Sharing of profit by partners is a must but that alone will not suffice as a test of partnership
- Sec 4- agreement, purpose- business, motive- share of profits, mutual agency
- Cox vs hickman- person sharing the profit do not always incur the liablity of partner unless the real relationship between them is that of partner. This is encapsulated in sec 6
- Sec 6- test of partnership- all relevant facts as to the real relationship between the parties must be considered
- Propety
- If the recipient of profit is
a. Money lender
B. Servant or agent
C. Widow and child
D. By prev owner
Who is a partner framework
- Sec 4
- Competent to contract - minor
- HUF cannot be - “persons” Not body of person
- Partnership firm - not a legal person
- Company can
- Sec 34- insolvents -
- Sec 6 some specific person who cannot, though they are sharing profit - money lender, agent, wife, previous owner
Indian partnership act has effectively ensured registration of partnership without making it compulsory
- Sec 58- Partnership registration is optional, not mandatory.
- Sec 69- effect of non registration
A. No right to sue firm or any partner
B. Enforce a contract against 3rd party
C . Claim set off above rs 100/- in a suit - Exception
A. Rt of third party to sue a firm
B. Rt of the partner to sue for dissolution of the firm
C. Rt to sue 3rd party for infrignent of patent rts
D suit for less than 100 rs set off
E. Rt of an official receiver to realise property of an insolvent partner
F. Registration is not necessary for a suit wrt to tort commited by a partner
Rationale: Small/family-run businesses can operate without immediate legal formalities. However, By denying key legal remedies, the law pushes firms to register voluntarily.
Sec 30 provides for certain benefits of minor
Indian Partnership Act balances protection of minors with business continuity by allowing admission to benefits.
- Minors admission to benifits of partnership- but require consent of all members, inspect books, not personally liable
- Option on attaining majority - within 6 months - elect to or not become- by public notice.
bop that he had no knowledge about partnership until a particular date after 6 months will fall on the person ascertaining that fact
- Minors position if he elects
A. Personally liable
B. Share in profits will be the share to which he was entitled as minor - Doesn’t
A. No further liablity - Holding out on minor attaining majority- then liaable
Holding out is an extension of principle of estoppel
Poe- if a person by his representation as a partner of the firm induces the other party to do some act which he wouldn’t have otherwise then then he is estopped from denying what he asserted earlier
Ho- extension of poe
Sec 28
1. If he himself or knowingly permits somebody else to represent himself as partner
Ex: in newspaper that he is partner. B didn’t know. Doctrine of HO won’t apply
2. The 3 rd party who wants to bring an action must have acted on faith of this representation
Different
- Poe- himself
- Exceptions - deceased partner, insolvent , dormant
Partner is both an agent and a principal
- Sec 18
Partner bribes peon of competition to leak details. All liable - Sec 13- indeminify- ordinary and proper conduct, emergency situation
- Partner shall indeminify the firm for loss by his wilful neglect
Principal
1. Sec 25 - every partner is liable jointly and severally for the acts of the firm
2. Sec 26 - firm liable for the wrongful act of partners
Cox vs Hickman - partner virtually embraces the character of both principal and agent. They are bound by each others contract in carrying trade as much as a single principal by the act of his agent
Dissolution of the firm vs dissolution of partnership
Keyword- reconstitution vs winding up
- Continuation of business
- winding up - realisation of assets and settlement of liabilities vs on revaluation ( since it’s reconstitution )
- May or may not involve court order vs court doent order-Happens automatically on events like retirement, admission, or death.
- Scope - dissolution of firm necessarily involves dissolution of partnership
- Final closure of books
examples
Dissolution of partnership firm w/o court intervention 4 ways
Sec 40-43
- Mutual agreement between the partners
- Compulsory dissolution- ex : law making the business unlawful
- Contingency - fixed time , objective, death, insolvency
- dissolution by notice when partnership at will
7 cases- dissolution of partnership by court
On application of petition by partner , court can order dissolution in the following cases
1. Insanity - any including the insane. In the interest of safety of such partner and other partners
- Permanent Incapacity -
- Misconduct - which makes it difficult for the firm to operate. Need not be directly connected to the business of the firm
Snow vs Milford - adultery of one partner with several women in the city of banks business not a ground for dissolution because money safe with the bank - Persistent Breach of contract - making it impractical for other Ex: routinely holding more money than allowed under partnership deed
- Transfer of interest to a third party
- Business in perpetual loss
- Just and equitable grounds - complete deadlock in mgmt because partners not in speaking terms , continued quarrelling
Rights of partners post dissolution-Dissolution of firm → Partnership between all partners ends , but winding‑up duties and rights continue.
- Right of general lien
- to have firms property applied in payment of firms debts
- surplus
- premium paid - except when dissolution because of misconduct of premium paid person, agreement such that no need to pay premium - In case of dissolution on account of fraud or misrepresentation
- entitled to be ranked as a creditor
- entitled to be indemnified
- rt to surplus assets - Continuing authority of partners after dissolution- to wind up affairs, complete unfinished transaction
- Right to restrain unauthorized use of firm name/property
- Mode of settlement of accounts post dissolution
A. Joint debt
B. Advances as distinguished from capital
C. To partners
D. Surplus - profit entitlement
Liabilities post dissolution
- For all the acts of the firm until public notice
- Duty to wind up affairs
- Partner using firm name or property for own benefit must account for profits to others.
- Duty to distribute assets:firm debts → partners’ advances → capital → surplus in profit ratio.
- Partners must cooperate in settlement and avoid prejudicing other partners.
Right of outgoing partner
Sec 36 and 37
- May carryon a competing business, provided
- doesn’t use the name
- represent himself as carrying on
- solicit the custom of person - May make an agreement to not carryon a similar business - specified time and specified limit
- Entitled to profit if the surviving partners without final settlement of payments continue using the assets of partnership
