Partnership is the relation (of mutual agency) between persons, who have agreed to share the profits of a business, carried on by all, or any of them acting for all (s.4).
- Partners : The persons who enter into such relationship are called Partners . However, an artificial person (like Company) also may be a partner in a partnership.
- Firm : The Partners collectively are known as Firm (or Partnership Firm) . However, a partnership (or Firm) does not become a legal entity. It is a collective representation of the Partners, but not a legal entity by itself.
- Firm Name : The name of the entity, under which the Partnership business is carried on, is called Partnership Firm Name or shortly as ‘firm name’ (s.4).
Ex. A, B and C entered into a partnership with each other. They carry on the business under the name and style of ABC & Co. In this case, A, B and C are individually the Partners and collectively a Firm, and ABC & Co. is the Firm Name.
Partnership Act, 1932
The law of partnership is contained in the Partnership Act, 1932. It is based on English Partnership Act, 1890.
- History : Prior to the enactment of Partnership Act, 1932, the law of Partnership was embodied in chapter XI of the Indian Contract Act, 1872. Partnership Act, 1932, is basically a branch of the general law of contracts, as provisions of Indian Contract Act 1872, continue to apply to it except to the extent they are not inconsistent with the provisions of Partnership Act 1932.
- Effective Date : Partnership Act, 1932 came into force with effect from 1st October, 1932 , except s. 69 which, came into force on the 1st October, 1933.
- Applicability : It extends to the whole of India except the State of Jammu and Kashmir (s.1).
Two or more persons competent to enter into contract (called as partners) can form a valid partnership. The agreement of partnership may be oral or written, expressed or implied
- Minimum number of Partners: There must be minimum of two Partners. The partnership ceases to exist if the number of partners gets reduced to one. Thus, when in the existing partnership firm, the number of partners is reduced to one, the firm is compulsorily dissolved.
Ex. A, B and C were three partners carrying on a partnership business. Subsequently, A and B retired from the firm and C alone continued the business. In this case, there is no partnership as one person cannot be a partner with himself.
- Maximum Number of Partners : Partnership Act, 1932 does not specify any maximum number of limit on number of Partners
However, s. 11 of the Companies Act, 1956, provides that the maximum number of partners shall not exceed 10 in case of a banking business and 20 in case of any other business. If the number of partners exceeds the maximum limit, the partnership becomes an illegal Association. So, effectively, the maximum number of Partners in firm is 20 (10 in Banking Business).
The relation of partnership arises from a valid contract and not from status (s. 5).
Partnership arises only by contract and not from operation of law or status or by birth. Hence, a Hindu Undivided Family cannot be called as a partnership firm as every partner acquires his right by mere birth, i.e; by his status.
A Partnership is based on a Contract. The Partnership Contract must satisfy the essential elements of Contract.
- Consent: There should be free consent of partners for formation of partnership.
- Object: Partnership should be formed for a lawful object. Partnership formed for unlawful object, is invalid.
- Legal Formalities: No legal formalities are required for the formation of partnership. However, the partners can make a Partnership deed and go in for registration of their partnership firm, to avoid future disputes.
- Business : The Partnership must be formed to carry on some business. If no business is carried on, there is no partnership.
The term ‘business’ includes every trade, occupation and profession. The words ‘carry on some business’ implies a series of business transactions. Effecting an isolated transaction cannot be equated with carrying on business. The business carried on by the firm must be legal.
Ex. A & B forms a partnership to do a business. The partnership comes into existence only when the business starts.
Nature of Partnership
Partnership may be for execution of a particular venture, or for a fixed period, or continue till will of partners.
- Joint property : Mere Joint acquisition of some property by two or more persons does not make them partners, if no business is carried on. Thus, sharing of income of a Joint property does not result in partnership.
- Sharing of Profits : In Partnership, there must be an agreement between the partners to share the profits arising from such business. If a person does not get any share of profits, he cannot be called as a partner.If only one partner is entitled to the entire profits, there shall be no partnership.
- Profit Sharing Ratio: The manner in which the Profit is shared is called Profit Sharing Ratio. The partners have to fix the profit sharing ratio according to their mutual agreement. However, in the absence of an agreement between the partners, all the partners shall share the profits equally.
- Sharing of Losses: The sharing of profits implies an agreement to sharing of losses also. However, the agreement between the partners may provide that some particular partner shall not share any loss. Such Partner is called as ‘partner in profits only’.
Ex: A and B agreed to work together as partners. But, they agreed that A shall receive all profits and shall pay wages to B. In this case, A and B are not partners as profit is not shared between them.
Ex: X agreed with Y, a goldsmith, to make & sell Gold Ornaments. They further agreed that Y only shall buy gold & make the ornaments which shall be sold, and they shall share the resulting profits and losses. In this case, X and Y are Partners, as profit is being shared between both the partners.
- Mutual Agency
The law of partnership is an extension of law of agency. Mutual agency is the foundation of law of partnership.
- Partner as Agent : As per the principle of ‘mutual agency’, every partner is an agent of all other partners. An act done by a partner binds the firm as well as all other partners of the firm.
- Partner as Principal : Every partner is a principal, The Firm is bound by the act done by the Partner on behalf of Firm, as well as each Partner is bound by the acts done by other partners.
- Dual Role : Thus, every partner performs dual role, i.e., role of a principal as well as role of an agent. The liability of a partner for the acts of other partners is like the liability of a principal for the acts of his agent.
Test of Partnership
To determine whether a group of persons is or is not a partnership firm, or whether a person is or is not a partner, the real relation between the parties, with relevant facts must be considered.
Partnership Business with Sharing of Profits
Sharing of profit is essential for Partnership. However, Mere sharing of profits does not necessarily mean that the partnership exist between the association of persons. Hence, every person getting a share of profits of a firm may not always be a partner.
Partnership Business without Sharing of Profits
- Income from Joint Property: Where two or more persons own a joint property, they are called as joint owners or co-owners. Joint owners sharing income or profits received from joint property, necessarily do not become the partners. Mere owing a joint property does not mean that some business is carried on. In Joint ownership, there is no mutual agency which can make other joint owners liable for the acts done by one of the joint owners.
- Sharing of profits with Employee: The firm may decide to share a portion of its profits to any of its employees (e.g., a manager). But, the mere fact of sharing profits to an employee does not entitle the employee to be considered as a partner.
- Sharing of profits with Buyer of Goodwill: Where a firm purchases the goodwill of an existing firm, the new firm may agree to pay a certain portion of profits to the partners of the old firm. But, the partners of old firm cannot be considered as partners of new firm due to mere sharing of profits.
- Sharing of profits with legal representative: In case of death of a partner, the reconstituted firm has to pay proportionate profits earned by the firm (or interest) to the legal representative of the deceased partner. In such a case, the legal representative cannot be treated as partner, even though he is paid a certain share of profits.
So, it may be concluded that, sharing of profits but is mere a prima facie evidence of existence of partnership, but not a conclusive test of partnership.
Partnership Business as Mutual Agency
Mutual Agency is the basic factor to determine whether an association of persons is a partnership or not. If there is mutual agency amongst the members of an association, it is a partnership. So, there is no partnership even if all other features of partnership (e.g., association of persons, carrying on business, sharing of profits) are present, if there is no mutual agency amongst the partners. Hence, even if the members of an association share the profits of the business carried on by them, the association does not become a partnership if there is no mutual agency between them.
So, real relation between the persons (i.e., whether there is mutual agency or not) determines whether there is a partnership or not. If there is mutual agency, there is a partnership, otherwise not.
The concept of mutual agency distinguishes a Partnership from co-ownership, joint Hindu Family and Company.
Classification of Partnership Business
Partnership can be classified as follows:
Particular Business Partnership
Particular Partnership is formed for a particular venture or undertaking as per the agreement between the partners. Such a partnership automatically comes to an end after completion of the venture or undertaking.
Fixed period Business Partnership
Partnership for a Fixed Period is formed for a specified period of time as per the agreement between the partners. Such partnership automatically comes to an end after completion of such specified period.
Business Partnership at Will
A Partnership is said to be partnership at will if it is not a ‘Partnership for Fixed Period’, nor it is a ‘Particular Partnership. Such Partnership may be dissolved at any time (s. 7). Any of the Partners may, at any time, give a notice, in writing to all other partners, of his intention to dissolve the firm.
Such notice for dissolution, once given cannot be withdrawn without the consent of all other partners.
The firm shall be dissolved from the date as mentioned in the notice. But it cannot be dissolved from a date prior to communication of Notice ( i,e cannot be dissolved with retrospective effect). If no such date is mentioned in the notice, the firm shall be dissolved from the date of communication of notice (s.43).
A ‘Partnership for a Fixed Period’ or ‘Particular Partnership’ may get converted to ‘Partnership at Will’, if the partners agree to continue the business further (after the venture or the period is over).
Eligibility of Partners
A contract of partnership may be entered into by any person who has attained majority and is of sound mind.
Persons incompetent to become Business Partner
- Alien enemy. An alien enemy cannot enter into a contract of partnership with an Indian subject. But, an alien friend can do so.
- Minor. A minor cannot become a partner in a firm but he may be admitted to the benefits of partnership with the consent of all the other partners.
- Person of unsound mind. A person of unsound mind is incompetent to enter into a contract of partnership.
- Corporation. A corporation, i.e., a registered company, can enter into a contract of partnership as a single individual, but not as a group of individuals comprising it.
Persons not entitled to become Business Partner
- Burmese Buddhist : A Burmese Buddhist husband and wife carrying on family business.
- Employee Sharing Profit : An employee of a business receiving share of profit as remuneration.
- Joint Hindu Family : The members of Joint Hindu Family carrying on a family business.
- Deceased Partner Family : A widow or child of a deceased partner receiving a share of profit as annuity.
- Lender : A Lender of money to the Partnership business.
Types of Business Partners
Partners may be classified as follows
- Active (Ostensible) Business Partner : A Partner who takes Active Part in the conduct of the partnership business, is called as an Active Partner.
- Dormant (Sleeping) Business Partner : A Partner who does not attend to the affairs of the firm, nor takes active part in the conduct of the business of the firm, is called as a Sleeping Partner
- Nominal Business Partner : A Partner who lends his name to the firm, without having any real interest in the Partnership business, is called Nominal Partner .
- Profits-only Business Partner : A partner who only shares profit but does not bear any losses, is called Partner in profits only
- Business Partner by Estoppel : A person, who, though not being a Partner, permits himself to be known as Partner of the Firm, is called a Partner by Estoppel.
- Business Sub-Partner : Sub Partner is a third person with whom a Partner of a firm shares his Partnership profits and property.
- Minor Business Partner : A Minor who takes Profit share of Partnership
Active or Ostensible Business Partner
A Partner who takes Active Part in the conduct of the partnership business, is called Active (or Ostensible) Partner. He is also sometimes referred as ostensible (which means ‘ appearing as such’) Partner. He liable to all the third parties, for all the acts of the firm.
Characteristics of Active Business Partner
- Efforts & Time : He puts efforts and attends to the affairs of the firm for carrying on the business of the firm.
- Agent of Firm & Partners : He acts as agent of the Firm and other partners, in the ordinary course of business of the firm. So, any act done by active partner, in the ordinary course of the business, and in the name of the firm, binds himself and the other partners,
- Dissolution : If an Active partner becomes insane or permanently incapable to perform his duties, any other partner can apply to the Court for dissolution of the firm.
- Notice of Retirement : On retirement, he is required to give public notice. Otherwise, he may be held liable as a partner on the principle of ‘partnership by holding out’.
Sleeping or Dormant Partner
A Partner who does not attend to the affairs of the firm, nor takes active part in the conduct of the business of the firm, is called as a Sleeping or Dormant Partner.
Characteristics of Dormant Partner
- Identity : The identity of a dormant partner is not disclosed to the outsiders and persons dealing with the firm.
- Participation : Usually, a dormant partner supplies capital and shares in the profits of the firm, and other partners carry on the business of the firm.
- Liability : He is liable to all third parties for acts of the firm like all other partners.
- Dissolution : A firm cannot be dissolved on the insanity or incapacity of a sleeping partner.
- Notice of Retirement : A dormant partner is not required to give public notice of his retirement. Dormant partner cannot be held liable as a partner on the principle of ‘partnership by holding out’ since his identity is undisclosed. He is not liable for any act of the firm done after his retirement.
A Nominal Partner is a Partner who just lends his name to the firm, without having any real interest in the business of the firm. Nominal Partner does not take active part in the affairs of the firm, nor he supplies Capital to the firm
Characteristics of Nominal Partner
- Use of Name : Generally, a nominal partner is admitted to use his name for promoting the business of the firm. Persons of high status, credibility and reputation are inducted in partnership, for enhancing the image of the firm.
- Share of Profit : For the purpose of complying with legal requirements, nominal partner is paid a nominal share of profits.
- Identity : The identity of a nominal partner is disclosed to the outsiders and persons dealing with the firm.
- Liability : Nominal partner is liable to all the third parties for the acts of the firm as if he were an active partner.
- Notice of Retirement : A Nominal Partner is required to give public notice of his retirement, otherwise, he may be held liable as a partner on the principle of ‘partnership by holding out’.
Ex. P is a business tycoon. His son Q is a partner in the firm PQR. The firm PQR inducts P in the firm as partner, to use the name of P, to push-up the sale of the firm PQR. Thus P is a nominal partner of the firm PQR. P is liable to the creditors of PQR, as any other partner of PQR.
Partner in profits only
A Partner must share some profits of the business. Sharing of profits implies sharing of losses also. A Partner, who is to share Profits of the Firm, but not bear any loss, is called Partner in profits only
Characteristics of ‘Partner in Profits only’
- Agreement by Partners : The partner to share profit only, without sharing losses, must be agreed by all the Partners in the firm. It is a matter of internal management amongst the partners.
- Liability : A ‘partner in profits only’ is liable for debts of the firm, like all other partners of the firm.
- Minor : A minor when admitted to benefits of partnership, does not become a partner in the firm but is entitled to the benefits Therefore, it can be said that a minor is like a ‘partner in profits only’, though a minor is not a Partner
Partner by Estoppel (s. 28)
A ‘Partner by Estoppel or Holding out’ is a person, who, though not being a Partner of the firm, either expressly, impliedly, or by conduct, represents himself, or knowingly permits himself, to be a Partner of the Firm. Normally, it happens when a Partner, after retirement, does not give Public Notice of Retirement and still holds out himself as Partner of the Firm, or the other partners hold him out as Partner of Firm.
Characteristics of ‘Partner by Estoppel’
- Liability : He is liable as a partner of the firm, to third party, who, on the faith of any such representation, has dealt with the firm [s. 28(1)]. Such Partner is liable even when the person representing himself or represented to be a partner does or does not know that the representation has reached the person dealing with.
- Notice of Retirement : He must give Public Notice of Retirement. If such partner does not give public notice of his retirement and the continuing partners still use his name as a partner, such partner by estoppel shall be personally liable on the ground of holding out, to third parties who dealt with the firm on the faith of this representation.
- Death : On death of such partner, if the firm continues its business in its old name or of the deceased partner’s name as part thereof, his legal representatives or his estate will not be liable for any act of the firm done after his death [s.28(2)].
Ex. Asim, Karim and Mahim are three partners in a firm. Asim retires from the firm without giving public notice of his retirement. He is liable to the creditors of the firm, on the principle of holding out, as he still holds out to the public that he is partner of the firm.
When a Partner agrees to share whole or some part of his profits and property with a third person, such a third person is called as a Sub-Partner. In fact, a sub partner is not a partner of the firm at all. He is a partner’s partner (his relationship is only with the specific partner of the firm, and not with the partnership firm). A sub-partner is a transferee within the meaning of s. 29 of the Partnership Act, 1932.
Characteristics of Sub partner
- Rights : A Sub Partner has no rights of a partner and cannot represent himself as a partner in the firm. A sub-partner has no right against the firm also. He cannot file a suit against the firm. He can only claim his share of profits and property from the contracting partner (and not from the Firm).
- Liability : A Sub Partner is not even liable for the acts of the firm.
- Incapacity : Since a sub-partner is not treated as a partner in a firm, his insanity, permanent incapacity, or detachment from contracting partner, is not a ground for dissolution of the firm.
A minor cannot be admitted as a partner in a firm. A minor can be admitted to the benefits of a partnership, with the consent of all partners [s.30(1)]
Characteristics of Minor Partner
- Contract Void : A contract with minor is void-ab-initio. However, a minor can be a promisee or beneficiary
- Minor Partners : Since a Minor is not considered as Partner, there must be at least two major Partners, to constitute a partnership firm.
Rights of Minor during minority
- Share of Profit / Property : A minor has the right to receive the agreed share of property and of profits of the firm.
- Accounts : A minor partner may have access to and inspect and copy any of the accounts of the firm but not the books of the firm [s.30(2)].
- Suit : Where he is not given the share of profits, he has the right to file a suit for share of the property or profit of the firms, only if he wants to severe his connection with the firm [s.30(4)].
Liabilities of Minor during minority
- Insolvency : A minor cannot be declared insolvent, but if the firm is declared insolvent, his share in the firm vests in the official receiver or official assignee.
- Limited Liability : A minor partner is liable only to the extent of his share in the profits and property of the firm. If his liability exceeds his share of profits and property of the firm, the minor shall neither be personally liable, nor his private estate will be liable [s.30(3)].
Minor Partner attaining majority
- Option to become Partner : At any time within six months of attaining majority (or of obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later), he has to decide whether he shall continue in the firm or leave it (s. 30(5)).
The burden of proof that he had no knowledge of his admission until a particular date after the expiry of six months of his attaining majority, lies on the person asserting that fact [sec.30(6)].
- Public notice : He has to issue public notice whether he has opted to become or not become partner in the firm.
- Partner by default : If he fails to give such Public Notice, he shall be treated as a partner in the firm on the expiry of the six months.
- Rights and duties : The rights and duties of a partner depend upon the fact that whether he becomes a Partner or not.
Rights of Minor opting to become Partner
- Share in Firm : His share in the property and profits remains the same as was before becoming a partner [s.30(7)].
- Rights : His rights are same as they were prior to the date on which he becomes a partner, and also will be similar to those of a full-fledged Partner
Liabilities of Minor opting to become Partner
- Personal Liability : Since, he was admitted to the benefits of partnership, he becomes personally liable to third parties for all acts of the firm.
- Same Liability : His liabilities continue to be the same as they were prior to the date on which he becomes a partner.
Rights of Minor not opting to become Partner
- Rights in Share in Firm : He has right to sue the partners for his share of property and profits in the firm [s.30(8)].
- Same Rights : His rights will continue to be the same as they were till the notice is given.
Liabilities of Minor not opting to become Partner:
- Liability till Notice: His liability will be the same as before till the notice is given.
- Liability after Notice : His share of property and profits will not be liable for any acts of the firm done after the date of the notice.
Change in Partnership
Change in Partnership occurs when a new Partner is inducted in the Firm or an existing Partner Retires.
- Incoming Partner : A Partner becomes Incoming Partner , when a new partner is admitted in a firm
- Outgoing Partner : A Partner becomes Outgoing Partner, when an existing partner , retires from the firm, or dies, or is expelled from Partnership, or becomes Insolvent
Consequences of change in Partnership
- Dissolution of Firm : Admission (of Incoming Partner) or Retirement (of Outgoing Partner) of a partner, results in dissolution of the partnership.
- Reconstituted Firm : The firm constituted after admission or retirement is called as the reconstituted firm.
Partnership vs Joint Stock Company
|Basis of distinction||Partnership||Joint Stock Company|
|Legal Status||A partnership firm has no separate legal entity apart from its members.||A company has a separate legal entity of its own, apart from its members.|
|Formation||Partnership firm comes into existence by an agreement between the partners. Registration of a partnership firm is optional.||A company comes into existence only after registration under the Companies Act, 1956.|
|Maximum Members||The maximum number of members in case of partnership carrying on banking business is 10 and in case of any other business is 20.||For Private Company, the maximum members should be 50. For Public Ltd. Company, no maximum limit on number of members|
|Share Transfer||A Partner in a firm can transfer his share to an outsider. The transferee becomes entitled to share profit and property transferred, but, does not become a partner.||A member of the company can transfer his shares. The transferee becomes a member of the company.|
|Death||Partnership gets dissolved on the death or insolvency of a partner.||Company continues on death or insolvency of Shareholders|
|Management||A firm is managed by its own partners.||A company is managed by a special body of shareholders called Directors.|
|Contracts||A partner cannot enter into a contract with its own firm.||A shareholder of a company can enter into a contract with its own company.|
|Audit||The audit of accounts of partnership firm is not compulsory.||A company legally required to have its accounts audited annually.|
|Succession||A partnership firm ceases to exist on death or insolvency of any or all the partners. A firm has no perpetual succession.||A company continues on death or insolvency of members. A Company has perpetual succession.|
|Mutual Agency||There is mutual agency between the partners. So, the firm is bound by the acts of every partner.||No mutual agency exists between the members of a company. Members of company are not bound by acts of company or other members.|
|Separate Property||A firm has no separate property.||A company has its own separate property.|
|Legal Suit||A firm cannot sue and be sued in its own name.||A company can sue and be sued in its own name.|
|Liability||The liability of the partners is unlimited.||The liability of the members is limited|
|Minimum Partners||The minimum number of partners is 2.||In private company, there must be at least 2 members, in public company, at least 7 members.|
|Minimum Capital||In partnership firm, there is no specific amount of minimum capital.||A private company must have Rs 1 Lac, and public company Rs.5 lakhs as minimum paid-up capital.|
|Activities||Partnership can be formed only for carrying business.||A company can be formed to carry on non-profit activities also.|
|Suit by Creditor||A creditor can sue the partners jointly and severally for dues payable by Partnership Firm.||No creditor can sue any member for dues payable by company.|
|Profit Share||A Partner is entitled to his share of profits earned every year.||A Member is entitled to declared dividend only.|
Partnership vs Co-ownership
|Basis of distinction||Partnership||Co-ownership|
|Relationship||Partnership is the relation between persons who have agreed to share profits of a business. Partnership business is carried on by all or any of them acting for all.||Co-ownership means just joint ownership of some property. Co-ownership does not necessarily result result to mutual relationship.|
|Creation||A Partnership is created by an agreement.||Co-ownership may or may not arise by an agreement. Co-ownership may also arise by operation of law (e.g inheritance).|
|Mutual Agency||Partnership is mutual agency between the partners. Partnership firm is bound by the acts of every partner.||In Co-ownership, there is no mutual agency between the co-owners. A co-owner is not liable for the acts of any other co-owner.|
|Business||A partnership Firm must carry on a Business.||Business is not essential for Co-ownership.|
|Partition||A partner cannot sue for the partition of partnership property in specie. Partner can sue co-partners for dissolution of firm.||Co-owner can sue for partition of joint property.|
|Maximum Owners||A Partnership Firm may have maximum 20 partners (10 for baking business)||There is no maximum limit on number of co-owners.|
|Lien||A Partner has a lien on partnership property for expenses incurred on behalf of the firm.||A co-owner has no right of lien on joint property.|
|Share Transfer||A partner cannot transfer his shares to a third party, without the consent of the other partners. The transferee becomes entitled to share of profit and property, but does not become a partner.||A co-owner can transfer his shares to a third party without the consent of other co-owners. On transferring his shares, the transferee becomes a substitute of the previous co-owner|
Partnership vs Club / Association
The words Club, Association and Society are commonly used interchangeably. The legal rules of formation may be little different.
- Club : A club is normally less formal. Normally they have a constitution that sets the rules for determining membership, electing officers, organising meetings etc. Clubs may be termed like “unincorporated association”.
- Associations : Associations are a little more regulated (internally by members, and externally by statute) than Clubs (which are easier to form).
|Basis of distinction||Partnership||Club / Associations|
|Objective||Partnership carries on business for Profit.||A club / association is formed not to earn profit but to promote interest of its members.|
|Profit Sharing||Partners share profits of partnership business.||Club Members do not share any monetary benefit of the Clubs.|
|Mutual Agency||There is mutual agency between the partners. Every partner is an agent of all other partners. Consequently, the firm shall be bound by the acts of every partner.||There is no mutual agency between Club members. No Club member is liable for any act of other Club members.|
|Liability||The liability of every partner is joint and several.||A Club member is liable for his own acts only.|
|Subscriptions||Partner is not required to pay periodically to run the Partnership business.||Club Members are to pay periodical subscriptions for running the club.|
|Death||Share of deceased partner vests in his legal heirs.||The legal heirs of deceased Club member do get anything or any right in the club.|
|Dissolution||The partnership firm is dissolved on death or insolvency of a partner||A club continues even in case of death or insolvency of any member.|
|Maximum number||The maximum number of partners is limited.||There is no maximum limit of number of members of a club.|
|Interest||A partner has interest in the property of the firm.||A club member has no interest in the property of the club.|
Partnership vs Joint Hindu Family (HUF)
|Basis of distinction||Partnership||Joint Hindu Family|
|Governing Law||Partnership Act, 1932 applies to partnership firm||Hindu Laws (all the laws applicable to Hindu) apply to Joint Hindu Family.|
|Creation||A Partnership is created by an agreement.||Joint Hindu Family is created by status (s.5). Joint Hindu Family can also arise by operation of law.|
|Mutual Agency||There is mutual agency between the partners. Every partner is an agent of all other partners. The firm is bound by the acts of every partner.||There is no mutual agency between the members (coparceners) of the Joint Hindu Family.|
|Authority||Every partner has an implied authority to carry on the business. Acts of Partners in the ordinary course of the business of the firm, binds the firm||Only ‘Karta’ has the implied authority to manage the family property, but the other coparceners do not have any management right of the Family business.|
|Liability||The liability of every partner of the firm is unlimited. Every partner is personally liable for discharging the partnership liabilities out of his partnership property along with his private property.||Liability of Karta is unlimited. Coparceners Liability is limited to the extent of his share in the family business. Coparceners become personally liable if they are contracting parties.|
|Dissolution||The partnership firm is automatically dissolved on death / insolvency of a partner||A Joint Hindu Family is not automatically dissolved on death / insolvency of Karta / Coparcener|
|Accounts||Partner may inspect / copy books & Accounts of the firm||A coparcener, on severing from family cannot ask for past dealings or accounts.|
|Minor||A minor cannot become a partner in a firm, but, he / she can be admitted to benefits of partnership.||A male minor can be a coparcener in a Joint Hindu Family business, merely by birth.|
|Profit Share||Every partner is entitled to a fixed share of profits of the firm||No coparcener has a fixed share in profits of the business.|
|Death||Share of the deceased partner devolves on his legal heirs.||Share of coparceners may increase on death / decrease on birth of a coparcener.|
|Members||Number of partners is limited||No maximum limit on number of coparceners.|
|Admission||A new partner can be admitted only with the consent of all existing partners.||A new born male becomes coparcener.|
|Female||In partnership, a female can become a full-fledged partner.||In a Joint Hindu Family business, a female does not become its member by birth.|
|Registration||Though partnership need not be compulsorily registered, but practically, registration is essential.||A Joint Hindu Family business need not be registered.|
|Management||Every partner can take an active part in the process of management of the firm.||Only ‘Karta’ can take part in the management procedure of the Family business.|
|Insolvency||On insolvency of a partner, he ceases to be a partner of the firm.||On insolvency of a coparcener, he continues to a member.|
Sleeping Partner vs Nominal Partner
|Basis of distinction||Sleeping Partner||Nominal Partner|
|Role||Sleeping partner does not take active Role in the affairs and conduct of the business of the firm.||Nominal partner has no real interest or Role in the firm. He only lends his name.|
|Capital||A sleeping partner supplies capital to the firm.||A nominal partner does not contribute any capital to the firm.|
|Disclosure||Name of a sleeping partner is not disclosed to outsiders.||Name of nominal partner is made known to outsiders.|
|Interest||A sleeping partner has business interest in the firm. He contributes to the firm and shares profits of the business.||A nominal partner has no real interest in the firm. He does not contribute to firm and takes a very nominal share of profits.|
|Public Notice||A sleeping partner is not required to give public notice of his retirement. If such public notice is not given, he cannot be held liable as a partner on the principle of ‘partnership by holding out’.||A nominal partner is required to give public notice of his retirement. If such public notice is not given, he may be held liable as a partner on the principle of ‘partnership by holding out’.|
|Induction||A sleeping partner is normally inducted for his financial resources.||A nominal partner is inducted for his reputation.|
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