General Nature of a Partnership (Part - 2) CA Foundation Notes | EduRev

Business Laws for CA Foundation

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CA Foundation : General Nature of a Partnership (Part - 2) CA Foundation Notes | EduRev

The document General Nature of a Partnership (Part - 2) CA Foundation Notes | EduRev is a part of the CA Foundation Course Business Laws for CA Foundation.
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Partnership vs. Hindu Undivided Family

Basis of difference
Partnership
Joint Hindu family
Mode of creation
Partnership is created necessarily by an agreement.
The right in the joint family is created by status means its creation by birth in the family.
Death of a member
Death of a partner ordinarily leads to the dissolution of partnership.
The death of a member in the Hindu undivided family does not give rise to dissolution of the family business.
Management
All the partners are equally entitled to take part in the partnership business.
The right of management of joint family business generally vests in the Karta, the governing male member or female member of the family.
Authority to bind
Every partner can, by his act, bind the firm.
The Karta or the manager, has the authority to contract for the family business and the other members in the family.
Liability
In a partnership, the liability of a partner is unlimited.
In a Hindu undivided family, only the liability of the Karta is unlimited, and the other coparcener are liable only to the extent of their share in the profits of the family business.
Calling for accounts on closure
A partner can bring a suit against the firm for accounts, provided he also seeks the dissolution of the firm.
On the separation of the joint family, a member is not entitled to ask for account of the family business.
Governing Law
A partnership is governed by the Indian Partnership Act, 1932.
A Joint Hindu Family business is governed by the Hindu Law.
Minor’s capacity
In a partnership, a minor cannot become a partner, though he can be admitted to the benefits of partnership, only with the consent of all the partners.
In Hindu undivided family business, a minor becomes a member of the ancestral business by the incidence of birth. He does not have to wait for attaining majority.
Continuity
A firm subject to a contract between the partners gets dissolved by death or insolvency of a partner.
A Joint Hindu family has the continuity till it is divided. The status of Joint Hindu family is not thereby affected by the death of a member.
Number of Members
In case of Partnership number of members should not exceed 50.
Members of HUF who carry on a business may be unlimited in number.
Share in the business
In a partnership each partner has a  defined share by virtue of an agreement between the partners.
In a HUF, no coparceners has a  definite share. His interest is a fluctuating one. It is capable of being enlarged by deaths in the family diminished by births in the family.


1 Joint Hindu Family: The amendment in the Hindu Succession Act, 2005, entitled all adult members – Hindu males and females to become coparceners in a HUF. They now enjoy equal rights of inheritance due to this amendment. On 1st February 2016, Justice Najmi Waziri gave a landmark judgement which allowed the eldest female coparceners of an HUF to become its Karta.


Partnership Vs. Co-Ownership or joint ownership i.e. the relation which subsists between persons who own property jointly or in common.

Basis of difference
Partnership
Co-Ownership
Formation
Partnership always arises out of a contract, express or implied.
Co-ownership may arise either from agreement or by the operation of law, such as by inheritance.
Implied agency
A partner is the agent of the other partners.
A co-owner is not the agent of other coowners.
Nature of interest
There is community of interest which means that profits and losses must have to be shared.
Co-ownership does not necessarily involve sharing of profits and losses.
Transfer of interest
A share in the partnership is transferred only by the consent of other partners.
A co-owner may transfer his interest or rights in the property without the consent of other co-owners.


KINDS OF PARTNERSHIPS

The following chart illustrates the various kinds of partnership:

General Nature of a Partnership (Part - 2) CA Foundation Notes | EduRev


The various kinds of partnership are discussed below:

1. Partnership at will according to Section 7 of the Act, partnership at will is a partnership when:

1. no fixed period has been agreed upon for the duration of the partnership; and

2. there is no provision made as to the determination of the partnership.

These two conditions must be satisfied before a partnership can be regarded as a partnership at will. But, where there is an agreement between the partners either for the duration of the partnership or for the determination of the partnership, the partnership is not partnership at will.

Where a partnership entered into for a fixed term is continued after the expiry of such term, it is to be treated as having become a partnership at will.

A partnership at will may be dissolved by any partner by giving notice in writing to all the other partners of his intention to dissolve the same.

2. Partnership for a fixed period: Where a provision is made by a contract for the duration of the partnership, the partnership is called ‘partnership for affixed period’. It is a partnership created for a particular period of time. Such a partnership comes to an end on the expiry of the fixed period.

3. Particular partnership: A partnership may be organized for the prosecution of a single adventure as well as for the conduct of a continuous business. Where a person becomes a partner with another person in any particular adventure or undertaking the partnership is called ‘particular partnership’. A partnership, constituted for a single adventure or undertaking is, subject to any agreement, dissolved by the completion of the adventure or undertaking.

4. General partnership: Where a partnership is constituted with respect to the business in general, it is called a general partnership. A general partnership is different from a particular partnership. In the case of a particular partnership the liability of the partners extends only to that particular adventure or undertaking, but it is not so in the case of general partnership.

Partnership Deed

Partnership is the result of an agreement. No particular formalities are required for an agreement of partnership. It may be in writing or formed verbally. But it is desirable to have the partnership agreement in writing to avoid future disputes. The document in writing containing the various terms and conditions as to the relationship of the partners to each other is called the ‘partnership deed’. It should be drafted with care and be stamped according to the provisions of the Stamp Act, 1899. Where the partnership comprises immovable property, the instrument of partnership must be in writing, stamped and registered under the Registration Act.

Partnership deed may contain the following information:

1. Name of the partnership form.

2. Names of all the partners.

3. Nature and place of the business of the firm.

4. Date of commencement of partnership.

5. Duration of the partnership firm.

6. Capital contribution of each partner.

7. Profit Sharing ratio of the partners.

8. Admission and Retirement of a partner.

9. Rates of interest on Capital, Drawings and loans.

10. Provisions for settlement of accounts in the case of dissolution of the firm.

11. Provisions for Salaries or commissions, payable to the partners, if any.

12. Provisions for expulsion of a partner in case of gross breach of duty or fraud.

A partnership firm may add or delete any provision according to the needs of the firm.


TYPES OF PARTNERS

Based on the extent of liability, the different classes of partners are:

General Nature of a Partnership (Part - 2) CA Foundation Notes | EduRev


Active or Actual or Ostensible partner:

General Nature of a Partnership (Part - 2) CA Foundation Notes | EduRev


He acts as an agent of other partners for all acts done in the ordinary course of business. In the event of his retirement, he must give a public notice in order to absolve himself of liabilities for acts of other partners done after his retirement.


Sleeping or Dormant Partner:

General Nature of a Partnership (Part - 2) CA Foundation Notes | EduRev 


They are called as ‘sleeping’or ‘dormant’ partners. They share profits and losses and are liable to the third parties for all acts of the firm. They are, however not required to give public notice of their retirement from the firm.

Nominal Partner: A person who lends his name to the firm, without having any real interest in it, is called a nominal partner.

He is not entitled to share the profits of the firm. Neither he invest in the firm nor takes part in the conduct of the business. He is, however liable to third parties for all acts of the firm.

General Nature of a Partnership (Part - 2) CA Foundation Notes | EduRev


Partner in profits only: A partner who is entitled to share the profits only without being liable for the losses is known as the partner for profits only and also liable to the third parties for all acts of the profits only.

General Nature of a Partnership (Part - 2) CA Foundation Notes | EduRev


Incoming partners: A person who is admitted as a partners into an already existing firm with the consent of all the existing partners is called as “incoming partner”. Such a partner is not liable for any act of the firm done before his admission as a partner.

Outgoing partner: A partner who leaves a firm in which the rest of the partners continue to carry on business is called a retiring or outgoing partner. Such a partner remains liable to third parties for all acts of the firm until public notice is given of his retirement.

Partner by holding out (Section 28): Partnership by holding out is also known as partnership by estoppel. Where a man holds himself out as a partner, or allows others to do it, he is then stopped from denying the character he has assumed and upon the faith of which creditors may be presumed to have acted.

General Nature of a Partnership (Part - 2) CA Foundation Notes | EduRev

A person may himself, by his words or conduct have induced others to believe that he is a partner or he may have allowed others to represent him as a partner. The result in both the cases is identical.

Example: X and Y are partners in a partnership firm. X introduced A, a manager, as his partner to Z. A remained silent. Z, a trader believing A as partner supplied 100 T.V sets to the firm on credit. After expiry of credit period, Z did not get amount of T.V sets sold to the partnership firm. Z filed a suit against X and A for the recovery of price. Here, in the given case, A, the Manager is also liable for the price because he becomes a partner by holding out (Section 28, Indian Partnership Act, 1932).

It is only the person to whom the representation has been made and who has acted thereon that has right to enforce liability arising out of ‘holding out’.

You must also note that for the purpose of fixing liability on a person who has, by representation, led another to act, it is not necessary to show that he was actuated by a fraudulent intention.

The rule given in Section 28 is also applicable to a former partner who has retired from the firm without giving proper public notice of his retirement. In such cases a person who, even subsequent to the retirement, give credit to the firm on the belief that he was a partner, will be entitled to hold him liable.

Example: A partnership firm consisting of P, Q, R and S. S retires from the firm without giving public notice and his name continues to be used on letterheads. Here, S is liable as a partner by holding out to creditors who have lent on the faith of his being a partner.

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