1.

⁠ ⁠Partnership and Its Essentials

Introduction

o The Indian Partnership Act, 1932 governs the formation

and functioning of partnerships in India. It defines the
relationship between persons who have agreed to share
the profits of a business carried on by all or any of them
acting for all.
o The Act lays down the essential features and conditions
for the existence of a valid partnership.

Definition of Partnership (Section 4):

o “Partnership is the relation between persons who have

agreed to share the profits of a business carried on by all
or any of them acting for all.”

This definition highlights key elements:

• Agreement
• Business activity
• Profit sharing
• Mutual agency

Essentials of a Valid Partnership

1. Two or More Persons

o A partnership must be between two or more persons. A

firm cannot be a partner in another firm. However,
 partners can be individuals or legal entities (like
companies). The maximum number of partners is:
• 50 (as per Companies Act, 2013)
• Minimum is 2.

2. Agreement Between Partners

o A partnership arises from a contract and not from status

(unlike Hindu Undivided Family). This contract may be
oral or written, but must be based on mutual consent and
intention to form a partnership.
3. Business Activity

o The object of the agreement must be to carry on a legal

business. If there is no business or the business is illegal,
no valid partnership exists.

4. Sharing of Profits

o The partners must agree to share profits. Though sharing

of losses is not mandatory, profit sharing is essential.
Note: Mere sharing of profits doesn’t prove partnership
unless mutual agency exists.

5. Mutual Agency

o This is the true test of partnership. Each partner should

have the authority to bind the firm and be bound by other
partners’ actions in the course of business. This means
partners act as agents and principals for each other.
Non-Essential Elements

• Registration: Registration is not compulsory

under the Act, but an unregistered firm cannot
enforce its rights in a court of law.
• Name of Firm: Choosing a name is optional and
not governed strictly by law unless it causes
confusion with existing firms or violates
trademarks.

Types of Partnership

• Partnership at Will: No fixed duration; can be

dissolved anytime.
• Particular Partnership: Formed for a specific
project or period.
• General Partnership: No specific restriction;
partners carry on general business together.

Legal Status of a Firm

A firm is not a separate legal entity from its partners. It cannot

sue or be sued independently unless registered. The firm is
just a collective name for all the partners.

Case Law:
 1. Cox v. Hickman (1860)

o Clarified that mutual agency is the key to determining

the existence of a partnership, not just profit sharing.

Conclusion

The concept of partnership under Indian law is built on mutual

trust, shared responsibility, and joint business operation. The
essentials – agreement, lawful business, profit sharing, and
mutual agency – must all be present for a valid and
enforceable partnership.
Rights and Duties of Partners

Introduction

o In a partnership firm, partners are both owners and

agents of the business. The Indian Partnership Act, 1932
governs the mutual rights and duties of partners in
Section 9 to Section 17.
o These provisions apply unless otherwise agreed in the
partnership deed. These rights and duties are essential for
the smooth functioning of the firm.

Rights of Partners

The following are the general rights of partners:

1. Right to Take Part in Business (Sec. 12(a))

o Every partner has the right to participate in the
management and decision-making of the business.

2. Right to be Consulted (Sec. 12(c))

o All partners must be consulted for decisions. In ordinary
matters, majority opinion prevails, but for major
decisions, unanimous consent is required.

3. Right to Access Books and Accounts (Sec. 12(d))

o Every partner has the right to inspect, access, and copy
the books of accounts and records of the firm.

4. Right to Share Profits (Sec. 13(b))

 o Unless agreed otherwise, profits and losses are shared
equally among partners.

5. Right to Interest on Capital (Sec. 13(c))

o A partner is not entitled to interest on capital unless
agreed in the deed. However, interest is paid only out of
profits.
6. Right to Interest on Advances (Sec. 13(d))
o If a partner gives a loan to the firm, interest at 6% p.a. is
payable even if there’s no profit.

7. Right to Indemnity (Sec. 13(e))

o A partner has a right to be indemnified for payments and
liabilities incurred while acting in the ordinary course of
the firm’s business.

8. Right to Use Partnership Property

o A partner can use the firm’s property only for business
purposes, not personal use.

9. Right to Retire
o A partner can retire with the consent of others, as per
agreement, or by notice if it is a partnership at will.

10. Right Against Expulsion (Sec. 33)

o A partner cannot be expelled unless there is express
agreement and the expulsion is made in good faith.

Duties of Partners

The Partnership Act also prescribes the duties every partner

must follow:
 1. Duty of Good Faith and Honesty (Sec. 9)
Partners must act in good faith, and for the common benefit of
the firm. They must be loyal and fair to one another.

2. Duty to Carry on Business Diligently (Sec. 12(b))

Each partner must attend to the firm’s business with care,
attention, and skill.

3. Duty to Render True Accounts (Sec. 9)

Partners must maintain accurate records and fully disclose all
financial dealings to other partners.
4. Duty Not to Compete (Sec. 11 & 16)
A partner must not run a competing business. If he does, he
must account for the profits made.

5. Duty to Account for Personal Profits (Sec. 16(a))

A partner must not make secret profits using the firm’s name
or property. If he does, he must return them to the firm.

6. Duty to Act Within Authority

A partner must act within the scope of his actual or implied
authority. If he exceeds it, he is personally liable.

7. Duty Not to Transfer Interest (Sec. 29)

A partner cannot transfer his share or interest in the firm to an
outsider without the consent of other partners.

8. Duty to Indemnify for Willful Misconduct (Sec.

10)
A partner is responsible for any loss caused by his fraud or
willful negligence, and must indemnify the firm.
Case Law:

Cox v. Hickman (1860):

o Established that mutual agency is the key element in a
partnership, and that duties and rights flow from this
relationship.

Conclusion
The rights and duties of partners are the backbone of a healthy
partnership. These duties ensure trust and cooperation, while
the rights protect partners’ interests.
SHORT NOTES:

Incoming Partner (Sec. 31):

1. A person can be admitted as a partner only with the

consent of all existing partners.

2. This applies unless the partnership agreement provides

otherwise.

3. An incoming partner is not liable for any debts or acts of

the firm done before his admission.

4. He can agree to share past liabilities by contract.

5. He has equal rights as other partners, including the right

to inspect books and share profits.

6. Capital contribution, profit share, and duties must be

specified in the agreement.

7. He becomes an agent and principal like other partners

from the date of admission.

8. If no written agreement exists, his rights and duties are

governed by the Act.

9. Cannot be admitted without written or oral agreement.

10. If admitted without following procedure, admission

is invalid.
Outgoing Partner:

1.⁠ ⁠Retirement (Sec. 32):

o A partner may retire with the consent of all partners, as
per the agreement, or by notice in a partnership at will.
o Must give public notice to avoid future liability.
o Remains liable for acts before retirement unless
discharged by agreement.

2.⁠ ⁠Expulsion (Sec. 33):

o A partner can be expelled if the agreement allows it.
o Expulsion must be in good faith and for the benefit
of the firm.

3.⁠ ⁠Insolvency (Sec. 34):

o An insolvent partner ceases to be a partner on the
date of adjudication.
o He is not liable for acts of the firm after that date.

4.⁠ ⁠Death (Sec. 35):

o Death of a partner dissolves the firm unless there is
a contract to the contrary.
o Legal heirs are entitled to the deceased partner’s
share.

5.⁠ ⁠Rights of Outgoing Partner (Sec. 36 & 37):

o Can carry on competing business but cannot use the
firm’s name or solicit its clients.
o Entitled to share of profits or 6% interest if his
capital is used after retirement.