Law of Partnership

Law of Partnership:
The law of partnership is contained in the partnership act 1932 which came into force
on 1st Oct, it extends to whole of Pakistan (Sec 3).
Meaning & Definition:
A partnership is a voluntary association of two or more persons who contribute
money, property, time and skill to carry on business for profit and to share the losses
of the business.
Some definition of partnership are as under:-
USA Partnership Law: An association of two or more persons who carry on as co-
owners, a business for profit.
Dr. William R.Spriegel: Partnership has two or more members, each of whom is
responsible for obligation of the partnership. Each of the partners may bind the others
and the assets of partners may be taken for the debits of the partnership.
Partnership Act Sec 4 “Partnership is the relation between persona who have agreed
to share the profits of a business carried on by all or any one of them acting for all”.
 Law of Partnership
Characteristics:
The following are characteristics or features of partnership:
Legal Entity: A partnership has no separate legal entity apart from its members. It
means that the partnership and partners are not separate from one an other. If any of
the partners dies, retries or becomes insane, the partnership comes to an end.
Agreement: A partnership is the result of an agreement between two or more
persons. A agreement may be written or oral. Only the persons who are competent to
contract can form a partnership on the death of father who was a partner in a firm,
the son can claim shares in the partnership property but can not become a partner
unless he entries into an agreement with other partners.
Number of Partners: At least 02 persons are required to form a partnership. There is
not limit of maximum partners in a partnership. But as per Sec 14 of Companies
Ordinance, 1984 partnership consisting of more than 20 persons can not be formed.
However, lawyers can form partnership more than 20 persons to carry on practice as
lawyer.
 Law of Partnership
Legal Entity: In order to form partnership, the partners must agree to carry on certain
business. If purpose is other than business, it can not be called partnership.
Sharing of Profit: A agreement between the partners must be to share the profit of a
business. Profit is to be distrusted among partners according to their agreements. If
there is no agreement that profit is distrusted equally among partners. Loss is also
shared according to agreed rates.
Mutual Agency: Business can be carried on by all the partners or any of them acting
for all the partners. Each partner act as agent of other partners. Again each partner
acts as principle also because he is bound to perform himself the activities of other
partners.
Unlimited Liability: The liability of all the partner is unlimited. All the partners are
individually and collectively responsible for the debt of business.
Capital: Generally, the capital for the partnership firm is provided by all the partners. It
is not compulsory that all partners contribute equal amount of capital and it
contributed according to the partnership agreement. A person without contribution
may become a partner of the bases of his ability, knowledge or experience.
 Law of Partnership
Utmost Faith: A partnership is based on mutual confidence and trust of partners. The
partners must be fair & honest with each other. All facts & true account related to
business must be shared. No secret profit is allowed.
Management: According of law, every partner can participate in the conduct and
management of partnership firm. Generally management work is divided amongst.
Partners major decision are taken with consultation.
Senior partner exercise overall control & supervision of business.
Control: Control of firm depends on terms of agreement. All partners take active part
in the conduct of business, major decisions are taken with consultation control can be
given to one or more partners.
Transfer of Ownership: Usually partnership deed includes provision regarding transfer
of ownership of partners. If no such provision is agreement, than partner cannot
transfer his ownership to outsider without consent of all others.
Duration: The partnership continues as long as the partners are willing to run the
business. It can finish due to death, insanity or insolvency of any partner. However, if
remaining partners agree to continue business make new agreement. The firm will not
dissolve.
 Law of Partnership
Utmost Faith: A partnership is based on mutual confidence and trust of partners. The
partners must be fair & honest with each other. All facts & true account related to
business must be shared. No secret profit is allowed.
Management: According of law, every partner can participate in the conduct and
management of partnership firm. Generally management work is divided amongst.
Partners major decision are taken with consultation.
Senior partner exercise overall control & supervision of business.
Control: Control of firm depends on terms of agreement. All partners take active part
in the conduct of business, major decisions are taken with consultation control can be
given to one or more partners.
Transfer of Ownership: Usually partnership deed includes provision regarding transfer
of ownership of partners. If no such provision is agreement, than partner cannot
transfer his ownership to outsider without consent of all others.
Duration: The partnership continues as long as the partners are willing to run the
business. It can finish due to death, insanity or insolvency of any partner. However, if
remaining partners agree to continue business make new agreement. The firm will not
dissolve.
 Advantages of Partnership
1. Easy formation
2. Larger Capital
3. Better Management
4. High Credit Standing
5. More Participation
6. Skilled Employees
7. Public Relation
8. Flexibility
9. Decision Making
10. Protection Minor Partner
11. Quick Decision
12. Sharing of Risk
13. Possibility of Expansion
14. Business Secrets
15. Spirit of Cooperation
16. Personal Supervision
17. Easy Dissolution
 Test of Partnership
In order to determine existence of partnership must be provide:-
1. There must be an agreement among the person to be held as partners.
2. The agreement must before doing some business.
3. The agreement must be share the profits of a business.
4. There must be a relationship of principle and agent among the partners.
5. There must be an agreement to carry on the business by all or any of them acting for
all.

Kind of Partners:
a) Active partner
b) Sleeping partner
c) Nominal partner
d) Senior partner
e) Junior partner
f) Partner in profits only
g) Secret partner
h) Minor partner
 Registration of Firm
The registration of partnership is not compulsory if the partners so desire they may get
their firm registered. The registration of firm is only a proof of the existence of the firm. It
does not provide any legal entity to the firm.

Procedure of Registration is as follow:

Submission of Application: An application in the prescribed form with prescribed fee is
submitted to the registrar of firms. The application must be signed by the partners. The
application must contain the following particulars:-
a) The name of the firm.
b) The principle place of the firm.
c) The name of other places where the firm carries on business.
d) The name and the addresses of the partners.
e) The partners date of joining the firm.
f) The duration of the firm , if any.
 Registration of Firm
Effects of Non-Registration
a) Suit by partner
b) Suit by firm
c) Suit by firm against partner
d) Suit by third party
e) No claim for adjustment
 Dissolution of Firm
The dissolution of a partnership is different from dissolution of a firm when one partner
dies, retires becomes insolvent but the remaining partners continue the business, it is
called dissolution of the partnership.
When the relationship between all the partners comes to an end and the is closed, it is
called dissolution of firm. It means that the dissolution of the firm includes the dissolution
of partnership, but the dissolution of the partnership may or may not include the
dissolution of the firm.

Grounds of Dissolution of Firm:

A firm may be dissolved on any one of the following grounds:
1) Dissolution by Agreement: A firm may be dissolved with the consent of all the partners
or in accordance with a contract between the partners. The agreement of the
dissolution may be oral or in writing. The consent of majority is not enough to dissolve
a partnership firm {Sec 40}.
2) Compulsory Dissolution: Compulsory dissolution takes place under following
circumstances:-
i. When all the partners are declared insdevent.
ii. When all except one of the partners are declared insolvent.
iii. When the business of the firm becomes un law full {Sec 41}.
 Dissolution of Firm
3) Contingent Dissolution: Subject to contract between the partners, a firm is dissolved on
the happening of the following event.
i. On expiry of fixed period for which the firm was formed.
ii. On completion of the project for which the firm was formed.
iii. On death of a partner.
iv. On insolvency of any partner.
v. On resignation of a partner.
4) Dissolution by Notice: When the partnership is at will the firm may be dissolved by
any partner giving notice in writing to all the other partners of his intention to
dissolve the firm. A notice of dissolution once given cannot be withdrawn without the
consent of other partners. The firm if dissolved from the date mention need in the
notice. If no date is mentioned it dissolved from date of communication of the notice.
{Sec 43}
5) Dissolution by Court: The courit decides about the dissolution of a firm if there is a
difference of opinion between the partners regarding the dissolution. For example,
when a partner has become insane, some of the partners are willing to continue while
others are insistency on the dissolution of firm. The court may dissolve a firm on any
of the following grounds.