unlawked: Partnership Act 1932

The Indian Partnership Act 1932, Act No. 9 of 1932, governs all partnership firms in India. It is a special type of contract and involves elements of agency.

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What is a partnership? - Formation to Dissolution

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A partnership is (section 4)

the relation between persons (individually, "partners", and collectively, the "firm")
who have agreed to share the profits of a business
carried on by all or any of them acting for all.

Formation of a Partnership

Partnerships are created by contract, and may be for a specific purpose or period of time, or may be at the will of the partners. (sections 7, 8) The contract decides the rights and obligations of the partners. In case the contract does not contain any provisions contrary to the Partnership Act, the following provisions on the rights and obligations of the parties apply (sections 11, 12, 13, 16, 21):

right to take part in the business
right to access and inspect the books (financial records) of the firm
right to share profits equally (no right to remuneration), and the corresponding duty to share losses equally
right to interest at the rate of 6% for any loan made to the firm, beyond the capital contribution (this interest can only be paid out of the firm's profits)
right to be repaid for any other expenses made on behalf of the firm or for protecting the firm from loss in case of an emergency (even if this expense exceeds the partners authority)
duty to share any personal profits made by any partner from any transaction of the firm or from any business competing with the firm

Other Rights and Duties

The Partnership Act also lays down the following general rights and duties that apply to all partnerships:

The partners should carry on the business of the firm to the greatest common advantage, be just and faithful to each other, and render true accounts and full information of all things affecting the firm to any partner or his legal representative. (section 9)
If any partner commits fraud, they must indemnify the other partners for any losses caused thereby. (section 10)

Relation of Agency

Any statement or act done by a partner either in the course of business of the firm or explicitly on behalf of the firm is an act of the firm and binds the firm. As every partner is an agent of the firm and of all the other partners, every partner is jointly and severally liable for all the acts of the firm. (sections 18, 22, 23, 25)

Joint and Several Liability
This principle of law means that any one of the partners may be sued for the actions of the firm, and that partner will be fully liable. That partner may then proceed to recover the respective shares of the amount paid from each of the partners.

Anyone who represents themselves as a partner of the firm for any transaction is also considered a partner and has the same level of obligation (but not rights) for the purposes of that transaction, if the person entering into the transaction does so because of such representation. This is known as partner by holding out. (section 28)

Non-Compete Clause

The partnership contract may provide that the partner shall not carry on any business other than that of the firm while he is a partner, or even after leaving the firm or the firm's dissolution, subject to the restrictions being reasonable in terms of the kinds of business, the time period, and the geographical limits. This is an exception to section 27 of the Indian Contract Act 1872 and will not make the contract void. (sections 11, 36, 54)

Registration

The Registrar of Firms is authorised to register partnership firms. Firms may send their applications stating:

the firm name (which cannot contain the following words: Crown, Emperor, Empress, Empire, Imperial, King, Queen, Royal)
the places of business
the name and address of each partner, along with the date on which they joined the firm
the duration, if the firm is for a limited period of time

Any application for changing any of these details, whether due to any mistakes, a reconstitution of the firm, or the dissolution of the firm, should also be made to the Registrar. (sections 59, 60, 61, 62, 63, 64)

The Registrar maintains a Register of Firms, which any person may inspect on the payment of a fee.

Any firm that does not register cannot sue or be sued for any right under a contract (section 69).

Change of the Firm

The firm may be changed by:

introducing a new partner (section 31)
a partner retiring (section 32)
a majority of the partners choosing to expel a partner (section 33)
the insolvency of a partner (section 34)

Dissolution of the Firm

A partnership firm may be dissolved (sections 39, 40, 41, 42, 43, 44):

by agreement, with the consent of all the partners
if the firm is a partnership at will, if any gives the firm a notice of dissolution
by law

if it becomes unlawful for the firm to carry on its business
if the term of the firm expires, or if the purpose of the partnership is fulfilled
when any partner dies
when any partner is declared insolvent

by court, on application by any partner

if any partner becomes of unsound mind
if any partner becomes permanently incapable of performing their duties
if any partner willfully commits breach of agreements
if the business of the firm cannot be carried on save at a loss
on any other just and equitable grounds

Minors as Partners

Minors can normally not be partners in a partnership firm. However, a minor may be admitted with the consent of all the partners to the benefits of a partnership (that is, the minor may share in any profits but will not be liable for any losses). The minor must, within six months of attaining majority, declare whether they want to be a partner or not. If they do not make any declaration within six months, they are considered a full partner, with all the resulting rights, obligations, and liabilities, from that date. (section 30)

Click here for the full text of the Indian Partnership Act 1932 (from indiacode.nic.in)

Partnership Act 1932