Partnership

Lecture 7

Partnership is the second stage in the evolution of forms of business organization. It means the association of two or more persons to carry on as co owners, i.e. a business for profit. ‐The persons who constitute this organization are individually termed as partners and collectively known as firm; and the name under which their business is conducted is called “The Firm Name”.

• “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.”

• “A contract of two or more competent persons to place their money, efforts, labour and skills, some or all of them, in a lawful commerce or business and to divide the

profits and bear the losses in certain proportion.”

The Partnership act 1932

• An Act to define and amend the law relating to partnership.

• It extends to the whole of Pakistan.• It received the assent of the Governor-General

on 8 April 1932 and came into force on 1 October 1932.

• Before the enactment of this act, partnerships were governed by the provisions of the Indian Contract Act, 1872.

• According to section 4 of the Partnership Act of 1932, "Partnership is defined as the relation between two or more persons who have agreed to share the profits of a business carried on by all or any one of them acting for all”.

Number of partners

• In ordinary business the number of partners should not exceed 20.

• In case of banking business the number of partners should not exceed 10.

Application for registration• The registration of a firm may be effected at any time by sending by post or

delivering to the Registrar of 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 carries on business,(d) the date when each partner joined the firm,(e) the names in full and permanent addresses of the partners, and,(f) duration of the firm.• The statement shall be signed by all the partners, or by their agents specially

authorized in this behalf.• District Registrar is Registrar of Firms in his District is the authority to register

partnership firm.

Types of partnerships• Partnership Act, 1932 provides different types of

partnership – Partnership at-will

Partnership at-will is a partnership where no provision is made by contract between the partners for the duration of their partnership. It is a partnership for indefinite period but can be dissolve after giving notices to all the partners.

– Particular partnership: Particular Partnership is a partnership where a person may become a partner with another person in particular adventures or undertakings for a specified period. Particular partnership will be dissolved on the completion of particular business or undertaking.

What is a partnership deed?

• Partnership deed or agreement is a document in which mutual rights and obligations of all the partners and conditions relating to partnership and the regulations governing its internal management and organizations are documented, the said deed should be signed by all the partners.

Characteristics

• Agreement: Agreement is necessary for partnership. Partnership agreement may be written or oral. It is better that the agreement is in written form to settle the disputes.

• Business activity: Partnership is a business unit and a business is always for profit. It must not include club or

charitable trusts, set up for welfare.

• Cooperation: In partnership mutual cooperation and mutual confidence is an important factor. Partnership cannot take place with out cooperation.

• Dissolution: It is dissolved if a partner leaves, dies or declared bankrupt.– Dissolution of partnership– Dissolution of firm

• Legal entity: If partnership is not registered, it has no legal entity. Moreover, partnership has no separate legal entity from its members and vice versa.

• Management: In partnership all the partners can take part or participate in the activities of business management. Sometimes, only a few persons are allowed to manage the business affairs.

• Number of partners: In partnership there should be at least two partners. But in ordinary business the partners must not exceed 20 and in case of banking business it should not exceed 10.

• Profit and loss distribution: the distribution of profit and loss among the partners is done according to their agreement.

• Share in capital: According to the agreement, every partner contributes his share of capital. Some partners provide only skills and ability to become a partner of business and earn profit.

• Transfer of rights: In partnership no partner can transfer his shares or rights to another person, without the

consent of all partners.

• Unlimited liability: In partnership the liability of each partner is unlimited. In case of loss, the private property of the partners is also used up to pay the business debts.