Law of Partnership

Presented by: FAIZAN AHMED

Meaning &Definition of Partnership

PARTNERSHIP IS THE RELATION BETWEEN TWO OR MORE PERSONS WHO HAVE AGREED TO SHARE THE PROFITS OF A BUSINESS CARRIED ON BY ALL OR ANY OF THEM ACTING FOR ALL. Thus, Partnership is the name of legal relationship between/among persons who have entered in to the contract.

Maximum Limit on Number of Partners

In case of partnership firm carrying on a banking business In case of partnership firm carrying on any other business

10 20

If the number of partners exceeds the above mentioned limit, the partnership firm becomes an illegal association.

Legal Entity: Agreement:

CHACTERISTICS OF PARTNERSHIP

A partnership has no separate legal entity apart from its members. It means the firm and partners are not separate from one another.

A partnership is a result of agreement between persons. An agreement may be written or oral. Only the persons who are competent to contract can form a partnership.

Number of Partners:
There must be at least 2 persons to form a partnership. The partnership Act does not mention the maximum limit of persons who can be partners in a partnership firm. According to section 14 of Companies Ordinance 1984, a partnership consisting of more than 20 persons cannot be formed.

Existence of Business:
The partners must agree to carry on a business. If the purpose is something other than business, it is not partnership. Therefore when there is no business, there is no partnership.

Sharing of Profits:
The agreement between partners must be to share the profits of a business. The profit will be distributed amongst the partners according to their agreement. The partners will share the loss according to the agreed ratio.

Mutual Agency:
The business must be carried on by all the partners or any of them acting for all the partners. Each partner acts as an agent of other partners of the firm. Again, each partner acts as a principal also because he binds himself to the activities of other partners. It means that the contract of agency exists among partners.

Unlimited Liability:
The liability of partners is unlimited in case of debts. All the partners are individually and collectively responsible for the debts of the business. It means that if there is any loss and the business sources are insufficient to meet the claims of the creditors, the private properties of the partners can be sold to meet the claims of the creditors.

Capital:
Generally, the capital of the firm is provided by all the partners. It is not necessary to contribute equal capital. A person without contributing any capital may also become a partner.

Utmost faith:
A partnership business Is based on mutual confidence and trust of the partners. The partners must be just and honest with each other. They must disclose all facts and provide true accounts relating to the business to each other. They must not make any secret profit.

Management:
According to law, every partner can take part in the conduct and management of the business of the firm. Generally, the work is divided amongst partners according to their experience and knowledge.

Control:
Since partnership is formed by an agreement, its control depends on the terms of the agreement. Where all the partners can take active part in the conduct of the business, the control remains with all of them and all major decisions are taken with the consent of all the partners. Otherwise, control may be given to one or more partners under the agreement

Transfer of Interest:
A partner cannot transfer his share in the partners to an outsider without the consent of all other partners. Thus, share in partnership is not freely transferable.

Duration:
The partnership continues at the will of the partners. It comes to an end if anyone of the partners dies or become insolvent. However, if remaining partners agree to continue the business, the firm will not dissolve.

Types of Partnership
On the Basis of Duration

Partnership at Will

Particular Partnership

Partnership at Will
When there is no provision in partnership agreement (known as partnership Deed, if in writing) for: The duration of their partnership, or The determination of their partnership, then the partnership is called Partnership at Will. Special feature of Partnership at will is that such firm may be dissolved by any partner by giving a notice in writing to all other partners of his intention to dissolve the firm The firm will be dissolved from that date which is mentioned in the notice as the date of dissolution and if no date is mentioned then from the date of communication of notice.

Particular Partnership

When a partnership is formed for a

Specific venture or undertaking, or Particular period (fixed term)

then such partnership is called a particular partnership. Such partnership comes to an end on the completion of the venture or the expiry of time period. A particular partnership may be dissolved before the expiry of the term or completion of the venture only by the mutual consent of all the partners.

THE END