PARTNERSHIP
The partnership doesn't create a separate legal unit; a partnership is just a grouping of individual. Partnership is thus an extension of sole proprietorship.
FEATURES OF PARTNERSHIP FIRMS
1. Two or more persons: There must be at least two persons to form a partnership. The maximum number of persons in a partnership should not exceed 10 in case of banking business and 20 in other types of business. A firm cannot become a partner of another firm though its partners can join any other firm as partners.
2. Agreement: Partnership is the outcome of an agreement between persons. The relation of partnership arises from the formation of a contract.
3. Lawful business: A partnership can be formed only for the purpose of carrying on a business.
4. Sharing of profits: The agreement between the partners must be to share the profits of business.
5. Mutual agency: Partnership business can be carried on by all the partners or by any of them acting on behalf of the others.
6. Utmost good faith: The relations between partners are based upon mutual trust and confidence.
7. Unlimited liability: Every partner is jointly and severally liable to an unlimited extend for the debts of the partnership firm.
8. Restriction on transfer of interest: No partner can transfer his share in the partnership without the prior consent of all other partners.
9. Joint ownership and control: A partnership is owned and controlled jointly by all the partners.
10. Separate entity: A partnership firm has no legal entity separate from the partners.
FORMATION OF PARTNERSHIP FIRM- PARTNERSHIP DEED
A partnership can be formed by two or more persons. Even the registration of partnership is not compulsory. This relationship is based upon mutual trust and good faith. The agreement between the partners is to carry on a lawful business and to share the profits therefrom. In order to avoid disputes, the agreement should be in writing, Though the law does not require the agreement to be in writing. In the absence of such an agreement the rights and duties of partners are determined by the partnership Act 1932.
PARTNERSHIP DEED
It is a document containing the terms and conditions of a partnership. It defines the rights, duties and obligations of partners and governs relations among them in the conduct of business affairs of the firm. It is not a public document. A written agreement is helpful in preventing and resolving disputes among the partners.
A partnership deed usually contains the following clauses:
1. Name of the Firm.
2. Nature of the firm's business
3. The principal place of business
4. Duration of partnership, if any
5. Names and addresses of partners.
REGISTRATION OF PARTNERSHIP
Registration of a partnership firm is not compulsory under law. The Partnership Act 1932 provides that if the partners so desire they may register the firm with the registrar of firms of the state in which the main office of the firm is situated. A firm may be registered at the time of its formation or at any time thereafter.
PROCEDURE FOR REGISTRATION
In order to get a partnership firm registered an application in the prescribed form must be filed with the Registrar of firms. The application should contain the following information:
1. The name of the firm
2. The principle place of business of the firm
3. Names of other places where the firm's business is carried on
4. The date on which each partner joined the firm.
5. Duration of partnership, if any.
TYPES OF PARTNERSHIP
There are four kinds of partnership:
1. General Partnership : In a general partnership, the liability of each partner is unlimited. In India all partnership firms are general partnerships. Each partner of a general partnership is entitled to take active part in the management of the firm, unless otherwise decided by the other partners.
2. Limited Liability Partnership (LLP) : Limited partnership is not allowed in India under the Limited Liability Partnership Act, 2008. The chief characteristics of a limited liability partnership are as follows:
1. A limited liability partnership must be registered under the Act with a minimum of two partners. There is no limit on the maximum number of partners.
2. An LLP is a body corporate having a separate legal entity and perpetual succession.
3. In an LLP the liability of partners is limited to their agreed contributions to the LLP. No partner is liable on account of any unauthorised or independent actions of other partners.
4. An LLP must maintain annual accounts reflecting the true and fair view of its state and affairs.
ADVANTAGES
1. An LLP is a separate legal entity independent of the partners. It is capable of owing and holding property in its own name.
2. It is much more stable than a general partnership because it is not dissolved by the retirement, insolvency, death, etc. of a partner. It enjoys perpetual existence.
3. The Liability of partners in LLP is limited, they have not to take unlimited risk.
4. A body corporate can be a partner in LLP.
5. A partner is not liable for unauthorised acts of other partners.
DISADVANTAGES
1. It cannot raise capital from the public.
2. There is less secrecy of business affairs as it has to fulfil legal requirements.
3. There is less flexibility of operations due to some legal formalities.
3. PARTNERSHIP AT WILL : It is a partnership formed for an indefinite period. The time period or the purpose of the firm is not mentioned at the time of its formation. It can continue for any length of time depending upon the will of the partners. It can be dissolved by any partner by giving a notice to the other partners of his desire to quit the firm.
4. Particular partnership : It is a partnership formed for a specific time period or to achieve a specified objective. It is automatically dissolved on the expiry of the specified period or on the completion of the specific purpose for which it was formed.
TYPES OF PARTNERS
1. Active or working partner : Such a partner contributes capital and also takes active part in the management of the firm.
2. Sleeping or dormant partner : A sleeping or silent partner simply contributes capital. He does not take active part in the management of the firm. He shares in the profits or losses of the firm. His liability for the firm's debts is unlimited. He is not known to the outside world.
3. Secret partner : This type of partner contributes capital and takes active part in the management of the firm's business. He shares in the profits and losses of firm and his liability is unlimited. However, his connection with the firm is not known to the outside world.
4. Limited partner : The liability of such a partner is limited to the extend of his share in the capital and profits of the firm. He is not entitled to take active part in the management of the firm's business.
5. Partners in the profits only : He shares in the profits of the firm but not in the losses. But his liability for the firm's debts is unlimited. Such a partner is associated for his money and goodwill.
6. Nominal or ostensible or quasi partner : Such a partner neither contributes capital nor takes part in the management in the business. He does not share in the profits or losses of the firm. A nominal partner can be of two types :
(a) Partner by estoppel : A person who by his words or conduct represents himself as a partner becomes liable to those who advance money to the firm on the basis of representation.
(b) Partner by holding out : When a person is declared as a partner and he does not deny this even after becoming aware of it, he becomes liable to third parties who lent money or credit to the firm on the basis of such a declaration.
7. Minor as a partner : A minor is a person who has not completed 18 years of age. A minor cannot become a partner because he is not qualified to enter into a contract.
8. Sub partner : He is a third person with whom a partner agrees to share his profits desired from the firm. He does not take part in the management of the firm. He is not liable for the firm's debts.
RIGHTS AND OBLIGATIONS OF PARTNERS
The rights and obligation of partners are generally laid down in the partnership deed. In case the partnership deed does not specify them, then the partners will have rights and obligations prescribed in the Partnership Act. These are given below :
RIGHTS OF PARTNERS
1. Right to take part in the conduct and management.
2. Right to be consulted and express his opinion.
3. Right to have access to, inspect and copy any books of accounts.
4. Right to an equal share in the profits.
5. Right to receive interest on loans and advances.
DUTIES AND LIABILITIES OF PARTNERS
1. Every partner must act in a just and faithful manner towards each other.
2. Every partner must act within the scope of the authority entrusted to him.
IMPLIED AUTHORITY OF A PARTNER
A partner has the implied authority to do the following acts on behalf of his firm :
1. To buy, sell and pledge goods on behalf of the firm.
2. To raise loans on the security of such assets.
3. To receive payments of debts due to the firm.
4. To engage servants for the firm's business.
However, a partner has no implied authority, unless otherwise expressed in the partnership deed, in the following matters :
1. To submit a dispute relating to the firm to arbitration.
2. To withdraw a suit or proceeding filed on behalf of the firm.
DISSOLUTION OF PARTNERSHIP FIRMS
A partnership firm may be dissolved in any of the following ways :
1. Dissolution by agreement
2. Dissolution by notice
3. Contingent dissolution : A firm may be dissolved on the happening of any of the following contingencies :
1. On the expiry of the term, if it is for a fixed period.
2. On the death of a partner.
3. On the adjudication of a partner as insolvent.
4. Compulsory dissolution : A firm stands automatically dissolved in the following cases :
1. When all partners or all but one partner are declared insolvent.
2. When the business of the firm becomes unlawful due to the happening of an event.
5. Dissolution through Court : Court may order the dissolution of a firm in the following cases :
1. When a partner becomes of unsound mind.
2. When a partner becomes permanently incapable of performing his duties as a partner.
MERITS OF PARTNERSHIP
1. Ease of formation
2. Larger financial resources
3. Combined abilities and judgement
4. Direct motivation
5. Close supervision
6. Flexibility of operations
7. Secrecy
8. Protection of minority interest
9. Cooperation
10. Scope for expansion
DEMERITS OF PARTNERSHIP
1. Limited Resources
2. Unlimited Liability
3. Uncertain Life
4. Conflicts
5. Risk of implied authority
6. Restriction on transfer of interest
7. Reduced public confidence
8. Lack of secrecy
9. Suitability..
TO BE CONTINUED IN INSTAMOJO BOOK