PARTERNERSHIP ACT

1. PARTERNERSHIP ACT Business Law www.assignmentpoint.com

2. PARTERNERSHIP • Partnership is “An association of two or more persons to carry on business as co-owners for a profit . The relationshipwhich exists between persons carrying on business in common with a view to profit.” • Partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. • a form of business organisation created through voluntary agreements of minimum two and maximum 20 persons (the maximum is 10 in the case of banking business), with the intention of making and sharing profits among themselves. • He who has a partner has a master www.assignmentpoint.com

3. ESSENTIAL ELEMENTS OF PARTERNERSHIP • Voluntary agreement. There must be an agreement entered into by two or more persons.( voluntary agreement ) • Sharing of profits of a Business. The agreement must be to share the profits of a business • Mutual agency. The business must be carried on by all or any of them acting for all. ( mutual agency ) PARTERNERSHIP AND CERTAIN SIMILAR ORGANIZATION • Partnership and Co-ownership • Partnership and a Club • Partnership and a Company www.assignmentpoint.com

4. WHO CAN BE A PARTERNER? • Person • Company • A person of unsound mind is not eligible to become a partner. • A minor is also not eligible to become of partner in a firm. However, if all the partners agree, (MINOR ADMITTED AS A PARTNER) minor may only be admitted to the benefits of an already existing partnership. In that case he is not personally liable, nor is his separate property for the debts of the firm, although his share in the partnership property and profits will so be liable. • In Bangladesh, a partnership firm is to be formed under the provisions of the Partnership Act 1932. .A partnership becomes illegal if its object is prohibited by law, or is immoral, or opposed to public interest. A non-profit making association is not a partnership in law of Bangladesh. In general, institutions or associations cannot be a member of a partnership. www.assignmentpoint.com

5. Classes of partners: • general partners who, like ordinary partners in an ordinary partnership, manage and are responsible for the business. limited partners who contribute specific sums of capital to the common stock and who are not liable for debts and obligations in excess of their capital contributions. • Active partner, • Dormant, • sleeping or Nominal partner and • Sub-partner. • Classes of partnerships: • General partnership • Partnership-at-will, • Limited partnership. • Joint venture www.assignmentpoint.com

6. Classes of partnerships:General Partnership • A partnership is an unincorporated association of two or more co-owners who carry on a business for profit. Each partner is a general partner. General partners control the operations & profits. Each of the partners has a fiduciary duty to the other partner(s) • Partnerships are easy to form (so easy that sometimes it happens unintentionally!) Partners can be held personally liable for the partnership actions and debts..No need to enter into a formal agreement for a partnership to exist at law Partnership at will When the partnership is not for a fixed period of time and no provision is made as to when and how the partnership will come to end- it can dissolve whenever any partner chooses to do so www.assignmentpoint.com

7. Classes of partnerships: • Limited Partnership: a partnership with two classes of partners:In a limited partnership, only the general partners are personally liable. • Limited Liability Partnership (LLP): a general partnership that has complied with a statute in filing to limit the liability of its partners for some or all of its obligations. In a limited liability limited partnership, the general partner is not personally liable for the debts of the partnership. • Joint Venture: one-time grouping of two or more parties (natural persons or legal entities) in a business undertaking. 1. Distinguish from a partnership: does not involve a continuing relationship. . Partnership law generally governs joint ventures. www.assignmentpoint.com

8. REGISTRATION OF FIRMS The Partnership Act 1932 does not require a partnership deed or agreement to be registered. The registration of such firm is optional. But if registered, a partnership firm can enjoy some legal rights and facilities. The formalities of registration. A statement in the prescribed form deed includes the name of the firm, nature of business, the capital and property of the firm, the capital of individual partners, term of partnership, provision for salaries, and drawings on account of profit, rate of interest (if any) on partners' capital, advances and drawings, rights and duties of individual partners, provision for accounts and audit, division of profits and losses (capital and revenue), powers of admission and expulsion of a partner, termination of agreement by insolvency, death, etc., valuation of goodwill and share of assets on sale or death, and an arbitration clause A prescribed fees Time of registration- any time but before file suits www.assignmentpoint.com

9. Consequences of non-registration • Cannot file a suit For enforcing rights • No suit can be filled against third party • Cannot claim a set off in a suit Exceptions: Can file a suit for dissolution, realization of the proprietress Official assignee can realize the proprieties of an insolvent partner Can file a suit for not exceeding An unregistered firm face certain disabilities but it is not an illegal association www.assignmentpoint.com

10. Partners and Outsiders A partnership can arise only as a result of an agreement or contract, expressed or implied, between the partners THE AUTHORITY OF A PARTNER • Agency-Each partner is an agent of the partner-ship for the purpose of its business. • Express authority – any authority which is expressly given to a partner by the agreement of partnership called express authority a partnership is liable for any authorized act of a partner. • Partnership by Estoppel applies if: Participants tell other people that they are partners (even though they are not), or they allow other people to say, without contradiction, that they are partners. A third party relies on this assertion; • Implied authority –the authority to bind the firm which arises by implication of law from the fact • a partnership is liable for any unauthorized act of a partner, if the partner appears to be carrying on partnership business. • a partnership is liable for any act of a partner that is reasonably necessary to carry out an authorized act. • Any act done by the partner in the firm name with the intention to bind them www.assignmentpoint.com

11. Limitations of a partner’s implied authority • Submit a dispute • Open a banking account • Compromise or relinquish any claim • Withdraw a suit or proceeding filed on behalf of the firm • Admit any liability in any suit • Acquire immovable property • Transfer immovable property • Enter into the partnership on behalf of the firm • ALTERATION OF AUTHORITY • AUTHORITY IN AN EMERGENCY. www.assignmentpoint.com

12. Management Rights • Each and every partner has equal rights in the management and conduct of the business, unless the partners agree otherwise. • Can express opinion • Act on behalf of the firm – express and implied authority • Power in an emergency • Reconstitution , dissolution • Right to Vote • Unless the partners agree otherwise, all partners have an equal vote, regardless of their contributions to the partnership. • Right to Know, access , inspection and copy business documents • Partners have the right to examine all partnership books and records for any reason. • Partners have the duty to volunteer any information which may be relevant to the other partners. www.assignmentpoint.com

13. RIGHTS OF PARTNERS Financial rights • Partners share profits equally, unless they agree otherwise. • Partners share losses according to their share of profits, unless they agree otherwise. • Any agreement among partners to share losses is binding only on them, not on outsiders. • Partners are not entitled to any payment beyond their share of profits, unless they agree otherwise.- interest on capital , interest on advance • All partnership property belongs to the partnership as a whole, not to the individual partners. Application of property • Right to get indemnity • Right to share profit after retirement Right to Transfer Interest • Without the approval of the other partners, a partner cannot sell her share; she can only transfer her right to receive profits and losses. • A new partner can only be admitted to a partnership by unanimous consent of the other partners. www.assignmentpoint.com

14. LIABILITY OF PARTNERS TO OUTSIDERS • All partners are personally liable for all debts of the partnership. • Liability for partner for acts of the firm - Partners have joint and several liability for partnership obligations. • Also note that, even if creditors have a judgment against an individual partner, they cannot go after that partner’s assets until all the partnership’s assets are exhausted. • Liability of firm for wrongful acts of a partner • Liability of firm for misapplication by partners • a partner is personally liable only for obligations the partnership incurred while he was a partner. His liability for debts incurred before he became a partner is limited to his investment in the partnership. www.assignmentpoint.com

15. DUTIES OF PARTNERS • Justice , faithful • To pay indemnity • To attend diligently • No remuneration • Equality of losses • Duty of Care- Partners are liable for: gross negligence, reckless conduct, -intentional misconduct, or a knowing violation of the law. • Partners are not liable for ordinary negligence. • Duty of Loyalty Partners have a fiduciary duty to their partnership. Some actions which may violate this fiduciary duty include: • Competing with the partnership • Taking a business opportunity away from the partnership • Using partnership property for private profit , secret profit • Conflicts of interest • Unlimited liability www.assignmentpoint.com

16. Ending a partnership business involves three steps: Dissolution --decision to end business; can be voluntary or automatic. the end of a firm by the break up of the relation of partnership between all the partners Winding Up -- During the winding up process, all debts of the partnership are paid, and the remaining proceeds are distributed to the partners. Termination-- the end; happens when winding up is complete. • By agreement • Compulsory dissolution – insolvency or illegal act • On the happening of certain contingencies- time , adventure , death , insolvent • By notice • Dissolution by the court: Insanity, Permanent incapacity, Guilty conduct, Persistent breach of agreement, Transfer of whole interest, Loss and Just and equitable clause. www.assignmentpoint.com

17. Termination Termination of General Partnership • Dissolution occurs when an event takes place to dissolve the partnership • Change of the composition of the partners • Withdrawal of a partner • Bankruptcy of a partner concerning the business • Death of a partner • Winding up of the partnership involves completing any unfinished business • If terminated, partnership must be reformed Termination of Limited Partnership • Similar to the termination of a general partnership • Death, insanity, withdrawal of a limited or general partner will terminate • Bankruptcy of a general partner = termination • Bankruptcy of a limited partner does not • Organization must wind up the business • Creditors are paid and profits are dispersed according to agreement www.assignmentpoint.com

18. RECONSTITUTION OF A FIRM The constitution may be changed by the • Introduction of a new partner- capital , liability • Rightful Dissociation/ retirement Partner in a partnership at will gives notice that he intends to withdraw.. Partners agree in advance on events that will cause dissociation. . Partner dies or becomes incompetent. Partner is expelled by the other partners. • Wrongful Dissociation / expulsion Partner violates the partnership agreement. Partner withdraws before the end of the term. Court expels a partner in a term partnership due to harmful behavior. Partner in a term partnership is bankrupt If the partnership decides to continue, it must pay the ex-partner the value of her share of the business. • Death – not liable for any act after death • Insolvency- if firm is not dissolve – official assignee will take the portion • Transfer of partners interest – entitled profit , assets but not become an active partner • Sub partner www.assignmentpoint.com

19. Dissociation occurs if a partner quits. • When one or more partners dissociate, the partnership can either buy out the departing partner(s) and continue in business or wind up the business and terminate the partnership. • Liability to the Partnership If the ex-partner harms the partnership after she leaves, she is liable for the damage. A dissociated partnership is liable to outsiders for debts incurred during her term as a partner, but the partnership must indemnify her for these debts. Liability of the dissociated partner to outsiders for debts incurred before dissociation • A dissociated partner is liable to outsiders for partnership debts incurred within two years after she leaves, but only if the creditor reasonably believes she is still a partner and notice is not given www.assignmentpoint.com

20. Firm, Firm-name, Partner: Persons who have entered into partnership with one another are called individually “partners” and collectively “a firm” and the name under which their business is carried on is called the “firm-name.” Name of partnership. Partnership property. Ratification- If the partnership accepts the benefit of the unauthorized transaction or fails to repudiate it, the partnership has ratified it. The firm is not a legal person in its own right so all the partners have unlimited liability All partners are agents of the firm and so can make contracts in the firm’s name on which a creditor can sue all/some/one of the partners for the full amount. It is wise for that agreement to be in the form of a written deed of partnership, but that is not legally obligatory. www.assignmentpoint.com