The Indian Partnership Act, 1932 – Units 1-3 (Chapters 4.1-4.3)

Vocabulary flashcards summarising key terms and concepts from Units 1–3 of Chapter 4, Indian Partnership Act 1932. Ideal for exam review.

Partnership (Sec 4)

Relationship between persons who agree to share profits of a business carried on by all or any acting for all.

Partner

Individual who has entered into partnership with other persons.

Firm

Collective name for partners engaged in partnership.

Firm Name

The name under which a partnership business is carried on.

Element 1 – Association of Two or More

Partnership must consist of at least two legally capable persons.

Maximum Partners (Companies Act 2013, Sec 464)

No partnership association may exceed 50 members.

Element 2 – Agreement

Partnership arises only from contract, express or implied; not from status.

Element 3 – Business

Must involve a trade, occupation or profession with intent to earn gains.

Element 4 – Sharing of Profits

Partners must agree to share profits; sharing losses is optional.

Element 5 – Mutual Agency

Business carried on by all or any acting for all; true test of partnership.

Partnership Deed

Written (preferable) or oral agreement spelling partners’ rights & duties.

Partnership at Will (Sec 7)

Partnership with no fixed term or dissolution clause; may be ended by notice.

Particular Partnership

Partnership formed for a single adventure or undertaking.

General Partnership

Partnership for continuous business without limitation to a single venture.

Active / Ostensible Partner

Takes part in business and is agent of firm; public notice required on retirement.

Sleeping / Dormant Partner

Shares profits & liabilities but takes no active role; no notice needed on retirement.

Nominal Partner

Lends name to firm without capital or profit share; liable to third parties.

Partner in Profits Only

Entitled to profits but not losses; liable to third parties.

Incoming Partner

Admitted with consent of all existing partners; not liable for acts before admission.

Outgoing / Retiring Partner

Leaves firm while others continue; liable for acts until public notice of retirement.

Partner by Holding Out (Sec 28)

Person liable as partner because of representation or conduct inducing belief.

General Duties (Sec 9)

Act for greatest common advantage, render true accounts, disclose full info, maintain good faith.

Indemnity for Fraud (Sec 10)

Partner causing loss by fraud must indemnify firm.

Determination by Contract (Sec 11)

Partners may vary mutual rights & duties by express or implied agreement.

Right to Participate (Sec 12(a))

Every partner may take part in conduct of business unless agreed otherwise.

Duty of Diligence (Sec 12(b))

Partner must attend diligently to business duties.

Majority Decisions (Sec 12(c))

Differences decided by majority; unanimity needed for change in nature of business.

Access to Books (Sec 12(d))

Each partner may inspect and copy firm books in good faith.

Remuneration Rule (Sec 13(a))

No partner entitled to salary unless agreed or customary.

Equal Share Default (Sec 13(b))

Partners share profits and losses equally unless agreed otherwise.

Interest on Capital (Sec 13(c))

Payable only if agreed, customary, or statutory.

Interest on Advances (Sec 13(d))

Partner’s extra loan earns 6% p.a. until repayment.

Right to Indemnity (Sec 13(e))

Firm must indemnify partner for payments made in ordinary course or emergency.

Liability to Indemnify Firm (Sec 13(f))

Partner must indemnify firm for loss caused by wilful neglect.

Partnership Property (Sec 14)

Assets brought in, acquired for firm, or goodwill intended for common use.

Application of Property (Sec 15)

Firm property held & used exclusively for partnership purposes.

Personal Profit Rule (Sec 16)

Partner must account to firm for profit from firm transactions, property, name, or competing business.

Agency of Partner (Sec 18)

Every partner is agent of the firm for business purposes.

Implied Authority (Sec 19)

Partner binds firm by acts in ordinary course unless restricted & third party aware.

Acts Outside Implied Authority

Submitting disputes to arbitration, opening personal bank account, selling firm realty, etc.

Partner’s Emergency Authority (Sec 21)

May act prudently in emergency to protect firm; acts bind firm.

Binding Acts (Sec 22)

Act binds firm if done in firm name or in a manner indicating intent to bind.

Notice to Partner (Sec 24)

Notice to active partner is notice to firm, except where partner commits fraud.

Liability for Firm Acts (Sec 25)

Partners jointly & severally liable for acts within authority while partners.

Firm’s Liability for Wrongful Acts (Sec 26)

Firm liable for partner’s wrongful acts done in ordinary course or with authority.

Misapplication Liability (Sec 27)

Firm liable when partner receives and misapplies third-party money/property.

Transfer of Partner’s Interest (Sec 29)

Assignable right to profits & assets share; transferee gets no management rights.

Minor Admitted to Benefits (Sec 30)

Minor may share profits with consent of all; liability limited to share; must elect within 6 months of majority.

Admission of New Partner (Sec 31)

Requires consent of all partners; liability for prior acts only by novation with creditors.

Retirement (Sec 32)

By consent, agreement, or notice (at-will); liability continues until public notice.

Expulsion (Sec 33)

Must be by contract power, majority, and in good faith; else invalid.

Insolvent Partner (Sec 34)

Ceases to be partner from adjudication date; mutual liabilities end thereafter.

Deceased Partner’s Estate (Sec 35)

Not liable for acts after death; firm may continue if agreed.

Competing Business by Outgoing Partner (Sec 36)

May compete but cannot use firm name, represent firm, or solicit old customers unless agreed.

Outgoing Partner’s Share of Profits (Sec 37)

Entitled to share of profits attributable to use of his property or 6% interest until settlement.

Continuing Guarantee Revocation (Sec 38)

Continuing guarantee to firm revoked on change in constitution unless agreed otherwise.

Registration Optional in India

Partnership registration not compulsory; no penalty for non-registration, but disabilities apply.

Application for Registration (Sec 58)

Statement with firm name, business place(s), partner details, joining date, duration; signed by all partners.

Registrar’s Entry (Sec 59)

Registration complete on delivery of compliant statement; certificate issued later.

Late Registration Penalty (Sec 59A)

₹100 per year (or part) of delay beyond specified time.

Disability 1 – Suit by Unregistered Firm (Sec 69)

Unregistered firm or partner cannot sue third party on contract.

Disability 2 – No Set-off > ₹100

Unregistered firm cannot claim set-off or other proceeding over ₹100.

Disability 3 – Partner vs Firm

Partner of unregistered firm cannot sue firm or co-partners except for dissolution, accounts, or property realization.

Exceptions to Sec 69

Third party suits, suits for dissolution/accounts, small claims ≤₹100, insolvency assignee rights, legal heirs’ actions.

Dissolution of Partnership Vs Firm

Partnership dissolution may involve a partner’s exit; firm dissolution ends relation among all partners.

Modes: Dissolution by Agreement (Sec 40)

Firm dissolved with consent of all or as per contract.

Compulsory Dissolution (Sec 41)

Occurs on insolvency of all/ all but one partner or illegality of business.

Contingent Dissolution (Sec 42)

On expiry, completion of venture, death, or insolvency, subject to contract.

Notice of Dissolution (Sec 43)

At-will firm dissolved by written notice by any partner.

Court-ordered Dissolution (Sec 44)

Grounds: insanity, permanent incapacity, misconduct, persistent breach, transfer of interest, continued losses, just & equitable.

Liability After Dissolution (Sec 45)

Partners liable for post-dissolution acts until public notice; exceptions for deceased, insolvent, or dormant partners.

Right to Wind Up (Sec 46)

Partners entitled to have firm property applied to debts and surplus distributed.

Continuing Authority (Sec 47)

Partner authority continues for winding up & completing unfinished transactions.

Settlement of Accounts (Sec 48)

Losses paid out of profits, capital, then partners; assets applied to debts, partner advances, capitals, residue in PSR.

Rule in Garner v Murray

Deficiency from insolvent partner borne by solvent partners in ratio of last agreed capitals.

Separate vs Firm Debts (Sec 49)

Firm assets pay firm debts first; partner’s separate assets pay personal debts first.

Goodwill on Dissolution

Intangible asset to be valued & distributed or sold like other firm property.

Mutual Agency – True Test

Existence of mutual agency distinguishes partnership from co-ownership.

LLP vs Partnership

LLP is separate legal entity with limited liability; partnership firm is not.

Joint Hindu Family vs Partnership

HUF arises by status, managed by Karta; partnership arises by contract, managed collectively.

Company vs Partnership

Company has separate legal personality, limited liability, perpetual succession; partnership lacks these.

Co-ownership

Joint ownership of property without intention to carry on business for profit.

Minor’s Election Period

Within 6 months after majority/knowledge to choose to become partner.

Novation

Tripartite agreement substituting liabilities, required to bind incoming partner to past debts.

Public Notice Requirements

Given in Official Gazette & local newspaper and sent to Registrar for retirement, expulsion, dissolution, etc.

Stamping & Registration of Deed

Partnership deed should be stamped; deed affecting immovable property must also be registered.

Profit-linked Remuneration

Receiving share of profits alone does not create partnership (e.g., lender’s interest, employee bonus).

Reconstitution

Change in partnership relation due to admission, retirement, insolvency, expulsion, or death while firm continues.

Holding Out Liability Limits

Only creditor who relied on representation can enforce liability; requires unchanged representation.

Restricting Implied Authority (Sec 20)

Partners may extend/restrict authority by unanimous agreement known to third parties.

Good Faith

Utmost honesty and fairness owed by each partner to co-partners.

Capital vs Advance

Capital is agreed contribution forming firm property; advance is extra loan earning 6% interest.

Profit Share vs Capital Contribution

Default profit share equal; independent of ratio of capital invested.

Mutual Rights Unchanged by Change in Firm (Sec 17)

Rights & duties remain, so far as transferable, after change, term expiry, or new undertakings.

Registration – Invalid Firm Names

Words like Crown, Emperor, Royal, etc., prohibited without State consent.

Dissolution Public Notice Effects

Ends continuing liability and authority except for winding up purposes.

Just & Equitable Grounds

Deadlock, loss of substratum, partnership at loggerheads, etc., justify court dissolution.