Advance Commercial Law Partnership Deed 04 April 2k18

SUBMIT TO: SIR. SYED FARAN JAVED

GROUP MEMBERS:

Arif Salam (Baf05161070)

Mohammad Ali Hassan (Baf05171810)

Topic: PARTNERSHIP DEED

Date: 04/04/2018

Section: B (BS- ACCOUNTING & FINANCE)

SUBJECT: ADVANCE COMMERCIAL LAW

UNIVERSITY OF LAHORE, CITY CAMPUS

ARIF SALAM MOHAMMAD ALI HASSAN

Advance Commercial Law Partnership Deed 04 April 2k18

PARTNERSHIP
According to Partnership Act 1932,
“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”.
The 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”.

Features/Characteristics of partnership:

The following are characteristics or Features of partnership:

1) Legal Entity:
 A partnership has no separate legal entity apart from its members.
(Separate legal entity particularly relates to company which means to separate
the actions of the entity from those of the individual or other company as
company is treated as artificial person.).
 It means that the partnership and partners are not separate from one another. So
the acts of the partners are acts of the firm.
 The rights and liabilities of the partnership firm are considered the rights and
liabilities of the partners.

2) Agreement:
 A partnership is a contractual agreement between the partners. This agreement
may be written or oral.
 Only the persons who are competent to contract can form a partnership.
 Even upon death of a father who was a partner in a firm, the son can claim share
in partnership assets but cannot become a partner unless he enters into an
agreement with the other partners.

3) Number of Partners:
 The partnership is an association between two or more persons and all persons
must be competent to contract. Thus, there can be no partnership consisting of a
single individual.
 If the number gets reduced to one, for any reason, it ceases to be a partnership.
 The partnership Act does not say anything about the maximum number of
partners.

But Companies Ordinance 1984 fixes the following maximum numbers:

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Advance Commercial Law Partnership Deed 04 April 2k18

 In case of a partnership firm carrying on banking business maximum number is

10. If the number of partners exceeds then the partnership firm becomes an
illegal association which means now it need to be registered as a company.

 In case of a partnership firm carrying on any other business maximum number is

20. If the number of partners exceeds then the partnership firm becomes an
illegal association which means now it need to be registered as a company.

 In case of a partnership firm of professionals, maximum number may exceed 20.

No restriction by company ordinance that means number of partners can exceed
20.

 Also in case of partnership among members of joint family the maximum number
of member may be more than 20.

4) Purpose of Partnership:

In order to form a partnership, the partners must agree to carry on a business. If

purpose of is something other than business, it cannot be called a partnership.
Therefore, where there is no business, there is no partnership.

5) Share of Profits:

 The agreement between partners must be to share the profits of the business.
The profit is distributed among partners according to the agreement. If there is no
agreement regarding the distribution of profit. it is equally distributed among the
partners.
 Further, the partner can share the losses according to agreed ratio or it is not
necessary that the partners should agree to share losses. It must be noted that
even though a partner may not share in the losses of the business, yet his liability
towards outsiders shall be unlimited.

6) Mutual Agency:

There must exist a mutual agency relationship among partners. Mutual Agency
relationship means that each partner is both an agent and a principal. Each partner is
an agent in the sense that he has the capacity to bind other partners by his acts done.
Each partner is principal in the sense that he is bound by the acts of other partners.

7) Unlimited Liability:

The liability of all the partners is unlimited. All partners are individually and collectively
responsible for the debts of the business. If there is any loss and firm’s assets are
insufficient to satisfy the claims of the creditors, the private assets of the partners can
be sold to satisfy the claims.

ARIF SALAM MOHAMMAD ALI HASSAN

Advance Commercial Law Partnership Deed 04 April 2k18

Who can be a Partner?

A person:

Under the Indian partnership Act, a person may be partner if he has the capacity to
enter into a contract (“Capacity of parties”)

Minor:

A minor cannot be a partner. But in an existing partnership, a minor can be admitted

into a firm if all the partners of the firm agree.

Persons of unsound mind:

A person who is of unsound mind cannot become a partner.

Woman:

A woman can be a partner, married or unmarried. Of course a woman cannot be a

partner if she is a minor or she is of unsound mind.

Company:

In a company the capacity to enter into contract is determined by the Memorandum and
Articles of the Association of the company. Act, for the debts of the firm, is unlimited.
But a company cannot incur unlimited liability. Therefore a company cannot become a
partner of a firm.

Types of Partnership:

 Partnership at Will
Where no provision is made between the partners for the duration of their partnership,
the partnership is called partnership at will. In such partnership there is no provision as
to when the partnership will come to an end. Any partner is free to dissolve the
partnership by giving a notice in writing to all other partners of his intention to dissolve
the firm. The firm is dissolved as from the date mentioned in the notice as the date of
dissolution or if no date is mentioned as from the date of the communication of the
notice. If freedom to dissolve the firm at will is curtailed by agreement, like if the

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Advance Commercial Law Partnership Deed 04 April 2k18

agreement provides that the partnership can be dissolved by mutual consent of all the
partners, only then will it not constitute a partnership at will.

 Particular Partnership
Where a partnership is created for any particular adventure or undertaking or for a
specific time period it is called a particular partnership. Such partnership comes to an
end on the completion of venture or on the expiry of the period. If the partners decide to
continue such a partnership even after the expiry of the specific period or completion of
specific venture, then it becomes partnership at will.

Difference between partnership & Co-ownership

Partnership and co-ownership are two different things. The ownership of a property by
more than one person is called co-ownership. For example, if two brothers purchase a
property collectively, it will be a case of co-ownership. The property will be disposed off
with the consent of all the co-owners. Any income arising out of co-ownership is shared
by all the co-owners. The property is not purchased with the object of earning
profits.

If a building is purchased to let it for rent, then it will be a case of partnership and not of
co-ownership. In the co-ownership, there is only a joint ownership without any
business motive. In partnership there is a joint ownership with business motive.

Difference between Dissolution of partnership & Firm

The term dissolution means discontinuation. The dissolution may be either of a
partnership or of a firm.

Dissolution of a partnership refers to the discontinuance of the relation between

partner and other partners of the firm. If a partner dies, retires or becomes insolvent the

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Advance Commercial Law Partnership Deed 04 April 2k18

remaining partners can continue the business (but they have to make a new agreement
& this applies to an incoming partner as well), it is called dissolution of partnership.

 Suppose A, B, C are partners in a firm, B retires, and A and C decide to continue

the partnership with a new profit sharing ratio. In this case, there is a dissolution
of partnership between B and A, C.

Dissolution of firm implies that entire firm ceases to exist, including the relation among
all the partners. So that means when relation between all partners comes to an end and
the business is closed, it is called dissolution of firm.

 Suppose A, B, C are partners in a firm, engaged in the business of selling a

particular chemical, after that, a law has been passed in which selling of that
particular chemical is banned. In this case, the business becomes unlawful, and
the firm is dissolved.

By and large, dissolution of the partnership results in, the end of the old agreement
between the partners and its replacement with the new agreement. No physical disposal
takes place. On the flip side, in the dissolution of the firm assets are disposed off and
liabilities are settled.

Mutual rights and duties:

Subject to any contract to the contrary, the mutual rights and duties of partners are as
follows:-

A partner is not entitled to receive remuneration for taking part in the conduct of
business.

The partners are entitled to share equally in the profits earned and shall contribute
equally to the losses sustained by the firm.

Where a partner is entitled to interest on the capital subscribed by him such interest
shall be payable only out of profits.

A partner making, for the purposes of the business, any payment or advance beyond
the amount of capital he has agreed to subscribe , is entitled to interest thereon at the
rate of six percent per annum

Duties of Partners:

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Advance Commercial Law Partnership Deed 04 April 2k18

The important duties of partners are summarized below:

1. Justice, Faithfulness, True Accounts, Full Information. Partners are bound to

carry on the business of the firm to the greatest common advantages, to be just
and faithful to each other, and to render true accounts and full information of all
things affecting the firm to any partner or his legal representative.
2. To pay indemnity.
3. Every partner shall indemnify the firm for any loss caused to it by his fraud in the
conduct of the business of the firm.
4. To attend diligently. Every partner is bound to attend diligently to his duties.
5. No remuneration. Subject to any contract to the contrary, a partner is not entitled
to receive remuneration for taking part in the contract of the business.
6. Equality of losses. Subject to any contract to the contrary, partners are bound to
pay the losses of the firm equally.
7. To pay indemnity for willful neglect. A partner shall indemnify the firm for any loss
caused to it by his willful neglect in the conduct of the business of the firm.
8. No private benefit. A partner cannot use the partnership “properties, directly or
indirectly, for his own benefit.
9. To account for secret profit. If a partner derives any profits for himself from any
transaction of the firm, or from the use of the property or business connection of
the firm or the firm name, he shall account for that profit and pay it to the firm.
10. No secret profit. If a partner carries on any competing business of the firm, he
shall account for and pay to the firm all profits made by him in that business.
11. Unlimited liability. Every partner is liable for the acts of the firm done while he is a
partner. The liability is joint and several.

Incoming & Outgoing partner:

This contain rules regarding incoming & outgoing partner. Also, in all the following cases
partnership dissolve and new agreement is made.

1) Introduction of partner:
A new person can be admitted into the partnership at any time with consent of all
partners or in accordance with the contract between the parties. If new partner enters
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Advance Commercial Law Partnership Deed 04 April 2k18

into partnership, then the old agreement dissolve and new agreement is made on
agreed terms and conditions.

2) Retirement of partner:
A partner may leave a firm with the consent of all partners or in accordance with the
agreement by the partners. Where partnership is at will, a partner may leave by giving
notice in writing to all other partners of his intention to retire. A retired partner is liable to
third party for all acts of firm before the date of his retirement unless he is discharged
from his liability.

Where a retiring partner does not give a public notice of his retirement and the
continuing partners still use his name as a partner he will be personally liable on the
ground of holding out to third parties. the notice can be given by retired or any of the
remaining partner.
3) Expulsion of Partner:
A partner may not be expelled from a firm by majority of the partners. The majority of
partners can expel a partner in good faith under the powers of the contract. The
expelled partner remains liable to third party until he gives notice of his retirement.

4) Insolvency of Partner:
Where a partner is adjudicated as insolvent he ceases to be partner on the date on
which the order of adjudication is made whether or not the firm is dissolved. The estate
of the insolvent partner is not liable for any act of the firm and the firm is not liable for
any act of the insolvent.

5) Death of Partner:

If there are more than 2 partners in the firm, then on death of a partner, the partnership
dissolves. The other partners may agree to continue the firm. The assets of the
deceased partner are not liable for any act of the firm done after his death. His assets
are liable only for liabilities undertaken during his life time.
However, if there are only to partners and one of them dies then the firm dissolves.

Grounds of Dissolution:
The grounds or modes of dissolution of firms are as follows:

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

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Advance Commercial Law Partnership Deed 04 April 2k18

2) Compulsory Dissolution
A compulsory dissolution takes place under the following circumstances:

 When all the partners are declared insolvent.

 When all except one of the partners are declared insolvent.
 When the business of the firm becomes unlawful.

3) Dissolution by Notice
When the partnership is at will, the firm may be dissolved by any partner giving notice in
writing to all the others partners of his intention to dissolve the firm. The firm is dissolved
from the date mentioned in the notice. If no date is mentioned, it dissolves from the date
of communication of the notice.

4) Dissolution by Court
The court decides about the dissolution of firm if there is dispute among the partners
regarding dissolution. For example, when the partner becomes insane, and some
partners are willing to continue while other insist on dissolution of firm. The court may
dissolve a firm on any of the following grounds on a suit filed by any of the partners:

 Insanity:

When a partner becomes insane, the court may allow dissolution of firm.
However, temporary sickness is no grounds for dissolution of firm.

 Permanent Incapacity:

When partner become permanently incapable of performing his duties as a

partner, the court may order dissolution of firm.

 Misconduct:
When partner is guilty of misconduct which is likely to adversely affect the
reputation of the firm, the court may dissolve the firm.

 Breach of Agreement:
When a partner commits breach of agreement relating to management of the
affairs of the firm, the court may dissolve the firm. For Example, a partner
takes away books of account or uses firm’s money for private debts etc.
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Advance Commercial Law Partnership Deed 04 April 2k18

 Transfer of Interest
When partner transfers whole of his interest in the firm to a third party without
consent of other partners, the court may dissolve the firm.

 Continuous Losses
When business of a firm cannot be carried on except at a loss the court may
order for the dissolution of the firm.

 Just and equitable

When on any other ground, the court considers it just and equitable that the
firm should be dissolved, the court may dissolve the firm. For example, if
partners are not on speaking terms with each other

PARTNERSHIP DEED
A Partnership agreement contains the terms and conditions relating to partnership and
the rules and regulations governing its management. It may be oral or in writing. When
the partners enter into a written agreement on a stamped paper, the document so
produced is known as ‘Deed of partnership’. A partnership deed embodies the rights
and duties of the partners and also contains provisions relating to the management of
partnership business. Financial arrangement, settlement of accounts at the dissolution
of the firm and so on. These terms and condition are also known as articles of
partnership.

A Partnership Deed should contain provisions relating to the following points:

Names and Address.

Names and address must be written off as:

1. Arif Salam

House # 7 Street # 97 Firdous Market LHR

CNIC NO# 14301-0583454-1

ARIF SALAM MOHAMMAD ALI HASSAN

Advance Commercial Law Partnership Deed 04 April 2k18

2. Mohammad Ali Hassan

House # 9 Street # 28 Walton LHR

CNIC NO# 35201- 4491492-8

Nature and Duration of Business

It’s a Furniture business for the agreement of 10 years partnership.

Capital.
Each of the partners are in investing 20 lac.

Profit and loss sharing Ratio.

Profit and loss should be face by all of them equally.

Drawings.
The amount which could be withdrawn by each partner should also be written to avoid
disputes in the future.

Interest on Capital.
Partners may agree to receive interest at a specific rate on their capital investment.
Similarly, they will be liable to pay interest on their drawings. This fact should be stated
clearly.

Salary or Commission.
The partnership agreement can provide specifically about the amount of salary,
commission or any type of remuneration to be paid to a particular partner or to all.

Division of Work.
The partner can write in their agreement about the activities to e performed by each of
them.
ARIF SALAM MOHAMMAD ALI HASSAN
Advance Commercial Law Partnership Deed 04 April 2k18

Maintenance of Account
The partners can mention the system of maintaining the accounts of the firm.

Goodwill of the Firm

Often the disputed are found the partners about the valuation of the goodwill of the
firm at the time of admission, retirement or death or even at the time of dissolving the
firm. They should fix the formula or the basis for the computation of goodwill of the firm,
so that the future disputes are avoided.

Operation of the Account

Since every partner is entitled to act an agent of the firm, he may claim to exercise his
right of operation of bank account. However, they can specifically delegate their power
to operate bank account to one or more partners and the norms of the operation of
accounts can also be laid down by them.

Arbitration Clause.
If at any time, any dispute arises between the partners, they can refer the matter to
some arbitrator instead of going to the court of law. In courts, not only time and money
are wasted, but the reputation of he firm is also endangered.

Miscellaneous Provisions
The partnership deed may also provide for other matters such as revaluation of
asset, dissolution of partnership, loans, from partners, etc.

ARIF SALAM MOHAMMAD ALI HASSAN

Advance Commercial Law Partnership Deed 04 April 2k18

ARIF SALAM MOHAMMAD ALI HASSAN