Introduction
The Indian Partnership Act, 1932 governs 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.
Definition of Partnership
As per Section 4 of the Act:
“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.”
Key Elements:
- Agreement between two or more persons
- Sharing of profits
- Mutual agency (business conducted by all or any one of them acting for all)
Types of Partners
- Active Partner: Takes active part in business.
- Sleeping Partner: Invests capital but does not take part in day-to-day operations.
- Nominal Partner: Lends their name to the firm but does not contribute or participate.
- Partner by Estoppel: Not a real partner but behaves in a way that third parties assume them to be a partner.
- Minor Partner: Admitted to the benefits of partnership with consent of all partners.
Types of Partnership
- Partnership at Will: No fixed duration; can be dissolved anytime.
- Particular Partnership: Formed for a specific venture or time period.
Rights of Partners
- To take part in business
- To share profits
- To access books of account
- To be indemnified for expenses
- To receive interest on capital (if agreed)
Duties of Partners
- To act honestly and in good faith
- To render true accounts
- To not make secret profits
- To attend diligently
- To use firm’s property for firm’s business only
Relations of Partners with Third Parties
- Every partner is an agent of the firm and other partners
- Acts of partners bind the firm (in the ordinary course of business)
- Firm is liable for wrongful acts of a partner done in the course of business
Registration of Firm
- Not compulsory, but unregistered firms face limitations:
- Cannot sue other partners or third parties
- Cannot claim set-off in suits
- Registration is done by filing a statement with the Registrar of Firms
Dissolution of Firm
- By Agreement
- Compulsory Dissolution (e.g., all partners become insolvent)
- On Contingencies (e.g., expiry of term, completion of venture)
- By Notice (in case of partnership at will)
- By Court (due to misconduct, incapacity, etc.)
Differences: Partnership Firm vs Company
| Basis | Partnership Firm | Company |
|---|---|---|
| Registration | Optional | Mandatory |
| Legal Entity | Not a separate entity | Separate legal entity |
| Liability | Unlimited | Limited |
| Governing Law | Partnership Act, 1932 | Companies Act, 2013 |
Mind Map (Text Format)
Partnership Act, 1932
→ Definition
↳ Relationship of persons sharing profit
↳ Mutual agency
→ Types of Partners
↳ Active
↳ Sleeping
↳ Nominal
↳ Estoppel
↳ Minor
→ Types of Partnership
↳ At Will
↳ Particular
→ Rights & Duties
↳ Access to books, share profits, be indemnified
↳ Act in good faith, no secret profit
→ Partner & Third Parties
↳ Partner = agent
↳ Firm liable for partner’s acts
→ Registration
↳ Not compulsory
↳ Unregistered firm = limited rights
→ Dissolution
↳ Agreement, Notice, Court Order, Insolvency
→ Firm vs Company
↳ Optional vs Mandatory Registration
↳ No separate entity vs Separate legal entity