• Introduction A partnership is a kind of business where a formal agreement between two or more people is made who agree to be the co-owners, distribute responsibilities for running an organization and share the income or losses that the business generates. In Pakistan, all the aspects and functions of the partnership are administered under ‘The Indian Partnership Act 1932’. This specific law explains that partnership is an association between two or more individuals or parties who have accepted to share the profits generated from the business under the supervision of all the members or behalf of other members. Features of Partnership: Following are the few features of a partnership: 1. Agreement between Partners: It is an association of two or more individuals, and a partnership arises from an agreement or a contract. The agreement (accord) becomes the basis of the association between the partners. Such an agreement is in the written form. An oral agreement is evenhandedly legitimate. In order to avoid controversies, it is always good, if the partners have a copy of the written agreement. 2. Two or More Persons: In order to manifest a partnership, there should be at least two (2) persons possessing a common goal. To put it in other words, the minimal number of partners in an enterprise can be two (2). However, there is a constraint on their maximum number of people. 3. Sharing of Profit and loss: Another significant component of the partnership is, the accord between partners has to share gains and losses of a trading concern. However, the definition held in the Partnership Act elucidates – partnership as an association between people who have consented to share the gains of a business, the sharing of loss is implicit. Hence, sharing of gains and losses is vital. 4. Business Motive: It is important for a firm to carry some kind of business and should have a profit gaining motive. 5. Mutual Business: The partners are the owners as well as the agent of their firm. Any act performed by one partner can affect other partners and the firm. It can be concluded that this point acts as a test of partnership for all the partners. 6. Unlimited Liability: Every partner in a partnership has unlimited liability. • Types of Partnerships: A partnership is divided into different types depending on the state and where the business operates. Here are some general aspects of the three most common types of partnerships. 1. General Partnership A general partnership comprises two or more owners to run a business. In this partnership, each partner represents the firm with equal right. All partners can participate in management activities, decision making, and have the right to control the business. Similarly, profits, debts, and liabilities are equally shared and divided equally. 2 In other words, the general partnership definition can be stated as those partnerships where rights and responsibilities are shared equally in terms of management and decision making. Each partner should take full responsibility for the debts and liability incurred by the other partner. If one partner is sued, all the other partners are considered accountable. The creditor or court will hold the partner’s personal assets. Therefore, most of the partners do not opt for this partnership. 2. Limited Partnership In this partnership, includes both the general and limited partners. The general partner has unlimited liability, manages the business and the other limited partners. Limited partners have limited control over the business (limited to his investment). They are not associated with the everyday operations of the firm. In most of the cases, the limited partners only invest and take a profit share. They do not have any interest in participating in management or decision making. This non-involvement means they do not have the right to compensate the partnership losses from their income tax return. 3. Limited Liability Partnership In Limited Liability Partnership (LLP), all the partners have limited liability. Each partner is guarded against other partners legal and financial mistakes. A limited liability partnership is almost similar to a Limited Liability Company (LLC) but different from a limited partnership or a general partnership. 4. Partnership at Will Partnership at Will can be defined as when there is no clause mentioned about the expiration of a partnership firm. Under section 7 of the Partnership Act 1932, the two conditions that have to be fulfilled by a firm to become a Partnership at Will are: • The partnership agreement should have not any fixed expiration date. • No particular determination of the partnership should be mentioned. Therefore, if the duration and determination are mentioned in the agreement, then it is not a partnership at will. Also, initially, if the firm had a fixed expiration date, but the operation of the firm continues beyond the mentioned date that it will be considered as a partnership at will. Advantages of Partnership: 1. Easy Formation An agreement can be made oral or printed as an agreement to enter as a partner and establish a firm. 2. Large Resources Unlike sole proprietor where every contribution is made by one person, in partnership, partners of the firm can contribute more capital and other resources as required. 3. Flexibility The partners can initiate any changes if they think it is required to meet the desired result or change circumstances. 4. Sharing Risk All loss incurred by the firm is equally distributed amongst each partner. 5. Combination of different skills The partnership firm has the advantage of knowledge, skill and experience 3 Test of partnership Section 6 Section 6 of the Partnership Act provides the mode of determining the existence of a partnership. The following are the provisions in Section 6: • While determining whether an association of persons is a firm or if a person is a partner to a firm, the real relation shown by relevant facts between the parties must be examined. • Sharing profits from a property held by persons jointly does not automatically qualify such persons as partners. • A person can hold a receipt of the share in profits or receipt of payment that is contingent upon the profits, but that does not make him a partner. The following are such persons: • Servant or agent who receives remuneration or commission. Real criteria for determining partnership It is clear from Section 6 that the sharing of profits is not the ultimate test for determining whether a partnership exists. The existence of a partnership depends on the actual intention of the parties and the contract drawn up by them. In some cases, an alleged partner might have a share in the profits of the business, but that does not by default make him a partner. Relation of partner with one another: All the partners have a right to create their own terms and condition with regard to the affairs of the business in the partnership deed. The Partnership Act has prescribed the provision to govern the relation of partners and this provision is applicable in case when there is no deed. The various rights of the partners are explained below: • Rights of the Partners 1. Right to take part in the conduct of the firm’s business: Section 12(a) provides that every partner has the right to be involved in the conduct of the firm’s business. All partners have the right to manage the firm’s business. 2. Right to express opinion: Section 12 provides that all partners can freely express their opinion in matters concerning the firm’s business. However, before a decision is made based on an opinion of a partner, the consent of other partners must be obtained. 3. Right to have access to books of the firm: Section 12(d) of the Act provides that every partner has the right to look into the books of the firm, whether the books concern the accounts of the firm or not. 4. Right to profit: As per Section 13(b), all partners must equally share profits earned through the business. 5. Right to interest on capital: Section 13 provides that on an agreement, the partners of a firm have the right to claim interest on the firm’s profits from the capital. 6. Right to interest on advances made by partner: In some cases, the firm may need extra money apart from the capital. In such cases, a partner may make advances to the firm and he may also claim interest on such advances. 7. Right to indemnity: 4 Section 13 of the Act provides that a partner may make some payments and incur liabilities while acting on behalf of the firm. The firm shall indemnify a partner in respect of such payments and liabilities, whether it was made in ordinary course of business or in emergency. 8. Right to dissolve the partnership: Section 44 provides that a partner has the right to file a suit to dissolve the partnership. The court may dissolve firm on any of the grounds given below: • Unsoundness of mind of a partner, where the suit shall be brought by another partner or the next friend of the unsound partner; • Permanent incapability of another partner to perform his duties; • Another partner is guilty of conduct that prejudices the business of the firm; • Committing breach of agreement by another partner by willfully or persistently; • Transfer of interest in firm by another partner to a third person; • Business of firm cannot be carried on due to losses; • Any other ground which makes it just and equitable to dissolve the partnership. Section 46 provides that after dissolution, a partner has the right to wind up the business of the firm. On dissolution, every partner or his representative is entitled, as against all the other partners, to have the firm’s property applied in payment of debts and liabilities of the firm, and then have the surplus distributed among the partners or their representatives. 9. Right to not get expelled: Section 33 provides that all partners have right to not get expelled except on certain grounds and they must be given reasonable warning and opportunity of explanation before the expulsion. 10. Right to prevent introduction of new person: Section 31 provides that every partner has the right to prevent the introduction of a new partner without his consent to the firm, unless the agreement has expressly provided that such introduction is permitted. 11. Right to retire: Section 32 of the Act provides that a person has right to retire with the consent of other partners, unless the requirement of consent is waived by the agreement. The partners can retire by simply providing a notice to other partners in partnerships at will. Relations of partners to third parties Section 18 to 22 of the Act talks about the relation of partners third parties Section 18: prescribes that the partners are an agent of the firm for the purpose of conducting the affairs of the business. The partners act as the principal and agent as well. When he performs the act in his own interest, he is the principal and when he does in the interest of another partner then he is an agent. He is not an agent for the dealings or the transactions between the partners themselves. Section 19: states that any act which is performed by the partners in the usual course of its business binds the firm itself. The authority to bind the firm is implied authority Section 20: states that partners can make a contract to restrict or expand the implied authority of a partner. Section 21: states that if any act is done by any partners in case of an emergency which a prudent man would do, then such acts need to bind the firm. Section 22: specifies that if any act is done by any partner, then it must be done in the name of the firm or in such manner which binds the firm. 5 Duties of partners 1. Duty of greatest common advantage: As per Section 9 of the Act, it is incumbent upon the partners to carry on their business for the greatest common advantage of the firm. The partners must act so that all the partners benefit and secure the maximum profits. No partner should act for their personal gain. 2. Duty of good faith: As per Section 9, the partners must act just to each other. The relationship of partnership is on mutual trust and hence, there must be good faith between them. A partnership is of fiduciary nature and thus, at every stage of a partnership, the partners must act just and faithful to one another. 3. Duty to render true accounts: Partners of a firm have a duty to render true accounts as per Section 9. A partner of a firm must keep and render true and complete accounts of the partnership firm’s business. He must make it available to other partners or their representatives when required. 4. Duty to render full information: As per Section 9, partners of a firm have a duty to provide true and full information regarding the business. Partners are agents of each other and hence, partners must communicate all information regarding the running of the business in a complete and truthful manner to each other. 5. Duty to not carry another business: As per Section 11(2) of the Act, a partner must not conduct a business other than that of the firm. Partners can restrain one another from carrying on another business, provided that such restraint is reasonable. 6. Duty to act diligently: As per Section 12(b), a firm’s partner must act diligently in the business. 7. Duty to perform without remuneration: As per Section 13(a), every partner must perform and attend to the firm’s business without expecting remuneration. There is a presumption that all partners are to work for the common advantage of the firm. 8. Duty to share losses: As per Section 13(b) of the Act, partners must share losses in the proportions as provided by the partnership agreement. If the agreement does not provide it, it must be shared in the proportion that they share the profits. 9. Duty to indemnify for willful neglect: As per Section 13(f), a partner shall indemnify his firm for any of the losses caused to it due to his willful neglect during the course of the business. Willful neglect refers to an act that is deliberate and intentional. 10. Duty to not assign his rights: No partner can assign his rights in a partnership firm to a third person in order to make him a partner. 11. Duty to act within authority: 6 Every person has to act within the authority that he has conferred upon him as per the partnership agreement. 12. Duty to account private profits: Section 16(a) provides that no partner can use the partnership firm’s property for private use, or use any profits derived from the partnership business for his own advantage. If the property of profits of a firm is ever used for personal advantage, it must be accounted for. 13. Duty not to compete: Section 16(b) states that no partner of a firm can carry on another business simultaneously, except with the consent of other partners. On the failure of obtaining the consent, he must account for all the profits he made as a result of that and must compensate for the losses sustained by the firm if any. 14.Duty to properly use the firm’s property: Sections 14 and 15 of the Act provide that the property of the firm must be used solely for the purpose of the firm’s business and not for private purposes. The term ‘property of the firm’ covers all properties and rights and interests in a property originally acquired by the firm for the purpose of running the business. The goodwill of the business is also a property of the firm. Liabilities of Partners in Partnership Firm: Liabilities as given below: 1) Section 25 of the Partnership Act, 1932 states that a partner is entitled to the full benefit of his risk. On the other hand, if he has participated in the management of the company, he is liable to account for his share of profits or losses made by the company. 2) Section 26 of the Partnership Act, 1932 states that a partner is liable for any damage caused to a third party by the wrongful act of the firm. 3) If a partner fails to carry out his performance as agreed in the partnership agreement, he shall be liable to make good any damage suffered by the company in consequence thereof. However, he needs to show that he has not breached his obligations under the partnership agreement. 4) Section 27 of the Partnership Act, 1932 states that where a partner has willfully acted against the firm’s interest, he is liable for any debts or damages so incurred and for loss suffered by the company. 5) Where a partner does not discharge his obligations under the partnership agreement, he shall be liable for all damages suffered by the company as a result of his wrongful act unless he proves that he has not breached his obligations about partnership matters. Procedure for registration of partnership under partnership act, 1932. Section 58 explains the procedure of the registration of a partnership firm. Introduction 7 Registering a partnership firm means legally formalizing a business partnership by registering it with the appropriate government authority. It provides legal recognition and protects the rights and liabilities of the partners. This involves submitting all the necessary documents, such as the partnership deed, identity proofs of the partners, and address proofs. You will also need to fill out application forms and pay the registration fees. Once the registration is complete, you will receive a certificate of registration, which serves as proof of the existence of your partnership firm. This legal recognition provides several advantages, such as limited liability protection for the partners, access to government schemes and benefits, and the ability to enter into contracts and own assets in the name of the partnership. It also helps establish trust and credibility with clients, suppliers, and financial institutions. The Process of Registering a Partnership under Partnership Act, 1932 The primary initiative regarding the process of registration or incorporation of partnership firm is to forward an application filling Form No. 1. As per the provision of section 58 it should include following details: • The name of the firm. • The full names and permanent resident address of the partners. • The timespan of the firm. • Business the date when each partner effuses to the firm. • The principal place of business transaction of the firm. • The names of any other places where the firm carries its functional obligations. This undertaking is needed to be signed by all the associate partners, or by their respective agents principally given authority in their behalf. Secondly, all partners should necessarily solicit their signature application form or their authorized agents in their behalf in the occupancy of a witness who must be Advocate, Gazetted Officer, lawyer or Magistrate of Registered Accountant. If a partner declines to sign the application form, registration cannot happen unless that partner’s name is dribbled. When is Partnership Registered As provided in the Section 59, a partnership is said to be registered when a registrar is well pleased with the fidelity of application filed according to section 58 and an entry of statement in the register known as Register of Firms is recorded. Proof of Registration Documented proof of registration or incorporation for that matter is a registration certificate signed by Registrar. Alteration of Particulars Whenever an amendment or change is made in any of the understated particulars then it should be conveyed to the Registrar of firms and a satisfactory alteration is rendered in the register. The change to be rendered is sent in a stipulated form and with the stipulated fees. Any alteration in the name of the firm. Any alteration in the principal place of business transaction. The alteration in name or principal place of business transaction almost requires a fresh new registration. These alterations should be sent in a stipulated form and should be rendered signature by all the partners. Advantages of Registration The registration of a firm is done not only towards the benefit of the firm but also for those who deal with it. The following benefits are obtained from the registration of a firm: 8 (i) Benefits to the Firm The firm gets an unmitigated right towards the third parties in civil suits for getting its rights discharged. In the non-existence of registration, the firm is not entitled to sue outside partners in courts. (ii) Benefits to Creditors A creditor can employ any partner for recuperating his money due from the firm. All partners whose names are set in the registration are personally accountable to the unknowns. So, creditors can restore their money from any partner of the firm. (iii) Benefits to Partners The partners can seek the help of a court of law against each other in case of disagreement among partners. The partners can sue external parties also for restoring their amounts, etc. • Fundamentals Problems Faced by Not Registering a Firm: (1) A partner is not entitled to file a suit in any court of law against the other partners or the firm for the execution of any right emerging from any undertaking or right bestowed by the Partnership Act. (2) A right evolving from an undertaking cannot be implemented in any Court of law by or in support of one’s firm against any other firm. (3) Moreover, the firm or any of its associates cannot assert a set off (i.e., fundamental negotiation of debts possessed by the argufied parties to one another) or other actions in a disagreement with a third party. Methods of Dissolution of Partnership Firm Introduction Sometimes a situation arises where the owners and partners of a firm have to put an end to the partnership firm either on their own or due to the external forces, the process when the partnership comes to an end is called dissolution of the partnership. Dissolution of partnership means a process by which the relationship between the partners is terminated and comes to an end and all the assets, shares, accounts and liabilities are disposed of and settled. For a partnership firm to cease to exist, it needs to be dissolved. The process involves the sale or disposal of all assets of the firm, the final settlement of all of its liabilities, and the settling of the accounts. Ways of Dissolution of a Partnership Firm The dissolution of a partnership firm means termination of every contractual relationship between the partners and that all the operations which are being performed in a company are suspended and all the assets and liabilities are settled and disposed off. The partnership may be dissolved due to the following reasons: • Due to the death of the partner. • Due to the admission of a new partner. • Due to the retirement of a partner. • Due to the bankruptcy of a partner. • Due to the expiry of the partnership period, if the partnership is for a particular period. 9 Modes of Dissolution There are some modes by which a partnership can be dissolved and those are: 1. By an act of partners: when a partner agrees to dissolve a partnership at a particular time. Partners can come into an agreement regarding a particular time period maybe five years. In which partners can end the agreement at the end of the five years. Sometimes partners can dissolve it in the middle of the time period under specific conditions. 2. Dissolution by notice: As discussed above, if the partnership is at will, any partner of such partnership can give notice to others for the end of the partnership. This notice will have the date of dissolution of the partnership so that other partner can resolve their leftover ventures. 3. Dissolution due to certain events: The dissolution of a partnership may include different reasons, such as the expiration of the partnership period. This happens when the partnership is for a fixed time. It may be due to the death of any partner. Another reason for dissolution may be the completion of the venture for which the partnership was done. 4. By operation of law: A partnership is the consequence of an agreement which is governed by law. Therefore, if any unlawful activity is performed so it will be dissolved. You can make a valid partnership for illegal work. 5. By the court’s decree: A partnership can be dissolved by the court and the court will only allow under these conditions: Where a partner files a suit, the court may dissolve the partnership on the following grounds: i. Where one of the partners has become of unsound mind that is mad. ii. Where a partner is guilty of misconduct a breach of contract in the matter of running the partnership business. iii. Where a partner intentionally commits a breach of contract in the matter of running the partnership business. iv. Where a partner transfers his share in the partnership without the consent of all the other partners. v. Where the interest of a partner in the firm has been charged by the court from his debts. vi. Where it is reasonably certain the at the partnership cannot be carried on except at a loss. vii. When any partner becomes permanently incapably of performing his duties as a partner or mad. viii. On other grounds considered fit by the court of law. Breach contract by any partner misconduct of partners. Any partner transfer of share to any other person without the consent of other partners or others grounds court thanks fit. 6. Statement of dissolution: Dissolution can be done by filing the statement to the state’s secretary. The form must contain the information regarding the partnership name, date and reason of dissolution. • Rights after dissolution 10 The partners’ rights after dissolution are clearly mentioned in Section 46 of the Partnership Act, 1932. These rights are: • Every partner has the right to surplus distribution among all the partners. • Every partner must get the premium they pay at the initiation of the partnership. • After the dissolution of the partnership, the partner will not have the right to use the name of the company or firm for their personal benefits • They also lose the right to earn any benefit out of the partnership’s name after the dissolution • Liabilities after dissolution: The partners have certain liabilities during or after the dissolution of the firm. These are: • All the partners (other than those found to be insolvent or dead) are liable to the third party until the official public notice of dissolution of the partnership • The partners need to pay off their debts and wind up all their other affairs after the dissolution of the partnership • The profits after the dissolution are to be shared according to their profit share ratio in agreement • Conclusion Dissolution of any partnership is the ending of business between two or a group of people due to certain incidents or mutual decisions. The dissolution of the firm is completely different from the dissolution of a partnership as the firm dissolution involves the complete winding-up of the business, whereas the dissolution of the partnership only involves the ending of business between two or more groups of people. The dissolution of a partnership can be due to various reasons such as insolvency of a partner of the firm, change in existing partners, death of a partner, admission of a new partner, or simply the mutual agreement of the partners. There are different types of partnership and modes of ending it, too, as stated above. 11 Mutual Agency A mutual agency is a legally binding relationship entered into by business partners, which gives each partner authority on behalf of the business. With this agreement, each of the partners becomes an agent of the business and, therefore, has the power to make business decisions, such as creating a binding agreement with a third party. To form this relationship, each of the partners must have authorization powers, as well as the ability to enter into a business contract. When the mutual agency is formed, a partnership agreement should be created. This agreement should outline the benefits of the agreed partnership and provide details of each partner’s position. All details should be put into writing, to reduce any change of confusion or misunderstandings at a later time. A mutual agency may be thought of as a business marriage, and makes each partner accountable for the actions of the other, even if they do not agree with what has been done. Each partner may act as individuals in their everyday responsibilities, but ultimately, the partners are each responsible for the actions taken by the other. However, the mutual agency only exists if the partners are acting within range of normal business operations or practices. • key points regarding mutual agency in partnership: 1. Mutual agency means that each partner has the authority to act on behalf of the partnership. 2. Partners can enter into contracts, make business decisions, and engage in transactions. 3. Actions of one partner are legally binding on all partners, unless they exceed their authority or act outside the scope of the partnership’s business. 4. Mutual agency allows for efficient decision-making and flexibility within the partnership. 5. Effective communication and trust among partners are important to ensure actions taken are in the best interest of the partnership. Mutual Agency Example An example of mutual agency may include a retail partner who purchases goods from a supplier and, therefore, requires the partnership to provide payment for the purchased items. The partnership is responsible for the purchase because it falls within scope of normal business operations. • Advantages and Disadvantages of a Mutual Agency There are both advantages and disadvantages that should be considered when entering into a mutual agency: • Advantages: • Multiple partners will have the authority to carry out deals and transactions for the business. • Allows for business responsibilities to be spread out among all of the partners. • The divided responsibilities allow for quicker business expansion and growth. • Disadvantages: • All partners can be hindered by undesirable actions of one partner, • If one partner makes a poor decision, all the partners are impacted by the result. • Who is a partner by estoppel There are various types of partners in a partnership firm, ranging from active or secret partners to nominal or minor partners. When talking about a nominal partner, it Is important to note that they can also be referred to as ostensible or quasi-partners. A key characteristic of this type of partner is that he does not invest money or contribute capital, participate in business or management decisions, or share in the company’s profits or losses. He merely lends the 12 company his goodwill, which includes his name and reputation. An individual would have either represented himself (partner by estoppel) or knowingly permitted another person (partner by holding out) to represent him as a partner. By doing this, he makes himself responsible to everyone for the firm’s debts. When a person, through his actions or behavior, leaves an impression on third parties that he/she is a partner to a firm such that the latter relying upon the same does an act, then he/she would be regarded as a ‘partner by estoppel’. This basically means that even though the individual concerned is not a partner, he or she has represented themselves as one, and as a result, is now a partner by estoppel. • Liabilities of a partner by estoppel A partner by estoppel or holding out would be liable to the third party who gave credit, relying on the representations made. It is the responsibility of such a partner to make good on the losses incurred by the third party. It must, however, be noted that he does not acquire a claim over the company, nor does he become a “real partner,” but rather merely becomes liable for compensating the third party or the losses and injury suffered due to representations made. It must also be noted that the liability of a partner who has died or become insolvent, or dormant (provided the debt was taken by an acting partner after the dissolution of the firm) forms an exception to the doctrine. Doctrine of Partner by Holding Out: A partner by holding out means a person who is not a member of firm but allows himself/herself to be represented as a partner. Such person is responsible to person who has given loan to firm on his representation because loan has been given by assuming that he/she is member. Doctrine of holding out basically refers to an act or omission of the act which led others to believe that the person is a partner of the company and has authority and hence in this faith they made an agreement while in actual he does not have. Hence in such cases section 28 states that if a person has represented himself as a partner of the business and the other party had made some transaction in this faith, he cannot now go back and hence is estopped to be liable as a member as he presented himself. This partner by holding out is therefore liable to compensate and make good the loss the third party, whom he induced by being misrepresenting himself as partner, has suffered due to him but does not by anyway gets a right of being a real -partner in the firm. • Liability of Holding Out Section 28 of the Partnership Act, 1932 is as: • Anyone who by words spoken or written or by conduct represent himself, or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to anyone who has on the faith of any such representation given credit to the firm, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit. • Where after partner’s death the business continued in the old firm-name, the continued use of that name or of the deceased partner’s name as a part thereof shall not of itself make his legal representative or his estate liable for any act of the firm done after his death.[5] 13 Partner by Estoppel or Holding out Collectively: If a person by his act or omission gives an image to the third party that he is a partner to the firm he is a partner by estoppel. He is a partner by holding out if the company represents him as its partner and the person knows it and the third party believing on the fact acts in good faith upon the belief. Such partners are liable to the third party are Section 28 of the Partnership Act, 1932. • Rights of Minor In partnership: Introduction A partnership is an agreement between two persons who agree to share profits and losses in their partnership. As per the law of land, an agreement by a minor is void-ab-initio. However, the Partnership Act, 1932 has a set of rules and procedures which allow a minor to be admitted for benefits of a partnership. A minor is a person who is yet to attain the age of majority. However, a minor can also be appointed to claim the benefits of the Partnership. • Appointment of Minors in a Partnership: According to Section 30 of the Partnership Act, 1932 a minor cannot be a partner in a firm. However, if he opts for the consent of all the other partners, for the time being, he is eligible to claim the benefits of the partnership. In order to enjoy such benefits, there must be an agreement executed between his guardians and the partners. The rules for the appointment of a minor in a partnership are as follows: – • A minor can be appointed to the benefits of the Partnership when there is the consent of all the existing partners. • It is pertinent to note that, there must be an existence of a partnership before a minor is appointed. Moreover, there cannot be a partnership consisting of all minors. • Rights of Minors in a Partnership Section 30 (I) of the Partnership Act,1932 deals with the rights of minors who are entitled to the benefits of a partnership. The rights of a minor in a partnership can be classified as follows: – 1. Right of Inspection: – [Section 30 (2)] A minor in a partnership firm can inspect the books of accounts of the firm. Further, he can also demand copies of the books. However, this right of minor is only limited to inspection and he cannot have access to those books which may contain trade secrets. 2. Right to sue: – [Section 30(4)] A minor can sue the requisite partners for account or payment of his property or profit. The minor can claim his share only upon leaving the firm. As long as he stays in the firm, he cannot exercise such a right. 3. Right to receive his share or profit : – According to sub-section 2 of Section 30, a minor is entitled to receive his agreed share of the property and the profits of the partnership firm. At the time of the appointment of a minor 14 in a partnership, it is decided that a minor is entitled to the benefits of a partnership that is bestowed upon him with the right to share both profits as well as property. 4. Right after attaining the age of majority: – The position of the minor upon attaining the age of majority is that when he knows that he has been eligible to the benefits of partnership, then such a person needs to give public notice on his position that whether he has elected to become the partner of the partnership firm or not elected to become a partner of a partnership firm. Such notice will determine his position with regard to the firm. If at all the minor fails to give such notice then he shall become a partner in the firm on the expiration of the said 6 months. • When minor elects to become a partner: – • He will become personally liable to the third parties of all acts of the firm. His liability will be applicable retrospectively i.e., from the date of his appointment to the benefits of a partnership. • His share in the profits and property of the firm shall be the share to which he was entitled as a minor. • When minor elects not to become a partner: • The liabilities and rights shall continue to be those of minor up to the date on which he serves a public notice. • After the date of serving the notice, his share shall not be liable for any acts of the firm. • However, he still reserves a right to sue the other partners for his share of the property and profits.
