PARTNERSHIP LAW
📘 PARTNERSHIP LAW IN INDIA
🔹 1. What is a Partnership?
A partnership is a relationship between two or more persons who agree to share the profits of a business carried on by all or any of them acting for all.
This definition comes from Section 4 of the Indian Partnership Act, 1932.
🔹 2. Key Elements of a Partnership
To form a valid partnership, five essential elements must be present:
| Element | Explanation |
|---|---|
| Agreement | Partnership arises from a contract (not status). |
| Two or More Persons | Minimum: 2 persons; Maximum: 50 (as per Companies Act, 2013). |
| Business | Must be a legal business. |
| Profit Sharing | Partners must agree to share profits (not necessarily losses). |
| Mutual Agency | Any partner can bind the firm, and each partner is an agent and principal. |
❗ If any one of these is missing, it’s not a valid partnership.
🔹 3. Types of Partnerships
| Type | Explanation |
|---|---|
| Particular Partnership | Formed for a single venture or project. |
| Partnership at Will | No fixed duration; can be dissolved anytime. |
| Fixed-Term Partnership | Exists for a specific time period. |
🔹 4. Types of Partners
| Type of Partner | Role |
|---|---|
| Active Partner | Takes part in daily operations. |
| Sleeping Partner | Contributes capital but doesn’t manage. |
| Nominal Partner | Lends name but no real interest. |
| Partner by Estoppel | Appears as a partner and is treated as one. |
| Minor Partner | Can be admitted to benefits only, not full liability. |
🔹 5. Rights of Partners (Under Sections 12 & 13)
Right to take part in business.
Right to equal share of profits (unless agreed otherwise).
Right to access books of account.
Right to be indemnified for expenses.
Right to interest on capital (only out of profits).
🔹 6. Duties of Partners
Duty to act in good faith.
Duty to be diligent and loyal.
Duty to avoid conflict of interest.
Duty to render true accounts and full information.
🔹 7. Liability of Partners
Unlimited Liability: Partners are personally liable for debts of the firm.
Joint and Several Liability: Creditors can sue all or any partner.
Even if a partner retires, they remain liable for prior acts unless notice is given.
🔹 8. Registration of Firm
Not mandatory, but an unregistered firm cannot sue to enforce rights arising from the contract (Section 69).
Registration is done with the Registrar of Firms in the state.
🔹 9. Dissolution of Partnership
Dissolution of Partnership vs. Dissolution of Firm:
| Dissolution of Partnership | One partner leaves; firm continues. |
|---|---|
| Dissolution of Firm | Entire firm is wound up. |
Causes of Dissolution:
By agreement
By notice (in partnership at will)
On insolvency or death
By court order (Section 44)
🔹 10. Important Case Laws
✅ Cox v. Hickman (1860)
Principle:
A person sharing profits is not necessarily a partner unless there is mutual agency.
✅ Champaran Cane Concern v. State of Bihar (1963)
Held:
Sharing profits alone does not prove partnership; the intention to act as partners matters.
✅ Mollow, March & Co. v. The Court of Wards (1872)
Held:
A minor can be admitted to the benefits of partnership but cannot be made liable.
✅ Suresh Kumar Sanghi v. Amit Kumar (1981)
Held:
If a person behaves like a partner and lets others believe he is, he becomes a partner by estoppel.
🔹 11. Partnership vs. Company
| Basis | Partnership | Company |
|---|---|---|
| Formation | By agreement | By registration (mandatory) |
| Legal status | No separate legal entity | Separate legal entity |
| Liability | Unlimited | Limited (in most cases) |
| Continuity | Ends on death/insolvency of partner | Perpetual succession |
✅ Quick Recap Mnemonic: "MAP-LAW"
To remember key elements of partnership:
M – Mutual Agency
A – Agreement
P – Profit sharing
L – Lawful business
A – At least two persons
W – Written or oral contract
⚖️ Conclusion
The Partnership Act, 1932 provides a simple and flexible structure for doing business, especially suitable for small or medium ventures. The idea of mutual trust and agency lies at the heart of partnership law, but the personal liability and lack of perpetual existence are major limitations compared to a company structure.
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