Business Law-Chapter 1....Law of partnership.pdf

8/14/2019 Business Law-Chapter 1....Law of partnership.pdf

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Contents

ChapterI Pages

1.0 The Law of Partnership 3

1.1 Definitions of Partnership 6

1.2 The Essential Elements of a Partnership 7

1.2.1 There must be an agreement entered into by all the persons 8

Concerned

1.2.2 The agreement must be to share the profits of a business 12

1.2.3 Carried on by all or any of them acting for all 14

1.3 Distinguish between Partnership and Company 17

1.4 Mode of Determining the Existence of Partnership 20

1.5 Different Kinds of Partnership 27

1.5.1 Ordinary Partnership 28

1.5.2 Partnership atwill 28

1.5.3 Particular Partnership 30

1.6 Property of the Partnership Firm 31

1.7 Relationship of Partners 34

1.7.1 Relationship of Partners to One Another 34

1.7.2 Relationship of Partners to Third Parties 35

1.7.2.1 Implied Authority 37

1.7.2.2 Partnership by Holding Out 45

1.7.3 Minor Benefits to Partnership 48

1.7.3.1 Rights 49

1.7.3.2 Duties 52


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1.8 Reconstitution of a Partnership Firm 54

1.8.1 Introduction of a Partner 55

1.8.2 Retirement of the Partner 551.8.3 Expulsion of Partner 63

1.8.4 Insolvency of a Partner 641.8.5 Death of a Partner 651.8.6 Transfer of a Partner's Interest 661.9 Dissolution of a Firm (Partnership) 67

1.9.1 Modes of Dissolution of a Firm 68

1.9.1.1 Dissolution by Agreement 68

1.9.1.2 Compulsory Dissolution 69

1.9.1.3 On the Happening of Certain Contingencies 70

1.9.1.4

By Notice of a Partnership At will 701.9.1.5 By the Court 721.9.2 Division of Profits and Losses upon Dissolution 74

1.9.3 Sale of Goodwill after Dissolution 77

1.9.3.1. Rights of Buyer and Seller of Goodwill 79

1.10 Registration of a Firm 81

1.10.1Application for Registration 851.10.2 Effect of Registration 87

1.10.3 Effects of Non-registration 91


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Chapter 1

1.0 The Law of PartnershipIn our day to day life we usually enter into contracts for

commercial and non-commercial purposes. A contract is an agreement creating

and defining obligations between the parties. Partnership also includes contrasts

for commercial purposes. As soon as commerce develops beyond the most

elementary stage, merchants begin to find it desirable to carry on their business

in association. They may form loose associations for the purposes of carrying

through some particular enterprises, sometimes called syndicates, or more stable

groups intended to subsist for longer periods, called partnership.

In Myanmar the Partnership Act was enacted as India Act IX of 1932 on

the date of 1stOctober, 1932. In the Act there are altogether VIII Chapters and

74 sections.


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1

2

The relation of partnership arise from contract and not from status -

The Section 5 of the Partnership Act, provide that, "the relation ofpartnership arise from contract and not from status". Therefore, partnership canonly arise as a result of a contract between the parties and not from status. So,

when a person agrees with another to share the profits of a business, to be

carried on by them together, the partnership arising from such agreement is said

to be outcome of contract.

Jointor co-ownershipdoes not itself create partnership whether the ownerdoes or not share any profits made by the use of the thing owned. Partnership is

necessarily the result of agreement. Co-ownership is not the result of contract.

1Partnership Act (1932) Act No. 9

2The Myanmar Code Vol. 9 Page 171


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For example:-

Husband and wife are co-owners of the house but they are not partners.

Although rent will be shared equally between them, it is only matrimonial right

conferred by law. If they made an agreement to do hotel business by their house

and to share the profits equally from such business there husband and wife are

partners of such business.

-

In particular Myanmar Buddhist husband and wife carrying on business

are not partners. Similarly the members of a Hindu undivided family carrying

on business are not partners.


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3

1.1Definitions of Partnership

Partnership is defined as "the relation which subsists betweenpersons carrying on a business in common with a view of profit."1

Section 239(d) of the Indian Contract Act2defined that "Partnership is

the relation which subsists between persons who have agree to combine their

property, labor or skill in some business, and to share the profits there of

between them.

3

In Myanmar Naing-Ngan, the term "Partnership" is defined by thePartnership Act4, Section 4 as "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.

3Hindu undivided family

1The Partnership Act of 1890 Section (1)

2

Indian Act No. (9) of 18723Contract Act (1872) sce: 239

4Indian Act No. (9) of 1872


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Therefore, persons who have entered into partnership with one another

are called individually 'partners' and collectively 'a firm' and the name underwhich their business is carried on is called the "firm name".

fir

1.2The Essential Elements of a Partnership

The definition of "Partnership" under section 4 contains theessential element of the relationship of Partnership as follow:-

(1) There must be an agreementbetween two or more persons.

4

(2) The agreement must be with the intention to forma partnership business andto share the profitsof that business.

(3) The business must be carried on by all or any of them acting for all.

4Agreement


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All these elements must be present before a group of associates can be

held to be partners. These elements may appear to overlap, but they are

nevertheless distinct. The first element relates to the voluntary contractual

nature of partnership; the second gives the motive which leads to the formation

of firms; and the third shows that the persons of the group who conduct the

business as age for all the persons in the group, and are therefore liable to

account for all.

1.2.1 There must be an agreement entered into by all the personsconcerned

5

This element shows that a partnership is formed by an agreement, either

express or implied. It may be either in writing or oral or be inferred by the

conduct of the parties who are said to be in such a relationship.

5 Agreement


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6 7 8

9

A business without agreement, whether intends to do partnership or not,

must be assumed by the conduct of persons, which was decided in the case of

Koo Gyee Hoke and six others vs. Wee Tin Shan and four others . In this case apartnership firm by the name of "Sin Eng Choon"

1

was established some 70years of age. There were only two partners called "Koo Ban Pan" and "Wee Po

Ee". Wee Po Ee died in 1892 and Koo Ban Pan's conduct since the time of Wee

Po Ee's death had all along been in the nature of a sole poprietorship. But Daw

Khet, wife of Wee Po Ee enjoyed a defined share of the profits of the business

of Sin Eng Choon. Section 42 provides that unless there is no contrary term, a

partnership firm formed only two persons is dissolved when a partner dies. Daw

Khet, even enjoyed a defined share of the profits of that business there was no

testimony regarding the agreement between Daw Khet and Koo Ban Pan since

Wee Po Ee died. Therefore, in the absence of any testimony regarding property

6 Expressed

7 Oral

8

Implied9 Conduct

1 1967. B.L.R. (C.C) P.170


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of the firm, it cannot be said that Daw Khet became a partner. After the death of

Daw khet, her son, plaintiff Wee Tin Shan never became a partner and he has no

right to sue as a partner, because there was no testimony that he was a partner in

the business.

*

*


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In "Dawood Sahib vs. Sheik Mohideen"1 case, there were two persons,"A" and "B" agreed to form a partnership firm and to share to profits ofcontinued that business as his father was alive. But there was no express

agreement between "C" and "B" which made no objection for "Cs entrance.The Court held that "C" was entitled to get share profits as when his father wasalive.

*

Therefore, it can be seen that if there is no agreement either in writing or

oral or by the conduct of the parties to enter into a partnership business, they

cannot be held as partners.

1A.I.R. 1930. (Mad 5) P.46

*Dawood Sahib Vs Sheik Mohideen. A.I.R. 1938: Mad, 5 (P.46)


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1.2.2 The agreement must be to share the profits of a business

The second element states that there must be a business and the

agreement must relate to the sharing of profits arising from such business. The

word "business" includes every trade, occupation and profession.

The sharing of profits is an essential element of a partnership agreement.

Profits ean net profit, that is to say, the excess of returns over advances.

*For example:-

'A' and 'B' agree to sell cotton in their joint account and to share theprofits equally. Here, Aand Bare partners in respect of such cotton. This meansa business without sharing profits is not a partner.

*Abdulla Vs. Allah Diya. 8. Lah: 310


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So, a business without the statement of sharing profits is not a

partnership. In the case of a* , the

court decided as follows:-

*

* -

* -


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In this case the court held that the firm is not a partnership firm because

there is no agreement between the partners that they shall have to share the

profit.

Therefore, the sharing of profits is only a prima facieevidence and not aconclusive evidence of the existence of partnership.

1.2.3 Carried on by all or any of them acting for all The third element states the principles that "the law of partnership is

branch of the law of principal and agent." This is a very important ingredient of

a partnership. The underlying and fundamental principle which constitutes a

partnership is the idea of "agency". That is to say, each partner is an agent

binding the other persons who are his principals and each partner is again a

principal, who is in turn bound by the acts of the other partners.


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Section 18 of the Partnership Act states that, "subject to the provisions of

this Act, a partner is the agent of the firm for the purposes of the business of the

firm".

10

For example:-

Each partner carrying on the business is regarded as a principal and as an

agent for all the other partners. That is an act of each partner, when carrying on

the business of the firm, is an act of the firm and it binds all the partners.

In the case of Cox vs. Hickman1 the Court held that, the true text ofpartnership is mutual agency that is whether there is sharing of profits so as to

10Principal and Agent

1(1860), 8. H.L.C. 268


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constitute the relation of principal and agent between the persons taking the

profits and those actually carrying on the business.

CoxVs.Hickman*

In determining whether a person is or is not a partner in a firm, the Court

must consider all the facts and circumstances of the case, e.g.,

(i) the existence of any agreement between the parties,

(ii) the conduct of the parties towards one another,

(iii) the mode of doing business,

(iv) the right to control property,

(v) the manner in which the accounts of the business are kept,

*

Cox Vs. Hickman (1860, 8. H.L.C 268. (312)


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(vi) the right to receive profits and etc.,

In other words, all the relevant facts taken together must show the

existence of all three essential elements in a partnership agreement.

1.3 The Distinction between a Firm and a CompanyThe distinctions between a firm and a company may be stated as

follows:-

(1)A firm means all the partners collectively: it is not asdistinct entity apart from its members. A company is a

company which is a distinct person apart from its members.

(2)The property of the firm is the property of all the partners.

The property of a company is not the property of its

members.


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(3)All the partners are jointly and severally liable for all thedebts of a firm. Members of a company are not, as such,

liable for the debts of a company.

(4) Members of a company are not its agents. Everypartner is an agent of the firm.

(5) A partner cannot ordinarily transfer his share so as tomake the transferee a partner. A member of a company

can ordinarily transfer his shares so as to make the

transferee a member.

(6) The liability of partners in a firm is unlimited. Theliability of the members of a company is usually limited

to the extent of the amount unpaid on their shares or to

the extent of their guarantee.

(7) A partner cannot contract with his firm because it is nota person. A member of a company can contract with the

company.


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(8) Partners may make any agreement as they like and varytheir contract as and when they please. A company is

bound by its articles and memorandum which can be

altered only to a limited extend as provided by the

Company Law.

(9) There is no such statutory provision for firms. Acompany is bound by law to maintain proper books of

account and to have its accounts audited.

(10) A firm may be dissolved of any time by agreement. Acompany can only be dissolved as laid down by law.

(11) A firm is dissolved on the death of a partner in the

absence of a contract. A company being a distinct person

goes on though its members may change.


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(12) A firm cannot have more than twenty partners in anycase and not more than ten if the business is a banking

business. Except in the case of a private company there

is no restriction on the number of members in a

company.

1.4 Mode of Determining the Existence of Partnership (The Test of Partnership)

It is often a very difficult matter to determine, in the absence of a definite

partnership agreement, whether a partnership exists or not. In determining

whether a person is or not a partner of a firm, regard shall be had to the real

relation between the parties, as shown by all the relevant facts taken together.

Section 6 of the Partnership Act also provides that, in determining

whether a group of persons is or is not a firm, or whether a person is or is not a

partner in a firm, regard shall be had to the real relation between the parties, as

shown by all relevant facts taken together.


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11Explanation;The sharing of profits or of gross returns arising from property by persons

holding a joint or common interest in that property does not of itself make such

persons partners.

Example; Myanmar Buddhist husband and wife are co-owners of thehouse but they are not partners. Although rent will be shared equally betweenthem, it is only the conferred by Myanmar Customary Law.

-

Explanation; The receipt by a person of a share of the profits of abusiness, or of a payment contingent upon the earning of profits or varying with

the profits earned by a business, does not of itself make him a partner with the

persons carrying on the business, and in particular, the receipt of such share or

payment

11Real relationship


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12

-

(a) by a lender of money to persons engaged or about to engage in

any business,

(b) by a servant or agent as remuneration,

(c)

by the widow or child of a deceased partner as annuity,

(d) by a previous owner or part owner of the business, asconsideration for the sale of the goodwill or share thereof,

does not of itself make the receiver a partner with the person

carrying on the business.

12share


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Therefore according to paragraph (a) "a person who has lent money to

persons engaged or about to engage in any business is not a partner. He is just a

moneylender.

In paragraph (b), it shows that an agent or servant is not a partner

although he takes the profits as remuneration. It was decided in the case

of"

1, it was stated that taking a "bonus" is not sharing benefits of the business.

* 13

14

11961 ckESpf? r.w.p/ pm 143-146/*

( )( ) ()13Foke Kyan Syndicate14

Bonus


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-

Paragraph (c) was shown in the case of "Koo Gee Hoke and six others vs.We Tin Shan and four others".2

This case said that the widow of Wee Po Ee was not become a partner but

merely enjoyed the defined profit from the firm. She enjoyed the share as the

widow of deceased partner as annuity.

*

21967. B.I.R (C.C) P.170

*


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According to paragraph (d), a previous owner of the business who

enjoyed the money from the sale of goodwill or share is not a partner in existing

business.


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Therefore, in determining whether a person is or is not a partner in a firm,

the court must consider all the facts and circumstances of the case and inductive

approach to the provisions of Section 4, 5 and 6 of the Partnership Act.

So, in determining whether a group of persons is or is not a firm, or

whether a person is or is not a partner in a firm, regard shall be had to the real

relation between partners, as shown by all relevant facts taken together.

*

*


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--

1.5 Different Kinds of Partnership


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There are different kinds of partnership as follows:-

-

(1) Ordinary Partnership

15(2) Partnership at - will

16

(3) Particular Partnership

17

1.5.1 Ordinary Partnership ()The parties are at liberty to fix the duration of the partnership or say

nothing about it. Where the partners stipulate that they should carry on business

for a definite period of time, it is called a partnership for a fixed term or

ordinary partnership. When the fixed term is over, the partnership comes to an

end.

15Ordinary Partnereship (or) Partneaship for a Fixed period.

16Partnerihip at will

17Particular Partuership


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1.5.2 Partnership at will( )

A partnership is deemed partnership-at-will when (i) no fixed has been

agreed upon the duration of the partnership and (ii) there is no provision made

as to the determination of the partnership in any other way.

On the other hand, where no provision is made by contract between the

partnerships for the duration of their partnership or for the determination of their

partnership, it is called partnership-at-will.1

In the case of San Win vs. U Ba Nyunt2, it was decided about thepartnership at-will.

]]partnership at-will

1Section 7 of the Partnership Act.

2 U San Win vs. U Ba Nyunt , 1963. B.L.R (C.C) 644.


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Therefore, a partner, in the case of partnership-at-will, can retire from the

firm dissolve it whenever he thinks proper by merely giving notice in writing to

other partners of his intention to that effect.

18

*

1.5.3 Particular Partnership

A partnership may be described as a "Particular partnership" when a

person becomes a partner with another person in a particular adventure or under

taking or an isolated transaction or speculation or course of trade voyage.

18Notice

*


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Therefore, a particular partnership means that, a person may become a

partner with another person in adventure of undertakings. 1

In the case of "Tan Soon Le vs. Yoe Tong Hoe 2, it also was held that apartnership relating to a particular venture can only be dissolved after the

venture has come to an end.

**

aafi

*

1.6 Property of the Partnership Firm2

1 Section 8 of the Partnership Act

2

1962. B.L.R. (C.C) 117.** **

SauelmNadar Vs. Thangayya Nadar. A. I. R. (1942) Mad; 104


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The property of the firm includes all properties, rights and interests inpropertyoriginally brought into the stock of the firm or acquired by purchase ofotherwise, by or for the firm, or for the purpose and in the course of business of

the firm, and also includes the goodwill of the business.3

Thus, property of the firm includes:-

(a) Property originally brought into the partnership stock;(b) Property acquired in the course of the partnership business;

(c) The goodwill of the firm

Section 14 of the Partnership Act is laid down that goodwill of a business

is to be regarded as the property of the firm.

19 ]

Unless the contrary intention appears, property, and rights and interests in

property acquired with money belonging to the firm are deemed to have

acquired for the firm.

Subject to the contract between the partners, the property of the firm shall

be held and used by the partners exclusive for purposes of the the business.1

3

Section 14 of the Partnership Act19Goodwill1Section 15 of the Partnership Act


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-

*

*


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In settling the accounts of a firm after dissolution, the goodwill shall,subject to contract between the partners, be included in the assets and it may be

sold either separately or along with other property of the firm.4

20

21

]

*

1.7 Relationship of Partners

Relationship of partners will be considered as two parts. One is

relationship between Partners and relationship with third party.

1.7.1 Relationship of Partners to One Another4Section 55 of the Partnership Act

20

Trade Mark21Assets of the firm*(21. C.W.N. 632)


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The relation of partners to one another is usually governed by the articles

of the partnership firm. If there is no written partnership agreement, their

relation will be governed by the course of dealing among themselves.

The mutual rights and duties of the partners of a firm may be determined

by contractbetween the partners. Such a contract may be expressed or may beimplied by a course of dealings of the firm. The contract may be varied by

consent of all the partners.2

22 23

]

Such contracts may provide that a partner shall not carry on any business

other than that of the firm while he is a partner.

2

Section 11 of the Partnership Act22Expressedly23

Impliedly


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]

1.7.2 Relationship of Partners to Third Parties

Every partner is the agent of the firm for the purposes of the business of

the firm.3

If two or more persons agree to carry on a partnership business and share

its profits, each is a principal and each is an agent for the other, and also each is

bound by the other contract in carrying on the business, as much as a single

principal would be bound by the act of an agent.

An admission or representation made by a partner concerning the affairs

of the firm is evidence against the firm, if it is made in the ordinary course of

business.

3Section 18 of the Partnership Act


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24

-

This means that the principal of agency is the essence of the partnership

relation.A partnership is both as a principal and an agent.

25

Subject to the provisions of Section 22, the act of a partner which is done

to carry on, in the usual way, business of the kind carried on by the firm, bindsthe firm.

1

1.7.2.1 Implied Authority 26

The authority of a partner to bind the firm conferred by this section is

called his "implied authority".

24Ordinary course of business

25

Principal and Agent1Section 19 (1) of the Partnership Act.26

Implied Authority


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In the absence of any usage or custom of trade to the contrary, the impliedauthorityof a partner does not empower him to:-

(a) submit a dispute relating to the business of the firm to arbitrate

(b)open a banking account on behalf of the firm in his own name,

(c)compromise or relinquish any claim or portion of a claim by the firm,

(d) withdraw a suit or proceeding field on behalf of the firm,(

(e) admit any libel/liabilities in a suit or proceeding against the firm,

(f) acquire immovable property on behalf of the firm,


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(g) transfer immovable property belonging to the firm, or

(h) enter into partnership on behalf of the firm.2

The reason, why a partner is not entitled to do above acts in the absence of

agreement or custom, is that a dishonest partner may involve the firm and his

co-partners in liability if he is allowed to act alone.

-



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27

*

**

28

*

27Managing Partner

*Hari Sanker Misra V. Rirm Rai Bahadur Bansilal Abiehand.

(1946: Nag. 301: A.I.R. 1946, Nag. P.266)**

28Ostensible Authority.

*Bond V.Gibvson, 10. R.A 665


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**

-

29

***

It is, however, open to the partners by means of an express contract to

extend or limit the implied authority but third parties will be bound by such a

limitation only when they have notice of such a limitation.1

All the partners are jointly and severally liable on any contract entered

into by any of the partners.

**Mathura Nath V. Sree Jukta Rageshwari.46, Cal. L.J. 352.

29

Title deeds***Asan Kani V. Somasudaram. 31 Mad. 208



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Where by the wrongful act of a partner acting in the ordinary course of

business or with authority of other partners, loss or injury is caused to third

party, the firm is liable therefore to as the same extent as the contracting partner

is.2

30

31 32 33

34 35

Where -

(a)a partner acting within his apparent authority receives money orproperty from a third party and minapplies,or


30Wrongful act

31Omission

32Third paty

33

Loss34Injury

35Penalty


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(b)a firm in the course of its business receives money or property from athird party, and the money or property is misapplied by any of the

partners while it is in the custody of the firm,

the firm is liable to make good the loss.

36

*

36Misappropriation

*


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*

It is, however, necessary that the obligation should have been incurred in

such a way as to bind the firm that is the partner should not have contracted in

his individual capacity but as a partner of the firm and agent of the other

partners and in the name of the firm. 3

* 3Section 22 of the Partnership Act


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Any admission or any representation made by any partner in the course of

the business will bind the firm and other partners. This is again based on the

principle that every partner is an agent of the other partners.5

1.7.2.2 Partnership by Holding Out 37

Anyone who by words spoken or written or by conduct represents

himself, or knowingly permits himself to be represented, to be a partner in a

firm, is liable as a partner in that firm to anyone who has on the faith of any

such representation given credit to the firm, whether the person representinghimself or represented to be a partner does or does not know that the

representation has reached the person so giving credit. 6

-

5

Section 23 of the Partnership Act37Holding Out.

6Section 25(1) of the Partnership Act


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]

Thus, if "A" induces "B" to believe that he (A) is the partner of a firm(AB) and "B" believing "A" to be a partner gives credit to the firm AB, "A" will

be responsible to "B" for any loss suffered by him (B) and cannot deny himselfto be a partner of the firm although in fact he is not a partner. This is known as

partnership by holding out.

But, where after a partner's death the business is continued in the name ofthe old firm, the continued use of that the name, or of the deceased partner's

name as a part thereof, shall not of itself make his legal representative or his

estate liable for any act of the firm after his death.1

]

The Doctrine of Holding Out 38 1Section 25(2) of the Partnership Act

38Holding Out.


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Under Sec.28 of the partnership Act, the "doctrine of holding out" is dealt

with runs as follows:-

(1) That by words or conduct he represented himself to be apartner or knowingly permitted himself to be represented

himself as a partner anyone.

*

(2) That the other person on the faith of the representation

gave credit to the firm.

(3) Where after a partner's death the business is continued in the

name of the old firm, the continued use of the decease

partner's name as a part thereof shall not of itself make his

*Mollow Marsh & Co. V. Court of Wards. 1872. L.R. 4 P.C. Page. 435.


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legal representative or his estate for any act of the firm done

after his death.

(3)

(4) Where a man holds himself out as a partner, or allows other

to do it, he is then properly by estoppels from denying the

character he has assumed and upon the faith of which

creditors may be presumed to have acted. A man so acting

may be rightly held liable as a partner by estoppels.

39

*

Therefore, the doctrine of "holding out" is a part of estoppels, that whereone person by words or conduct includes another to believe him and act upon

the existence of a particular state of facts, he cannot afterwards as regards that

person deny the existence of such facts.

39Active Partner

*


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1.7.3 Minor Benefits to Partnership

Since a minor is not competent to enter into a contract, he cannot become

a partner in a firm. However, a minor can be admitted to the benefits of an

already existing partnership if all the partners agree to admit him. As he is not a

partner, the minor is not personally liable nor is his separate property, for the

debts of the firm; but his share in the partnership property and profits will be so

liable.

A person who is a minor according to the law to which he is subject may

not be a partner in a firm. The following rights, liabilities and disabilities may

be stated when a minor can be admitted to the benefits of firm.

Rights and duties of Minor


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1.7.3.1 Rights

A person who is a minor according to the law to which he is subject may

not be a partner in a firm, but, with the consent of all the partners for the

time being, he may be admitted to the benefits of partnership.

Such rights are-

(a)A mionr has a right to such share of the property and of the profits ofthe firm as may be agreed upon and

-

(b) he may have access to and inspect and copy any of the

accounts of the firm.

(c) Such minor may not sue the partners of an account or payment

of his share of the property or prefits of the firm save when

severing his connection with the firm,


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(d) Where such person desires to become a partner to attaining

majority, he has entitled to determind a partner in the firm.

(e) Where such person does not desire to become a partner after

attaining majority, he shall give the public notice that he has

elected not to become a parter in the firm.

(f) Where such person becomes a partner his rights and liabilities

as a minor continue up to the date on which he become a

partner, but he also become personally liable to third parties

for all act of the firm done since he was admitted to the

benefits of partnership.


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(g) his share in the property and benefits of the firm shall be the

share to which he was entitled as a minor.

(h) Where such person elects not to become a partner-

-

(1) his share shall not be liable for any acts of the firm done

after the date of the notice.

(2) he shall be entitled to sue the partners for his share of the

property and benefits.

1.7.3.2 Duties

(a) For act doing of the firm before the attaining majority, he shall only be

liable for the amount of his investment.


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(b) Where such person becomes a partner his rights and liabilities as a

minor continue up to the date on which he become a partner, but he also

become personally jointly or severally liable to third parties for all act of

the firm done since he was admitted to the benefits of partnership.

(c) At any time within six months of his attaining majority, a minor shall

be liable automatically as a partner if he does not give public notice.

(d) If a minor act as to be a partner after attaing majority, he shall be

liable as a partner before public notice.

(e) Where a minor elects not to become a partner his rights and liabilities

shall continue to be those of a minor up to the date on which he

gives public notice.


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(f) Where any person has been admitted as a minor to the benefits of

partnership in a firm, the burden of proving the fact that such

person no knowledge of such admission until a particular date after

the expiry of six months of his attaining majority shall lie on the

person asserting that fact.

1.8 Reconstitution of a Partnership Firm

The term "reconstitution of a firm" means the change takes place in theconstitution of a firm. These changes occur by the:-

(1) introduction of a new partner.

(2) retirement of partner.

(3) expulsion of a partner.


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(4) insolvency of a partner.

(5) death of a partner.

(6) transfer of a partner's interest.

Subject to contract between the partner, where a change occurs in the

constitution of a firm, the mutual rights and duties of the partner in the

reconstituted firm remain the same as they were immediately before the change

,as far as may be;

1

]1.8.1 Introduction of a PartnerNo person shall be introduced as a partner in a firm without the consent

of all the existing partners. The liability of the new partner commences from

the date when he is admitted as a partner unless there is a contract providing

otherwise.

1reconstituted firm


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]

1.8.2 Retirement of the PartnerA partner may retire:-

(a) with the consent of all the partners,(b) in accordance with an express agreement by the partners, or(c) where the partnership is at will, by giving notice in writing

to all the other partners of his intention to retire.

40-

]

So a partner may, in a partnership as will, retire by without any condition

or by prescribeing with conditions or by giving the notice to the other partner

from a firm.

40Voluntary Retirement


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The retired partner continues to remain liable as partner to third parties

for all acts of the firm if done before retirement until public notice is given of

the retirement.

But a retired partner is not liable to any third party who deals with the

firm without knowing that he was a partner.

]

-

-


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Section 72 of the Act lays down the mode of giving public notice. In

every case where a public notice is required by the Act, it must be affected by

publication in the Official Gazette and in at least one vernacular newspaper

circulating in the district where the firm to which it relates has its place orprincipal place of business.

Notwithstanding the retirement of a partner from a firm, he and partners

continue to be liable as partners to third parties for any act done by any of them

which would have been an act of the firm if done before the retirement, until

public notice is given of the retirement:


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]

72 (a) A public notice under this Act is given-

Where it relates to the retirement or expulsion of a partner from a registered

firm, or the dissolution of a registered firm, or to the election to become or not

to become a partner in a registeredfirm by a person attaining majority who was

admitted as a minor to the benefits of partnership,by notice to the registrar of

firms under section 63, and by publication in the Gazette and in at least one

vernacular newspaper circulatingin the district where the firm to which it relates

its place or principal place of business.

-


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(b)in any other case, by publication in the Gazette and in at least one

vernacular newspaper circulatingin the district where the firm to which it

relates its place or principal place of business.

Provided that a retired partner is not liable to any third party who deals

with the firm without knowing that he was a partner.

]

41

*

(4) Notices under sub-section (3) may be given by the retired partner

or by any partner of the reconstituted firm.

]

The rights of a retired partner are as follows-

41Sleeping Partner

*Rams Sami V, Kadar Bibi, 9, Mad, 492


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An outgoing partner may carry on a business competing with that of

the firm and he may advertise such business, but, subject to

contract to the contrary, he may not

-

(a) use the firm name,

(b) represent himself as carrying on the business of the

firm, or

(c) solicit the custom of persons who were dealing withthe firm before he ceased to be a partner.

]

A partner may make an agreement with his partners that on

ceasing to be a partner he will not carry on any business

similar to that of the firm within a specified period or within

specified local limits: and, notwithstanding anything

contained in section 27 of the Contract Act, such agreement

shall be valid if the restrictions imposedare reasonable.


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42 ]

Where any member of a firm has died or otherwise ceased to be a

partner, and the serviving or continuing partners carry on the business of

the firm with the property of the firm without any final settlement of

accounts as between them and the outgoing partner or his estate,then, inthe absence of a contract to the contrary, the outgoing partner or his estate

is entitled at the option of himself or his representatives to such share of

the profitsmade since he ceased to be a partner as may be attributable to

the use of his share of the property of the firm or to interest at the rate of

six per cent, per annum on the amout of his share in the property of the

firm.

42Reasnnable


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A continuing guarantee given to a firm, or to a third party in

respect of the transactions of a firm, is, in the absence of agreement

to the contrary, revoked as to future transactions from the date of

any change in constitution of the firm.

*

*


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**

1.8.3 Expulsion of PartnerA partner can be expelled from a firm only under the following

circumstances:-

(a) the power to expel is conferred in the contract of partnership.

(b) the power is exercised in good faith by the majority of thepartners,

(c) the expelled partner should have some intimation of thecause of complaint and an opportunity of meeting the case

alleged against him. (Sec. 33)

As expelled partner is liable for all debts contracted before his expulsion

and he continues to be liable for the debts of the firm contracted after his

expulsion till a public notice of his expulsion is given.

**Wzekiel Moses V. The Russia Engineering Works.Ltd. 1 Rangoon. 47


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1.8.4 Insolvency of a Partner 43

Where a partner in a firm is adjudicated an insolvent he ceases to be a

partner on the date on which the order of adjudication is made.1

]

If a firm is not dissolved by such order of adjudication, the share of the

insolvent partner vests in the Official Assignee or Official Receiver and theinsolvent partner ceases to be liable for any debts of the firm and the firm ceases

to be bound by any act of such partner.

]

1.8.5 Death of a Partner 44

43insolveney



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Ordinary the death of a partner has the effect of dissolving the partnership

as regards all the partners. However the partners may agree that by the death of

a partner the firm is not dissolved. Where a firm is not so dissolved, the estate of

a deceased partner is not liable for any act of the firm done after his death.2

Subject to contract between the partners, a firm is dissolved by the dead

of a partner.

]

Notwithstanding the dissolution of a firm, the partners continue to be

liable as such to third parties for any act done by any of them which would have

been an act of them if done before the dissolution, until public notice is given ofthe dissolution:

1.8.6 Transfer of a Partner's Interest

A partner may transfer his share to a third person, absolutely or by way of

security.

44Death



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If the firm is dissolved or if the transferring partner ceases to be a partner,

the transferee is entitled as against removing partners to receive the share of the

assets of the firm to which the transferring partners is entitled and for the

purpose of ascertaining that share, to an account as form the date of the

dissolution.3

1.9 Dissolution of a Firm (Partnership) 45"Dissolution of the firm" means the cessation of jural relationship

amongst all the partners of a firm.1

It differs from reconstitution in the following respects:-

(a) In the case of dissolution, the whole firm is dissolved;whereas, there is no dissolution of the firm in the case of a

reconstitution.

(2) In the case of dissolution, there is complete cessation of juralrelationship amongst all the partners; whereas in the case of

3

Section 29 of the Partnership Act45Dissolution a firm1Section 39 of the Partnership Act


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reconstitution, there is no such severance of jural

relationship among the partners in the reconstituted firm and

they carry on the business of the firm.

1.9.1 Modes of Dissolution of a Firm

There are five different modes of the dissolution of a firm:-

(a) dissolution by agreement,

(b) compulsory dissolution

(c) dissolution on the happening of certain contingencies,

(d) dissolution by notice of a partnership at will, and

46

(e) dissolution by court.

46Notice


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47

1.9.1.1 Dissolution by Agreement A firm may be dissolved with the consent of all the partners or in

accordance with a contract between the partners. (Section 40)

1.9.1.2 Compulsory Dissolution (1) by the adjudication of all the partners or of all the partners but one

as insolvent, or

(ii) 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 the partnership.

But where more than one separate adventure or undertaking is carried on

by the firm, the illegality of one or more shall not itself cause the dissolution of

the firm in respect of its lawful adventures and undertakings (Section 41)

47By Order of the Court


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1.9.1.3 On the Happening of Certain Contingencies

Subject to contract between the partners a firm is dissolved:-

-

(i) if constituted for a fixed term, by the expiry of the term,

(ii) if constituted to carry out one or more adventures or

undertakings, by the completion thereof;

*

(iii) by the death of a partner;

**

(iv) by the adjudication of a partner as an insolvent. (Section 42)

1.9.1.4 By Notice of a Partnership At will 48

*

-

**T.P.Ma Mooty V.Ma Thein Hlaing (a) Ma Asara, 1969. B.L.R. P. 80

48Notice


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(i) where a 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.

(ii) The firm is dissolved as from the date mentioned in the notice asthe date of dissolution or, if no date is so mentioned, as from the date of

the communication of the notice. (Section 43)

*

49

*Robertson V.Lockie (1846) 15 sim-285.

49Plaint


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**

1.9.1.5 By the Court() 50At the suit of a partner, the Court may dissolve a firm on any of the

following grounds, namely:-

(i)that a partner has become of unsound mind, 51

52

(ii) that a partner, other than the partner suing ,has become in any waypermanently incapable of performing his duties as partner.

53

(iii) that a partner other than the partner suing is guilty of conduct which islikely to affect prejudicially the carrying on of the business, regard

being had to the nature of the business;

**Sathapara V.Subrmanian. 1927.53 Mad. L.J. 245, 101.1.C. 17

50By Order of the Court

51Insanity

52Next Friend

53Incapacity


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54

(iv) that the partner other than the partner suing willfully or persistentlycommits breach of agreement relating to the management of the affairs

of the firm or the conduct of its business or otherwise so ducts himself

in matters relation to the business that it is not reasonably practicable

for the other partners to carry on the business in partnership with him;

(v) that a partner other than the partner suing has in any way transferredthe whole of his interest in the firm to a third party or has allowed his

share to be changed sold by the Court;

(vi) that the business of the firm cannot be carried on save at a loss; or

54Misconduct


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(iv) that court is satisfied that the firm should be dissolved on any other justand equitable ground. (Section 44)

55

1.9.2 Division of Profits and Losses upon Dissolution The partnership agreement may provide for the settlement of accounts

between the partners upon dissolution. In the absence of such agreement, the

following rules laid down by Section 48 of the Partnership Act must beobserved.

(1)Losses, including deficiencies of capital, shall be paid out of profits, nextout of capital and lastly, if necessary, by the partners individually in the

proportions in which they were entitled to share profits. (Sec. 48(a))

) 5657

55just and equitable

56Deficiencies of Capital


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(2)The assets of the firm, including any sums contributed by the partners tomake up deficiencies of capital shall be applied in the following order:

)

(i) In paying the debts of the firm to third parties;

(ii) In paying to each partner ratably what is due to him fromthe firm for advances as distinguished from capital;

58

(iii) In paying to each partner ratably what is due to him onaccount of capital;

59

57Losses

58Advances

59Ratio


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(iv) The residue, if any, shall be divided among the partners inthe proportions in which they were entitled to share profits.

(Sec 48 (b))

(3)When there are joint debts due from the firm and also separate debts duefrom any partners, 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 separate property of any partner

shall be applied first in the payment of his separates, and the surplus, if

any, in the payment of the debts of the firm. (Sec. 49)

There we see that when the partnership assets are not sufficient to pay of

the joint debts of the firm the creditors of the firm can have received from the

partner's separate property only after his separate creditors have been paid. A

partner is not entitled to assist of the firm before proceeding against the partners

individually. In order to discharge the joint debts of the firm after its dissolution

each partner has assisted jointly if surplus is remained.


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1.9.3 Sale of Goodwill after Dissolution

The term "goodwill" is not defined in the Act expressly. Goodwill isproperly a commercial term, which is very easy to describe but very difficult to

define.

It is a commercial term signifying the value of the business in the hands ofa successor. It is something more than the mere chance or probability of oldcustomers maintaining their connection thought this is a material part of the

practical fruits. It may be summed up as "the whole advantage, whatever it maybe, of the reputation and connection of the firm. In valuing the goodwill the

Court should set such a value upon it as existing on the day of the dissolution.

Goodwill shall be included in the assets subject to contract between thepartners and may be sold either separately or along with other properties of the

firm settling the accounts of the firm.1



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]

Where the goodwill of a firm is sold after dissolution, a partner may carry

on a business competing with that of the buyer and he may advertise such

business.

but subject to agreement between him and the buyer he may not-

(a) use the firm name;

(b) represent himself as carrying on the business of the firm, or

(c ) solicit the custom of persons who were dealing with the firm before its

dissolution. (Sec. 55 (2))

However, any partner may, upon the sale of goodwill of a firm, make an

agreement with the buyer that such partner will not carry on any business

similar to that of the firm within a specified period or within specified local

limits. Such an agreement shall be valid if the restrictions imposed are

reasonable, notwithstanding that the agreement may amount to restraint of trade

under Section 27 of the Contract Act.1



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]

Therefore, what goodwill means must depend on the character and nature

of the business to which it is attached: it is composed of a variety of elements

and is bound to differ in its composition in different trades and in different

businesses in the same trade. One element may preponderate in one business

and another in another business.

Section 14 of the Partnership Act is laid down specially that goodwill of abusinessis, subject to contract between the parties, to be regarded as property ofthe firm. It may be sold either separately or along with other property of thefirm.

1.9.3.1 Rights of Buyer and Seller of Goodwill

The goodwill of the business of a firm forms part of the property of

the firm2and therefore subsection (1) of the Section 55 is laid down that subject

to contract between the partners, in settling the accounts of a firm after

dissolution, the goodwill shall be included into the assets of the firm, and if may

be sold either separately or along with other property of the firm. Where the

goodwill of a firm is sold after dissolution;



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60

61

]

*

Rights of seller are as follows:-

(1)a partner may carry on a business competing with that of thebuyer, and

(2)he may also advertise such business, but the seller (i) must notuse the firm name; (ii) must not represent himself as carrying on

the business of the firm, and (iii) must not solicit the customers

of the old firm.

60

Trade Mark61Assets of the firm*(21. C.W.N. 632)


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Rights of the buyer are as follows:-

(i)He can use the firm name;

(ii) He can claim the benefit of any convenient by a partner notto carry on a competing business;

(iii) He can trade as his vendor's successor.

1.10 Registration of a Firm

The Partnership Act has made no registration of firms compulsory of it

has imposed any penalties for non-registration. It has only imposed certain

disabilities on unregistered firms: but disabilities are such that a trading firm is

obliged to get itself registered sooner or later.

On the other hand non-registered firms are legal associations as

registration of the firm is not compulsory under the Partnership Act. But non-


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registration of partnership gives rise to a number of disabilities which have a

persuasive pressure for its registration.

In Myanmar Naing-Ngan, under the Section 56 of Partnership Act, the

President of the Union may, by notification in the Gazette, direct that the

provisions of Chapter VII, (Myanmar Gazette, 1956, Part I, Page 723), shall not

apply to the Union of Myanmar, except the towns of Yangon, Mandalay,

Mawlamyaing, Kyaukphyu, Pathein and Dawae; if the partnership firms are

established in these areas, they shall be needed registration. Therefore, the firms

established in Myanmar Naing-Ngan do not need to be registered, except theabove six towns specified in notification.


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*

62

* 62

Conclusive Evidence


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*

**

*

(

)

(

)

(

)

()**

K. Ghellabhai & Co. V, Churial & Harakchan Co. & another, 1941. R.L.R. 219


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1.10.1 Application for RegistrationSection 58 (1)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:

(a) the firm name, (b) the place or principal place of business of the firm,

(c) the names of any other places where the firm carrieson business,

(d) the date when each partner joined the firm,

(e) the names in full and permanent address of thepartners. and


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(F) the duration of the firm.1

The statement shall be signed by all the partners or by their agents

specially authorized in this behalf.2

(2) Each person singing the statement shall also verify it in the manner

prescribed.

(3) Afirm name shall not contain any of the following words, namely:"Crown" "Emperor" "Empress" "Empire" "Imperial" "King" "Queen"

"Royal" "President" "Union" or words expressing or implying the section,

approval or patronage of the Government of the Union of Myanmar,

except when the President of the Union signifies his consent to the use of

such words as part of the firm name by order in writing.




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Section 59 When the Registrar is satisfied that the provisions of section

58 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.

When an alteration is made in the firm name of in the location of the

prinaipal place of business of a registered firm, a statement may be sent to the

Registrar accompanied by the prescribed fee, specifying the alteration, and

signed and verified in the manner required under section 58.

1.10.2 Effect of Registration


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Any statement, intimation or notice recorded or noted in the register of

firms shall, as against any person by whom or on whose behalf such statement,

intimation or notice was signed, be the conclusive proof of any fact therein

stated.3

A certified copy of an entry relating to a firm in the Register of Firms

may be produced in proof of the fact of registration of such firm, and of the

contents of any statement, intimation or notice recorded or noted therein. 4

Section 70 of the Act imposes a penalty of fine and imprisonment forfurnishing false or incomplete particulars in any statement or document sent to

the Registrar. Thus when once a firm is registered the Register of Firms will

continue to contain a complete, correct and up-to-date list of all partners who

will be liable for the debts of the firm, and the statements recorded in the

Register would afford a strong protection against false denials of partnership

and the evasion of liability to persons who propose to deal with the firm.

3Section 68 (1) of the Partnership Act

4Section 68 (2) Ibid


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Therefore, a partner of registered firm has the right to sue eteen the

hich ere decided in the case of 1as follows:-

*

63

1

1967. B.L.R (C.C) 383* 63

Conclusive Evidence


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So, the effect of registration of the firm according to the Act is so great.

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, a statement in the prescribed form. And a partner of registered firm

has the right to sue between the other partners of the firm in according to

mention above.


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1.10.3 Effects of Non-registration

As already stated registration of firm is not made compulsory

under Section 69 of this Act, but if a firm carries on business without it being

registered, the non-registration creates the following disabilities:

(1) No suit to enforce a right arising from a contract or conferred bythis Act shall be instituted in any court by or on behalf of any

person suing as a partner in a firm against the firm or any person

alleged to be or to have been a partner in the firm unless the firm is

registered and the person suing is or has been shown in the register

of the firm as a partner in the firm. (Sec. 69 (1))


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(2) No suit to enforce a right arising from a contract shall be institutedin any Court by or on behalf of a firm against any third party unless

the firm is registered and the persons suing are or have been shown

in the register of firms as partners in the firm. (Sec. 69 (2))

(3) The Provisions of Sub-section (1) and (2) shall apply also to aclaim of setoff or other proceeding to enforce a right arising

from a contract, but shall not affect ;

(a)the enforcement of any right to sue for dissolution of a firm

or for accounts of a dissolved firm, or any right or power to

realize the property of a dissolved firm,or


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(b) the powers of the assignee, receiver or Court under the

Yangon Insolvency Act or the Myanmars Insolvency Act to

realize the property of an insolvent partner.

hair in

sarulla *

64 65

*Khair Diu v. Absarulla. 1963. B.L.R. (C.C) 12

64Promssory Note

65Third Party


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Therefore, in the case of

1, it was also decided the effects of non-

registration as follows:-

*

So, a partner of an unregistered firm cannot sue except the provisions ofSection 69 (3) of the Partnership Act.

However, this section shall not apply-

(a) to the firms or the partners in firms which have no place of business in

the Union of Myanmar, or whose places of business in the Union of

Myanmar are situated in areas to which by notification of under Section

56, this chapter does not apply, or

11966 B.L.R. (C.C) 598

*


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(Section 69(4-1))


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Key TermsPartnership

Partners -

firm-

fir nae -

rdinary Partnership -

Partnership at-ill

Particular Partnership - implied authority -

oint-detors -

oint-creditors -

Partnership stoc -

reconstitution of a firm -

nsolvency -

Liabilities -

Disabilities -

Retirement -

Expulsion -

Remuneration -

Dissolution -

opulsory issolution -

oodill -


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EXERCISE QUESTIONS1. efine the ter Partnership.

2. What are the essential elements of Partnership? Discuss briefly on each of

them.

3. Distinguish between a firm and a company.

4. "Partnership does not arise from status but comes up from contract."

Discuss.

5. Distinguish between Partnership and Joint Hindu Family.

6. What do you mean by the term "Property of the Firm"?

7. How will you determine whether a person is or is not a partner in a firm?

8. Explain what property includes in the "property of the firm."

9. Write short notes in the following:-

(1) Ordinary Partnership(2)

Partnership at-will

(3) Particular Partnership10. State the law relating to "holding-out" under the Partnership Act.

11. What is the legal effect when a minor is held out as a partner? Explain.

12. State the rights, liabilities and disabilities of a minor in firm.

13. Discuss the liabilities of a partner to third parties.

14. What do you mean by "reconstitution of a Firm? State the rights and

liabilities of an incoming partner.

15. What do you mean by "Dissolution of a Firm"? Answer.

16. State the circumstances under which a firm is compulsory dissolved.

17. What are the different modes in which a firm may be dissolved? State in

brief.


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18. What circumstances under which and how may the court dissolve a

partnership of the suit of a partner?

19. When can partnership be dissolved by the court?

20. State briefly the rights and obligations of a partner after dissolution.

21. Explain the mode of settling of accounts between partners regarding

losses of the firm.

22. State the rights of a buyer and seller of the goodwill of a firm after

dissolution.

23. State briefly what ways a Partnership can be dissolved.

24. State briefly the effect of non-registration of a firm under the Partnership

Act.

25. Explain the effect of non-registration of a partnership firm.

26. State the law relating to registration of a firm.

27. Can a Partnership business be conducted without registration? State theeffect of non-registration of a Firm.

Business Law-Chapter 1....Law of partnership.pdf

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