CA Foundation · Business Laws

The Indian Partnership Act, 1932: formula sheet

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Key formulas

Definition of partnership (Section 4): Partnership = agreement + business + sharing of profits + business carried on by all or any acting for all; Write the four elements in this order. Partners are individually 'partners', collectively a 'firm', and the business name is the 'firm name'.
Source of partnership (Section 5): Partnership arises from contract, not from status; Members of an HUF carrying on a family business as such are not partners. Same for a Burmese Buddhist husband and wife carrying on business as such.
Test of partnership (Section 6): Existence of partnership = real relation between the parties, shown by all relevant facts taken together; Profit sharing alone is not conclusive. Check the explanations on joint property and on lender, servant or agent, widow or child, and previous owner.
Particular partnership (Section 8): A person may become a partner in particular adventures or undertakings; A partnership can be for one venture. It need not be a continuing business.
Partnership at will (Section 7): No contract provision for duration or determination = partnership at will; Under Section 43, any partner can dissolve it by written notice to all other partners.
Partnership (Section 4): Agreement + share profits + business + carried on by all or any acting for all; All four elements must be present. Mutual agency is the 'acting for all' part.
Holding out (Section 28(1)): Represents self or knowingly permits representation as partner + credit given on faith of it = liable as partner to that creditor; Liability is only to those who gave credit relying on the representation. Knowledge that it reached the creditor is not needed.
Continued firm name after death (Section 28(2)): Old firm name continued after death ≠ liability of deceased partner's estate for later acts; The use of the name does not by itself make the legal representative or estate liable.
Partnership at will (Section 7): No contract provision on duration or determination = partnership at will; Any partner can dissolve by written notice to all other partners (Section 43). Dissolution is from the date in the notice, or from communication if no date is given.
Particular partnership (Section 8): Partnership for particular adventures or undertakings; If the firm carries out other adventures, mutual rights and duties stay the same, subject to contract (Section 17(c)).
Minor in a firm (Section 30): Minor cannot be a partner; may be admitted to benefits with consent of all partners; share is liable, minor is not personally liable; Within six months of attaining majority or learning of admission, whichever is later, he may give public notice electing to become or not become a partner. If he fails, he becomes a partner on expiry.
Mutual rights (Section 12 and Section 13 defaults): Every partner may take part in conduct of business; has access to books; shares profits equally; has no salary; is paid interest on advances at 6% p.a.; no interest on capital; is indemnified for payments made and liabilities incurred in the ordinary and proper conduct of business, and for acts done in an emergency to protect the firm from loss, as a person of ordinary prudence would; These apply only if the deed or a contract does not say otherwise. Profits are shared equally even if capital is unequal.
Duties of partners: Carry on business to the greatest common advantage; be just and faithful; render true accounts and full information; indemnify the firm for loss caused by wilful neglect or fraud; do not make secret profit; do not compete with the firm; hold and use firm property only for firm purposes; Do not cite section numbers you are unsure of. A correct rule in plain words scores well.
Section 19(1) Implied authority: Act done to carry on the business in the usual way binds the firm; Authority is subject to Section 19(2) exceptions.
Section 19(2) Acts a partner cannot do without express authority: In the absence of any usage or custom of trade to the contrary, the implied authority does not empower a partner to: (a) submit a dispute relating to the business to arbitration; (b) open a bank account on behalf of the firm in his own name; (c) compromise or relinquish any claim or portion of a claim by the firm; (d) withdraw a suit or proceeding filed on behalf of the firm; (e) admit any liability in a suit or proceeding against the firm; (f) acquire immovable property on behalf of the firm; (g) transfer immovable property belonging to the firm; (h) enter into partnership on behalf of the firm; Memory aid: group them as disputes (a, c, d, e), money and property (b, f, g) and partnership (h). Authority can be extended by agreement.
Section 25 Liability of a partner for acts of the firm: Every partner is liable jointly with all other partners and also severally for all acts of the firm done while he is a partner; A creditor can sue all partners together or recover the full amount from any one. That partner can then claim contribution from the others.
Section 26 Liability for wrongful acts of a partner: Where loss or injury is caused to any third party by the wrongful act or omission of a partner acting in the ordinary course of the firm's business or with the authority of his partners, the firm is liable to the same extent as the partner; The firm is liable only if the act was in the ordinary course of business or authorised by the other partners. A private wrong outside the firm's business does not make the firm liable.
Section 27 Misapplication by partner: The firm must make good the loss in two cases: (1) a partner acting within his apparent authority receives money or property from a third party and misapplies it; (2) the firm, in the course of its business, receives money or property from a third party and a partner misapplies it while it is in the custody of the firm; The test in the first case is apparent authority. In the second case it is receipt by the firm in the course of its business, plus misapplication while the property is in the firm's custody.
Registration is optional: Registration may be effected at any time (Section 58); No time limit and no compulsion. The penalty for not registering is the Section 69 disability.
Contents of the statement (Section 58): Firm name + principal place + other places + date each partner joined + names and permanent addresses + duration; Six items. Signed by all partners or specially authorised agents, and each signer verifies it.
Register of Firms entry: Registrar satisfied with Section 58 compliance → records entry in Register of Firms and files statement (Section 59); Registration takes effect through this entry.
Section 69(1): Partner v/s firm or other partners: no suit unless firm registered AND the plaintiff is shown in the Register as a partner; Covers a right arising from a contract or conferred by the Act.
Section 69(2): Firm v/s third party: no suit on a contract unless firm registered AND the persons suing are shown in the Register as partners; Applies to rights arising from a contract.
Section 69(3): Bar also applies to set-off or other proceeding to enforce a contractual right; Does not affect suit for dissolution, accounts of a dissolved firm, or realising property of a dissolved firm.
Section 69(4) exceptions: No bar for firms with no place of business in the territories where the Act extends, or in areas notified as exempt; or for small suits not exceeding ₹100 in value; The ₹100 suits are those which are not of a kind specified in the Small Cause Courts provisions given in the section.
Evidence (Section 68): Entry is conclusive proof against the person who signed it or on whose behalf it was signed; A certified copy of the entry can prove registration and the contents of the statement.
Registrar's corrective powers: Section 64: Registrar may rectify mistakes; Section 65: Court may direct amendment; Section 64(1) aligns the entry with filed documents. Section 64(2) needs an application by all signatories.
Admission of a partner: New partner = consent of all existing partners (unless contract says otherwise); A new partner is not liable for acts done before admission. He is liable for acts after admission. No section number is needed in the answer.
Modes of retirement – Section 32(1): (a) consent of all other partners; (b) express agreement; (c) written notice to all other partners if partnership at will; Written notice works only for a partnership at will.
Expulsion – Section 33(1): Expulsion valid only if: power given by contract + exercised in good faith; No majority, however large, can expel without a contractual power. Section 33(2) applies Section 32(2), (3) and (4) to the expelled partner.
Liability after retirement – Section 32(3): Retired partner liable for acts of the firm until public notice is given; Proviso: not liable to a third party who deals with the firm without knowing he was a partner.
Discharge from past liability – Section 32(2): Agreement between retiring partner, third party and the reconstituted firm's partners; It may be implied from a course of dealing after the third party knows of the retirement.
Public notice – Section 72: Registered firm (retirement or expulsion): notice to Registrar under Section 63 + Official Gazette + vernacular newspaper. Other cases: Gazette + vernacular newspaper; The newspaper must circulate in the district of the firm's place or principal place of business. Notice may be given by the retired partner or any partner of the reconstituted firm (Section 32(4)).
Outgoing partner's share of profits – Section 37: Either profits attributable to use of his share of firm property, or interest at 6% p.a. on his share; Applies when continuing partners carry on the business with firm property without final settlement, and there is no contrary contract. The option is the outgoing partner's or his estate's.
Option to purchase – proviso to Section 37: Option given by contract + duly exercised = no further share of profits; If the option is not exercised in all material respects as per its terms, the partner must account under Section 37.
Competing business – Section 36: May compete and advertise; may not use firm name, claim to carry on the firm's business, or solicit the firm's old customers (unless contract allows); A partner may agree not to carry on a similar business within a specified period or area, valid if the restrictions are reasonable.
Liability of partners – Section 25: Every partner is liable jointly and also severally for all acts of the firm done while he is a partner; This is why the date of leaving matters.
Dissolution of the firm: Dissolution of partnership between ALL partners = dissolution of the firm (Section 39); Use this line to separate it from a mere change in the partnership, where the business continues.
Dissolution by notice (at will): Partnership at will → any partner gives written notice to all others (Section 43); Dissolved from the date in the notice, or from the date the notice is communicated if no date is given.
Court grounds (Section 44): (a) unsound mind (b) permanent incapacity (c) prejudicial conduct (d) wilful or persistent breach (e) transfer of whole interest (f) business only at a loss (g) just and equitable; Memory aid: U-I-C-B-T-L-J. In grounds (b) to (e), the partner who is guilty must be someone other than the partner suing.
Order of meeting losses (Section 48(a)): Losses and capital deficiencies: 1. profits → 2. capital → 3. partners individually in profit-sharing ratio; Applies subject to agreement between the partners.
Order of applying assets (Section 48(b)): 1. Debts to third parties → 2. Partners' advances (rateably) → 3. Partners' capital (rateably) → 4. Residue shared in profit-sharing ratio; Contributions by partners to make up capital deficiencies are also part of the assets.
Goodwill (Section 55): Goodwill is included in the assets and may be sold separately or with other property, subject to contract; After a sale, a seller may compete and advertise, but subject to agreement cannot use the firm name, represent that he carries on the firm's business, or solicit former customers.
Private and firm debts (Section 49): Firm property → firm debts first; surplus → partners' separate debts. Separate property → separate debts first; surplus → firm debts; Firm creditors and personal creditors each get first claim on their own pool.

Quick revision

Section 4: partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
Persons are individually partners, collectively a firm, and the business name is the firm name.
Section 11: partners' mutual rights and duties can be set by contract, express or implied by a course of dealing, and varied by consent of all partners.
Section 17: after a change in the firm, the mutual rights and duties stay the same as far as may be, subject to contract.
Section 17(b): if a fixed-term firm continues after expiry, rights and duties continue, so far as consistent with partnership at will.
Section 30: a minor cannot be a partner but can be admitted to the benefits of partnership with the consent of all the partners.
A minor's share is liable for the firm's acts, but the minor is not personally liable.
A minor has six months from attaining majority or learning of admission, whichever is later, to give public notice electing to become or not become a partner. If no notice is given, he becomes a partner.
Section 32: a partner may retire with consent of all, by express agreement, or by written notice if the partnership is at will.
A retired partner remains liable to third parties until public notice of retirement is given, except to those who deal with the firm without knowing he was a partner.
Section 48: losses are paid first from profits, then capital, then by partners individually in profit-sharing proportion.
Section 48 assets order: third-party debts, partners' advances, partners' capital, then any residue shared in profit ratio.

Common mistakes

Saying anyone who receives a share of profits is a partner. Fix: Quote Section 6: receiving a share of profits does not of itself make a person a partner. Look at the real relation and the listed exceptions.
Treating an HUF carrying on a family business as a partnership. Fix: Use Section 5: partnership arises from contract, not status. Members of an HUF carrying on a family business as such are not partners.
Treating anyone who receives a profit share as a partner. Fix: Apply Section 6. A lender, servant or agent, widow or child annuitant, or goodwill seller paid from profits is not a partner by that receipt alone. Look at the real relation.
Saying a holding-out partner is liable to everyone. Fix: Liability is only to those who gave credit to the firm on the faith of the representation.
Saying partners share profits in proportion to capital when the deed is silent. Fix: Remember: if there is no agreement, profits are shared equally and losses likewise, whatever the capital contributed.
Giving partners a salary or interest on capital as a default right. Fix: By default there is no remuneration and no interest on capital. Only interest on advances (6% p.a.) is a default right. Anything else needs an agreement.
Writing that registration of a firm is compulsory. Fix: Write that registration is voluntary and may be done at any time. Then explain the consequences of not registering under Section 69.
Saying an unregistered firm is illegal or void. Fix: Say the firm remains valid. Only the right to file certain suits is barred.
Saying a majority of partners can expel a partner. Fix: Remember Section 33(1): expulsion needs a contractual power and good faith. Majority alone is never enough.
Saying a retired partner is free from liability the day he retires. Fix: Liability to third parties continues until public notice, except towards persons who did not know he was a partner.

Exam tips

Write the Section 4 definition word for word in the first line of every answer on this topic. It earns marks even if you slip later.
In case-based questions, mention Section 6 and the phrase 'real relation between the parties'. Then name the Explanation 2 category that fits the facts.
For difference questions, use pairs on the same heads: formation, legal status, liability, membership, governing law. Aim for 4 to 5 pairs.
Always end with a one-line conclusion saying whether a partnership exists. Subjective papers give marks for a clear conclusion.
Learn the four elements as ABPM. Use it to structure a quick answer when time is short.
For holding out, always write the three conditions: representation, credit given on its faith, and liability only to that creditor.
In minor questions, quote Section 30 sub-sections by number: (1) status, (3) liability, (5) election and six months, (7) after becoming partner.
Define each type of partner in one line plus one distinguishing feature. Examiners reward clear contrasts such as nominal (no real interest) versus sleeping (real investment, no management).