Partnership Act, 1932

Partnership Act, 1932
MUHAMMAD ASADULLAH
PHD BUSINESS MANAGEMENT SCHOLAR
CA PART QUALIFIED
Liabilities of Partner and Firm
Liability of a partner for acts of a firm
In order to make a partner liable for any act of the firm, the same must have been done while he
was a partner. The liability of the partner is both joint and several, so that the creditor may
compel any one or more of the partners to discharge the whole of the debts of the firm. [Section
25]
Liability of the firm for wrongful acts of a partner

Where by the wrongful act or omission of a partner acting in the ordinary course of the business
of a firm, loss or injury is caused to any third party or any penalty is incurred the firm is liable
to the same extent as the partner.
In case of fraud, although the firm is liable to the third party for loss caused to the third party by
fraud committed by a partner but as between partners same must be borne by the partner
committing the fraud and cannot be shared among all the partners. [Section 26]
Liability for misapplication by partners

A partner acting within his apparent authority receives money or property from a
third party and misapplies it or
A firm in the course of its business receives money or property from a third party, and
the same is misapplied by any of the partners while it is in the custody of the firm, the
firm is liable to make good the loss. [Section 27]
Liability to indemnify for willful neglect

Every partner is under a liability to indemnify the firm for any loss caused to it by his
willful neglect (i.e. failure to perform a duty or to do something which the partner
should have done) in the conduct of the business of the firm. [Section 13]
Liability to share losses

The partners are bound to contribute to the losses sustained by the firm. An
agreement to share profits may imply an agreement to share losses also. [Section 13]
Liability to account for personal profits
A partner must ‘account to the firm’ for any benefit obtained, without the consent of
the other partners, from any transaction involving the partnership, the partnership
property, the partnership name or the partnership’s business connection. In other
words, if a partner uses the partnership property, name or business connections to
make a secret profit (a personal profit that the other partners do not know about), the
other partners can claim those profits for the partnership. [Section 16(a)]
Liability to account for profit of competing business

If a partner competes in business (as in the case of personal profit) with the
partnership, without the consent of the other partners, he is liable to account to the
partnership for all the profits that he earns from the competing business. [Section
16b)]
Relations of Partners to Third Parties
Agent of the firm
A partner is the agent of the firm for the purpose of the business of the firm. [Section 18]
Authority of partners
The authority of a partner means the capacity of a partner to bind the firm by his act. Since the partnership is
not a legal person, a partner acts as an agent for the other partners. The authority of a partner may be actual or
implied.
Actual authority The authority of each partner to take decisions for the business, and enter into transactions
with other parties, may be specified in the partnership agreement. Since the partnership agreement is a
contract, its terms are the terms of a contractual agreement between the partners.
Implied authority The act of a partner done by him: [Section 19]
- as an agent of the firm
- in the course of business of the firm
- in the name of the firm, or in any other manner expressing an intention to bind the firm. An authority to bind
the firm is known as implied authority of a partner.
Rights of Transferee of a Partner’s Interest
A partner may transfer his interest in the firm by sale, mortgage or charge fully or partially. [Section 29]
Rights of Transferee
 He is entitled to receive the share of the profits of the transferring partner.
 On the dissolution of the firm or on retirement of the transferring partner he is entitled to receive:
the share of the assets of the firm to which the transferring partner is entitled.
an account from the date of the dissolution for the purpose of ascertaining the share.
Disabilities of Transferee
 No status of a partner.
 Disability to interfere in the conduct of the business during the continuance of the firm
 Disability to require accounts.
 Disability to inspect the books of the firm.
 Disability to challenge the accounts of profits agreed to by the partners.
 Disability to sue for dissolution of the firm.
Minor’s Admission to the Benefits of Partnership
Since a minor is not capable of entering into a contract, a contract by or with a minor is void abinitio
i.e. from the beginning. Since partnership is formed by a contract, a minor cannot enter into a
partnership agreement but with the consent of all the partners for the time being a minor may be
admitted to the benefits of partnership. [Section 30]
Position of a minor before attaining majority
 Right to share property and profits of the firm as agreed by the partners
 Right to have access to accounts of the firm ONLY and not to the secret books
 Right not to be adjudged insolvent
Liabilities:
 Personally not liable i.e. limited liability.
 His share is liable for the acts of the firm.
Minor’s Admission to the Benefits of Partnership
Disabilities:
No status of a partner.
No suit against partners for profit and property except after disconnecting his relation with the firm.
Not entitled to have access to books other than accounts.
Position of a minor on attaining majority
On attaining majority the minor partner has to decide within six months whether he shall continue in
the firm or leave it. These six months run from the date:
 of his attaining majority or
 when he first comes to know that he had been admitted to the benefits of partnership, whichever
is later.
Within this period he should give a public notice of his choice:
 to become or
 not to become a partner in the firm.
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Partnership Act, 1932

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Copyright:

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Partnership Act, 1932

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Copyright:

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Partnership Act, 1932

Liability of the firm for wrongful acts of a partner

Liability for misapplication by partners

Liability to indemnify for willful neglect

Liability to share losses

Liability to account for profit of competing business

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