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CSEET · Business Laws and Management · Elements of Law relating to Partnership and Limited Liability Partnership

Asha, Bela and Charu run a firm for a fixed term of five years under a deed that fixes their mutual rights and duties. After the term expires, they keep carrying on the business without any new agreement. What is the position of their mutual rights and duties, subject to contract?

Their mutual rights and duties stay the same as they were before the term expired, but only so far as they are consistent with the incidents of a partnership at will. The firm's continuation does not wipe out the earlier arrangement, though it is qualified.

  1. AThey end completely and the partners have no rights against each other
  2. BThey are governed afresh only by the default rules, ignoring the old deed
  3. CThey remain the same as before expiry, so far as consistent with the incidents of partnership at willCorrect
  4. DThey remain the same as before expiry without any exception, even if inconsistent with a partnership at will

Explanation

Section 17(b) says that where a fixed-term firm continues after the term expires, the partners' mutual rights and duties remain the same as before, so far as they are consistent with the incidents of partnership at will. The last option ignores that qualification.

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