Indian Partnership Act .1932
Preamble—Scope And Purpose
The preamble is an admissible aid to construction . It throws light on the intent and design of the legislature and indicates the scope and purpose of the legislation itself.But it cannot be used to control or qualify precise and unambiguous language of the enactment . It is only when there is a doubt as to the meaning of a provision, that recourse may be had to the preamble to ascertain the reasons for the enactment and hence, the intention of Parliament.

Scope:
The scope of a partnership is primarily a question of the intention of the partners. There is no restriction on the exercise of such powers as it chooses at any time to exercise, except such prohibitions on illegal, immoral or fraudulent conduct as apply equally to individuals.
1- A partnership may itself be a member of another firm if the partners of the constituent firm consent thereto.

2- If it appears that all the partners have either authorized or ratified the contract, no further question as to its validity ordinarily remains. The cases where the question of the validity of partnership contract arises is where one partner has made the contract without specific authority from his co-partners. As to their implied scope partnerships may he divided into the classes of the non-trading and the trading. Some powers can be exercised by partners in partnership of either type. Thus a partner may retain an attorney protect the interests of the firm.

Definition Of Partnership:
Section 4 of the Indian Partnership Act ,1932 defines ‘Partnership’ as under :
‘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 ’

Essentials Of Partnership :
According to Section 4, the following essentials are necessary to constitute a ‘Partnership’.
1. There should be an agreement between the persons who wants to be partners.
2. The purpose of creating partnership should be carrying on of business
3. The motive for the creation partnership should be earning and sharing profits.
4. The business of the firm should be carried on by all of them or any of them acting for all, i.e., in mutual agency

When all the above elements are present in certain relationship that is known as ‘partnership’. Persons who have entered into partnership with one another are called individually ‘partners’ and collectively ‘a firm’ and the name under which their business is carried on is called the ‘ firm name’.

Elements Of ‘Partnership’:
The definition of ‘partnership ‘ contains three elements :
1. There must be an agreement entered into by all the persons concerned.
2. The agreement must be to share the profits of business ; and
3. The business must be carried on by all or any of the persons concerned , acting for all.

What Is The Nature Of Partnership?
Partnership is a form of business organization , where two or more persons join together for jointly carrying on some business. It is an improvement over the ‘Sole –trade business ’, where one single individual with his own resources, skill and effort carries on his own business. Due to the limitation of resources of only a single person being involved in the sole-trade business , a larger business requiring more investments and resources than available to a sole-trader, cannot be thought of in such a form of business organisation. In partnership, on the other hand , a number of persons could pool their resources and efforts and could start a much larger business, than could be afforded by any of these partners individually . In case of loss the burden gets divided amongst various partners in a Partnership.

Criteria Of Partnership :
Any two or more than two persons can join together for creating Partnership. Section 11 of the Companies Act , 1956 imposes limit as to maximum number of persons in a partnership for the purpose of carrying :
Banking Business – There can be maximum of 10 persons.

If the number of members in any association exceeds the above stated limit , that must be registered as a company under Companies Act ,1956 otherwise that will be considered to be an illegal association.

As against partnership, where the maximum number of partners can be 10 or 20 , depending on the nature of partnership business, there could be possibly much larger number of members in a company.
· In Private Company – Here there can be maximum of 50 members
· In Public Company - Here there is no such limit to the maximum number.

Duties of Partners

Duty to act in good faith
The partners must act in good faith for the greater common advantage. The partner has to work for more profit for the company. The partner should not receive secret profits at cost. A partner must provide real accounts and complete information on all matters affecting the company to any partner or his legal representative. This is an absolute condition and it is not possible for any partner to contract himself even by an agreement with other partners. Destiny continued even after the partnership ceased. The partners are indebted to the ex-partner along with the legal representatives of the partner.

Duty to Render true accounts
According to this act, the partners are committed to disclosing and providing complete information about matters affecting the organization to any partner or his or her legal representatives. The partner should not hide things from other co-partners regarding the business of the company. Each and every partner can access the accounts of the company.

Duty to Indemnify for fraud
If there is any loss in the business of the company due to the action of the partner, he must pay compensation to his partner for such loss. The reason for this duty is to make partners to deal with costumers honestly and fairly. Conversely, the liability to indemnify for fraud is not excluded by entering a contract. Because entering any such agreement is against public policy. This provision is absolute. This is not subject to terms of contract between partners. The provision in the partnership deed that exempts a particular partner from liability for damages caused by his fraud is invalid and will not be enforced.

Duty not to compete
This act states that if a partner makes a profit by participating in an equivalent or competing business with the company, the partner must account such profits. However, the partner can pursue any business outside the business scope of the company. The duty can be changed by the deed of partnership. Partners can enter into an agreement that allows the partner to pursue a business that competes with the business or restricts the partner from conducting business other than the company. (Section 11 of Indian Contract Act). If a person violates such agreement and conducts a personal business that does not compete with the business of the company, such partner is not liable to calculate profits, but his co-partners may apply to terminate the partnership.

Duty to be Diligent
A partner must be diligent in his duties. For mere errors of judgment or acts done in good faith, a partner cannot be made liable.

Duty to properly use the property of the firm
This act states that the property of the company should be owned and used by the company only for the business of the company. If a partner does not use the property for his personal benefit and does so, he is liable to all co-partners. May make him liable for damages caused by such use. This duty can be avoided by entering an agreement to the contrary.

Duty to account for personal profits
If a partner uses the company's property and makes a profit from it, he must account for the property. This duty arises due to the fiduciary relationship between the partners.

Rights of Partners - Rights of Partners inter se
Partners may exercise the following rights under the Act if the partnership deed does not specify:

The conduct of Business
Right to take part in the conduct of Business
All the partners of a partner company have the right to participate in the business conducted by the company, because the partnership business is the business of the partners, and their management powers are generally coexisting. If the management power of a particular partner interferes and the person is wrongly excluded from participation, the court may intervene in such circumstances. The court may restrain the other partner from doing so by prohibition.

Right to be consulted
When any kind of difference arises between the partners of the company with respect to the business of the firm, it is determined by the majority views of the partners. Every partner in the organization has the right to express his or her opinion before making a decision. However, there can be no such changes as the business of the organization without the consent of all the partners involved. As a general rule, the opinion of most partners is prevalent. However, the majority rule does not apply when there is a change as an organization. In such cases, the unanimous consent of the partners is required.

Right of Access to books
Each partner of the organization, regardless of active or sleep partner, has access to any books of the partner company. The Partner reserves the right to examine and obtain a copy thereof if necessary. However, this right must be exercised by Bonafide.

REGISTRATION & DISSOLUTION OF A FIRM

1. Registration

a) Application for registration – The registration of a fi­rm may be affected at any time by sending by post or delivering to the Registrar of the area in which any place of business of the fi­rm is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed fee, stating:

• The fi­rm’s name
• The place or principal place of business of the ­firm
• The names of any other places where the ­rm carries on business
• The date when each partner joined the fi­rm
• The names in full and permanent addresses of the partners, and
• The duration of the ­firm

b) A ­Firm name shall not contain any of the following words, namely:

‘Crown’, Emperor’, ‘Empress’, ‘Empire’, ‘Imperial’, ‘King’, ‘Queen’, ‘Royal’, or words expressing or implying the sanction, approval or patronage of Government except when the State Government signifies its consent to the use of such words as part of the ­firm-name by order in writing

c) Registration – When the Registrar is satisfied that the provisions of the Act have been duly complied with, he shall record an entry of the statement in a register called the Register of Firms, and shall ­file the statement.

d) Late registration on payment of penalty – If the statement in respect of any ­firm is not sent or delivered to the Registrar within the time specified in the Act, then the firm may be registered after a payment of a penalty of Rs.100/- per year of delay or a part thereof.

2. Consequences of Non-registration

The Indian Partnership Act does not make the registration of ­firms compulsory nor does it impose any penalty for non-registration. Although registration of ­firms is not compulsory, yet the consequences or disabilities of non-registration have a persuasive pressure for their registration.

These disabilities briefly are as follows:

• No suit in a civil court by firm or other co-partners against third party
• No relief to partners for set-o­ff of claim – If an action is brought against the ­firm by a third party, then neither the ­firm nor the partner can claim any set-off, if the suit be valued for more than Rs. 100 or pursue other proceedings to enforce the rights arising from any contract.
• Aggrieved partner cannot bring legal action against another partner or the firm
• Third party can sue the firm

Exceptions – Non-registration of a fi­rm does not, however affect the following rights:

• The right of third parties to sue the ­firm or any partner.
• The right of partners to sue for the dissolution of the fi­rm or for the settlement of the accounts of a dissolved fi­rm, or for realization of the property of a dissolved ­firm.
• The power of an Official Assignees, Receiver of Court to release the property of the insolvent partner and to bring an action.
• The right to sue or claim a set-off if the value of suit does not exceed Rs. 100 in value.

3. Dissolution

a) The dissolution of ­firm means the discontinuation of the jural relation existing between all the partners of the ­firm.

b) But when only one or more partners: retires or becomes incapacitated from acting as a partner due to death, insolvency or insanity, the partnership,
i.e. the relationship between such a partner and other is dissolved, but the rest may decide to continue.In such cases, it is called dissolution of partnership.

c) In the case of dissolution of the fi­rm, the partnership terminates as between each and every partner of the ­firm.

d) The dissolution of partnership ­firm may be in any of the following ways:

i) Dissolution without the order of the court or voluntary dissolution:

Dissolution by agreement – ­A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners.

Compulsory dissolution – A ­firm is compulsorily dissolved by the happening of any event which makes it unlawful for the business of the ­firm to be carried on or for the partners to carry it on in partnership.

Dissolution on the happening of certain contingencies – Subject to contract between the partners, a ­firm can be dissolved on the happening of any of the following contingencies where:

• the firm is constituted for a fixed term, on the expiry of that term
• the firm is constituted to carry out one or more adventures or undertaking, then by completion thereof
• by the death of a partner
• by the adjudication of a partner as an insolvent

Dissolution by notice of partnership at will – Where 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.
If the date is mentioned, the ­firm is dissolved as from the date mentioned in the notice as the date of dissolution, or if no date is so mentioned, as from the date of the communication of the notice.

ii) Dissolution by court

Court may, at the suit of the partner, dissolve a ­firm on any of the following ground:

• Insanity/unsound mind
• Permanent incapacity
• Misconduct
• Persistent breach of agreement – example; embezzlement, Keeping erroneous accounts, etc.
• Transfer of interest
• Continuous/Perpetual losses
• Just and equitable grounds – example; Deadlock in the management, Where the partners are not in talking terms between them, etc.

4. Consequences of Dissolution

Consequent to the dissolution of a partnership ­firm, the partners have certain rights and liabilities as follows:

a) Liability for acts of partners done after dissolution

It seeks to protect third parties dealing with the fi­rm who had no notice of prior dissolution.
It also seeks to protect partners of a dissolved ­firm from liability towards third parties.
Exception – even where notice of dissolution has not been given, there will be no liability for subsequent acts in the case of:

Estate of a deceased partner
An insolvent partner
A dormant partner

b) Right of partners to have business wound up after dissolution – On the dissolution of a fi­rm every partner or his representative is entitled, as against all the other partners or their representative, to have the property of the ­firm applied in payment of the debts and liabilities of the ­firm, and to have the surplus distributed among the partners or their representatives according to their rights.

c) Continuing authority of partners for purposes of winding up

Provided that the ­firm is in no case bound by the acts of a partner who has been adjudicated insolvent.

d) Settlement of partnership accounts – The assets of the ­firm, including any sums contributed by the partners to make up de­ficiencies of capital, must be applied in the following manner and order:

• In paying the debts of the ­firm to third parties;
• In paying to each partner what is due to him from capital;
• In paying to each partner what is due to him on account of capital; and
• The residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.

e) Payment of firm debts and of separate debts – Where there are joint debts due from the fi­rm and also separate debts due from any partner:The property of the ­firm shall be applied in the ­first instance in payment of the debts of the ­firm, and if there is any surplus, then the share of each partner shall be applied to the payment of his separate debts or paid to him;

f) The separate property of any partner shall be applied fi­rst in the payment of his separate debts and surplus, if any, in the payment of debts of the ­firm.