding more cash than allowed
4. Refusal to show accounts despite repeated requests, etc.
5] Transfer of Interest

A partner may transfer all his interest in the firm to a third party or allow the court to
charge or sell his share in the recovery of arrears of land revenue. Now, if the other
partners file a suit against him in the court, then the court may dissolve the firm.

6] Continuous/Perpetual losses

If a firm is running under losses and the court believes that the business of the firm
cannot be carried on without a loss in the future too, then it may dissolve the firm.

7] Just and equitable grounds

The court may find other just and equitable grounds for the dissolution of the firm.
Some such grounds are:

 Deadlock in management
 Partners not being in talking terms with each other

Difference between Dissolution of a firm and Dissolution of a

Partnership
 Parameters Dissolution of a Firm Dissolution of a Partnership

The business continues. However, the

Continuation of business The business discontinues.
partnership is reconstituted.

The firm is wound up. Assets are Assets and liabilities of the firm are only
Winding up
realized and liabilities are settled. revalued.

Registration of Firms under the Indian

Partnership Act

Is it necessary to register a partnership firm?

Indian Partnership Act, 1932 governs the partnerships. Registration of partnership firm is optional and at the
discretion of the partners.
Registration of partnership firm may be done at any time – before starting a business or anytime during the
continuation of partnership.

How to register the partnership firm?

An application form along with fees is to be submitted to Registrar of Firms of the State in which firm is situated.
The application has to be signed by all partners or their agents.

Documents to be submitted to Registrar are

 Application for registration of partnership (Form 1)
 Specimen of Affidavit
 Certified original copy of Partnership Deed
  Proof of principal place of business (ownership documents or rental/lease agreement)

If the registrar is satisfied with the documents, he will register the firm in Register of Firms and issue Certificate
of Registration.
It is always advisable to register the firm since a registered firms enjoy special rights which aren’t available to the
unregistered firms.

Consequences of Non Registration of Firm(sec-69)

Section 69 of the Indian Partnership Act, 1932, which restricts legal actions by
unregistered firms, was enforced a year after the rest of the Act. This delayed
enforcement allowed for a grace period where existing unregistered partnerships
could register without immediate legal repercussions. The delay was likely to facilitate
a smoother transition for those businesses that were not yet registered under the new
Act.

1] No suit in a civil court by the firm or other co-partners against any third
party

If the firm registration is not done, then the firm or any other person on its behalf
cannot file a suit against a third party for breach of contract which the firm has entered
into. Further, the person filing the suit on behalf of the firm should be in the register of
the firm as a partner.

2] No relief to partners for set-off of claim

Without firm registration, any action brought against the firm by a third party having a
value of more than Rs. 100 cannot be set-off by the firm or any of its partners.
Pursuance of other proceedings to enforce rights arising from the contract cannot be
done either.

3] An aggrieved partner cannot bring legal action against other partner or the
firm
A partner of the firm or any person on his behalf cannot bring legal action against the
firm or against any partner (or alleged to be a partner) if firm registration is not done.
However, if the firm is dissolved, then such a person can sue the firm for dissolution it
accounts and realization of his share in the firm’s property.

4] A third party can sue the firm

Even if the firm registration is not done a third party can bring legal action against the
firm.

Exceptions

It is also, important to note that despite these disabilities, the non-registration of a firm
does not affect the following rights:

1. The right of a third party to sue the firm or any partner

2. Partners’ right to sue the firm for dissolution
3. Right to settlement of accounts (in case of dissolution)
4. The right of the firm and partners to sue or claim set-off of the value of the suit does
not exceed Rs. 100.