By
BRIG(R) MUHAMMAD SALEEM SI(M)

 Nature of Partnership
 Partnership by Status
 Mode of Determining Existence of Partnership
 General Duties of Partners
 Contract Determination of Rights and Duties
of Partner
 Agreement in Restraint
Sec 2,4,5,6,9,11,17
PARTNERSHIP ACT

 Partnership is the relation between persons
who have agreed to share the profits of
business carried on by all or any of them
acting for all.
 Individually called Partners
 Collectively Firm
 Name under which business carried on called
Firm Name (sec-4)

 Association of two or more persons - Must
 Agreement- Definite
 Sharing of profits – Must
 Business – Must
 Business be carried on –Must

Sec – 7&8

 General
 Limited
 At Will
 Particular

 In a general partnership, the liability of each partner
is unlimited. It means that the firm's creditors can
realize their dues in full from any of the partners by
attaching their personal property if the firm's assets
are found to be inadequate to pay off its debts.
 An exception is made in the case of a minor partner
whose liability is limited to the amount of his share in
the capital and profits of the firm. In general all
partnership firms are general partnerships.
 Each partner of a general partnership is entitled to
take active part in the management of the firm,
unless otherwise decided by the other partners.

 A limited partnership is a partnership consisting of some partners whose liability is limited to
the amount of capital contributed by each. The personal property of a limited partner is not
liable for the firm's debts.
 He cannot take part in the management of the firm.
 His retirement, insolvency, lunacy or death does not cause dissolution of the firm.
 There is at least one partner having unlimited liability.
 A limited partnership must be registered.
 Limited partnership is now allowed in Pakistan and India under the Limited Liability
Partnership Act. In England limited partnership can be formed under the Limited Partnership
Act, 1907 and in the USA under the Partnership Act, 1890
 The chief characteristics of a limited partnership are as follows:
 1. There must be at least one partner with unlimited liability. The liability of the remaining
partners is limited to their capitals in the firm. Thus, a limited partnership consists of two
types of partners, general partner and limited partner.
 2. The limited partner cannot take part in the management of the firm. He has no implied
authority to represent and bind the firm. However, he is allowed to inspect the books of
accounts of the firm.
 3. The limited or special partner cannot assign his share to an outsider without the consent of
the general partner.
 4. The limited partner cannot withdraw any part of his capital .
 5. A limited partnership must be registered.

 Limited partnership offers the following benefits:
 I . It enables people to invest in a business without
assuming unlimited risk and without devoting much
time and attention in management of business.
 2. It permits the mobilization of larger financial
resources from cautious and conservative investors.
 3. It provides an opportunity to able and experienced
persons to manage the business without any
interference from other partners. Complete control
and personal supervision help to ensure prompt
decisions and uniform actions.
 4. It is more stable than general partnership because
it is not dissolved by the insolvency, retirement,
incapacity or death of limited partner.

 Limited partnership suffers from the
following drawbacks:
 1. The limited partners are deprived of the
right to manage. They remain at the mercy of
the general partner.
 2. The general partner may misuse his power
to exploit the limited partners.
 3. A limited partnership enjoys little credit
standing as the liability of some partners is
limited. It has to be registered.

 It is a partnership formed for an indefinite
period. The time period or the purpose of the
firm is not mentioned at the time of its
formation. It can continue for any length of
time depending upon the will of the partners.
It can be dissolved by any partner by giving a
notice to the other partners of his desire to
quit the firm.

 It is a partnership formed for a specific time
period or to achieve a specified objective. It is
automatically dissolved on the expiry of the
specified period or on the completion of the
specific purpose for which it was formed.

1. Active
2. Sleeping
3. Secret
4 . Limited
5.Partner in Profit
6. Nominal
7. By Estoppels
8.By Holding Out

 Such a partner contributes capital and also
takes active part in the management of the
firm. He bears an unlimited liability for the
firm's debts. He is known to outsiders. He
shares profits of the firm. He is a full-fledged
partner.

 A sleeping or inactive partner simply
contributes capital. He does not take active
part in the management of the firm. He
shares in the profits or losses of the firm. His
liability for the firm's debts is unlimited. He is
not known to the outside world.

 This type of partner contributes capital and
takes active part in the management of the
firm's business. He shares in the profits and
losses of firm and his liability is unlimited.
However, his connection with the firm is not
known to the outside world.

 The liability of such a partner is limited to the
extent of his share in the capital and profits
of the firm. He is not entitled to take active
part in the management of the firm's
business. The firm is not dissolved in the
event of his death, lunacy or bankruptcy.

 He shares in the profits of the firm but not in
the losses. But his liability for the firm's debts
is unlimited. He is not allowed to take part in
the management of the firm. Such a partner
is associated for his money and goodwill.

 Such a partner neither contributes capital nor
takes part in the management of business. He
does not share in the profits or losses of the
firm. He only lends his name and reputation
for the benefit of the firm.
 He represents himself or knowingly allows
himself to be represented as a partner. He
becomes liable to outsiders for the debts of
the firm. A nominal partner can be of two
types:

 A person who by his words (spoken or written) or
conduct represents himself as a partner becomes
liable to those who advance money to the firm on
the basis of such representation.
 He cannot avoid the consequences of his
previous act. Suppose a rich man, Mohan, is not a
partner but he tells Sohan that he is a partner in
a firm called Shipra Enterprises.
 On this impression, Sohan sells good worth Rs.
20,000 to the firm. Later on the firm is unable to
pay the amount. Sohan can recover the amount
from Mohan. Here, Mohan is a partner by
estoppels.

 When a person is declared as a partner and he
does not deny this even after becoming aware of
it, he becomes liable to third parties who lent
money or credit to the firm on the basis of such a
declaration.
 Suppose, Shipra tells Sohan in the presence of
Mohan that Mohan is a partner in the firm of
Shipra Enterprises.
 Mohan does not deny it. Later on Sohan gives a
loan of Rs. 20,000 to Shipra Enterprises on the
basis of the impression that Mohan is a partner
in the firm. The firm fails to repay the loan to
Sohan. Mohan is liable to pay Rs. 20,000 to
Sohan. Here, Mohan is a partner by holding out.

 A minor is a person who has not completed 18 years of age. A minor
cannot become a partner because he is not qualified to enter into a
contract. But he may be admitted to the benefits of partnership with the
mutual consent of all the partners.
 On being so admitted, a minor becomes entitled to a share in the profits
of the firm. He can inspect and copy the books of account of the firm
but he cannot take active part in the firm's management.
 His liability is limited to the extent of his share in the capital and profits
of the firm. He cannot file a suit against the firm or its partners to get
his share except when he wants to disassociate himself from the firm.
 After becoming a major, the minor must give a public notice within six
months if he wants to break off his connections with the partnership
firm.
 If he does not give such a notice within six months or if he decides to
remain in the firm, he becomes liable to an unlimited extent for the
debts of the firm from the date he was admitted to the benefits of
partnership. He also becomes entitled to take active part in the
management of the firm's business.

 He is a third person with whom a partner
agrees to share his profits desired from the
firm. He does not take part in the
management of the firm. He is not liable for
the firm's debts.

 The rights and obligations of partners are
generally laid down in the partnership deed.
In case the partnership deed does not specify
them, then the partners will have rights and
obligations prescribed in the Partnership Act.
These are given below:

 1. Every partner has a right to take part in the conduct and management of
the firm's business.
 2. Every partner has a right to be consulted and express his opinion on any
matter related to the firm. In case of difference of opinion, the decision has
ordinarily to be taken by a majority.
 But vital issues like admission of a new partner, change in the firm's
business, alteration of profit- sharing ratio, etc., must be decided by
unanimous consent of all the partners.
 3. Every partner has a right to have access to, inspect and copy any books of
accounts and records of the firm.
 4. Every partner has the right to an equal share in the profits of the firm,
unless otherwise agreed by the partners.
 5. Every partner has the right to receive interest on loans and advances made
by him to the firm. The rate of interest should be 6 per cent unless otherwise
agreed by the partners.
 6. Every partner has the right to be indemnified for the expenses incurred
and losses sustained by him in the ordinary conduct of the firm's business.
 7. Every partner has a right to continue in the firm unless expelled in
accordance with the terms of the partnership agreement.
 8. Every partner has a right to retire in accordance with the terms of the
partnership agreement or with the consent of other partners.