Questions on Partnership Act 1932

Q1. Can a partner bind the firm?
A partner can bind the firm by the means of his acts relating to partnership business. Persons carrying on business in partnership are agents as well as principals. The business of a firm is carried on by all or any one or more of them acting for all. Every partner has the authority to act on behalf of all and can, by his actions, bind all the partners of the firm.

Q2. What are the essential elements of a Partnership?
A partnership, as defined in the Act, must have three essential elements:
a. Contractual relation / Voluntary agreement:
There must be an agreement entered into by two or more (20, but in case of Banking 10) persons.
b. Sharing profit/ loss:
The agreement must be to share the profits of a business.
c. Carrying of business / Mutual agency:
The business must be carried on by all or any of the partners acting for all.

Q3. Can a firm be liable for the wrongful acts of a partner?
A firm can be liable for the wrongful acts of a partner. Where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm, or with the authority of his partners, loss or injury is caused to any third party, or any penalty is incurred, the firm is liable therefore is liable to the same extent as the partner.

Q4. What do you understand by partnership at will?
A partnership is called a partnership-at-will;
a. when the partnership is not for a fixed period of time, and
b. when no provision is made as to when and how the partnership will come to an end.
A partnership at will can be dissolved whenever any partner chooses to do so.

Q5. Can you spell out the procedure for registration of a firm?
a. If any firm wants to be registered then it shall have to made application to the registrar under prescribed form & fee mentioning the following subjects / information:
i. Name of the firm
ii. The principal office
iii. The branch office (if any)
iv. Objectives
v. Date of joining of each partner
vi. Date of constitutions
vii. Name and full address of the partners
viii. Duration of the firm
b. The above application must be signed & verified by all partners or their agent specially authorized on this behalf.
c. If registrar satisfies with the application he record an entry of the statement in the Register of Firm and the firm is thereupon considered to be registered.

Q6. What do you mean by Registration of Firms?
Registration of firm means the registration of the contract with the registrar. It is not compulsory but an unregistered firm suffers from certain disabilities and therefore registration is necessary for carrying on business.

Q7. Is it mandatory for a firm to registration?
The registration of a partnership firms is not mandatory. Therefore an unregistered firm is not an illegal association. But an unregistered firm suffers from certain disabilities and therefore registration is necessary form carrying on business.

Q8. What are the effects or consequences of Non-registration of a firm?
An unregistered firm and the partners thereof suffer from certain disabilities:
1. A partner of an unregistered firm cannot file a suit (against the firm or any partner thereof) for the purpose of enforcing a right arising from contract or a right conferred by the Partnership Act.
2. No suit can be filed on behalf of an unregistered firm against any third party for the purpose of enforcing a right arising from a contract.
3. An unregistered firm cannot claim a set-off in a suit.
4. Cannot claim to the court for the receivable amount exceeding Rs. 100 from the third party.
Exceptions:
1. A partner of an unregistered firm can file a suit for the dissolution of the firm and for accounts.
2. Suits can be filed for the realization of the properties of a dissolved firm even though it was registered.
3. The Official Assignee or Receiver can realize the properties of an insolvent partner of an unregistered firm.
4. There is no bar to suits by unregistered firms and by the partners thereof in areas where the provision relating to the registration of firms do not apply by notification of State Government under Section 56.
5. Partners have right to claim for his portion of share from access the assets of dissolved firm.
6. An unregistered firm can file a suit (or claim a set off) for a sum of not exceeding Rs. 100.

Q9. Can a minor be admitted as a Partner?
A minor cannot enter into a contract of partnership because an agreement by a minor is void. But if all partners agree, a minor may be admitted to the benefits of an existing firm.

Q10. In what situations compulsory dissolution may take place?
Dissolution of a partnership firm is compulsory in case of following cases:
a. by the adjudication of all the partners or of all the partners but one as insolvent, or
b. by the happening of any event which makes the business of the firm unlawful.

Q11. Happening of certain contingencies may lead to dissolution of partnership what are those?
Subject to contract between the partners, a firm is dissolved on the happening the following of certain contingencies
a. if constituted for a fixed term, by the expiry of that term;
b. if constitute to carry out one or more adventures or undertakings, by the completion thereof;
c. by the death of a partner; and
d. by the adjudication of a partner as an insolvent.

Q12. What are the grounds of dissolution?
A firm may be dissolved on any of the following grounds:
2. By agreement : A firm may be dissolved any time with the consent of all the partners of the firm. Partnership is created by contract; it can also be terminated by contract.
3. Compulsory dissolution: A firm is dissolved—
a. by the adjudication of all the partners or of all the partners but one as insolvent, or
b. by the happening of any event which makes the business of the firm unlawful.
4. On the Happening of Certain Contingencies:
Subject to contract between the partners, a firm is dissolved—
a. if constituted for a fixed term, by the expiry of that term;
b. if constitute to carry out one or more adventures or undertakings, by the completion thereof;
c. by the death of a partner; and
d. by the adjudication of a partner as an insolvent.
5. By Notice :Where the partnership is at will, the firm may be dissolved by any partner giving notice in written to all other partners of his intention to dissolve the firm.
6. Dissolution by the Court:
At the suit of a partner the court may dissolved a firm on any one of the following grounds:
a. Insanity: If a partner has become of unsound mind. The suit for dissolution in this case can be filed by the next friend of the insane partner or by other partner.
b. Permanent Incapacity: If a partner becomes permanently incapable of performing his duties as a partner. The suit for this case must be brought by a partner other than the person who has become incapable.
c. Guilty Conduct: If a partner is guilty of conduct which is likely to affect prejudicially the carrying on of the business, regard being had to the nature of the business.
d. Persistent Breach of Agreement: If a partner willfully and persistently commits breach of the partnership agreement regarding management, or otherwise conducts himself in such a way that it is not reasonably practicable for the other partners to carry on business in partnership with him.
e. Transfer of Whole interest: If a partner has transferred the whole of his interest in the firm to an outsider or has allowed his interest to be sold in execution of a decree.
f. Loss: If the Business of the firm cannot be carried on except at a loss.
Just and Equitable Clause: If the court considers it just and equitable to dissolve the firm.

Q13. Can an outgoing partner carry guarantee?
A continuing guarantee given to a firm or to a third party in respect of the transactions of a firm is, in the absence of agreement to the contrary, revoked as to future transactions from the date of any change in the constitution of the firm.

Q14. What are the ten Important elements of a stand and partnership deed?
The important elements of a stand and partnership deed are as follows:
1. Name and address of the partners
2. Firm name
3. Nature of business
4. Place of business and business address
5. Duration of the partnership and mode of dissolution
6. The amount of capital to be contributed by each partner
7. The mode of management
8. The powers of the partners
9. Terms on which a partner can retire
10. Expulsion of partners
11. Introduction of new partners

Q15. What do you mean by Partnership?
Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.

Q16. Who can be a partner?
Under the Partnership Act, a person may be partner if he has the capacity to enter into a contract. From the purposes of the Partnership Act, the term ‘person’ does not include a partnership or a limited company. Thus a company P cannot form a partnership with a company Q. Similarly, a firm X cannot form a partnership with firm Y. But all the partners of firm X and all the partners of firm Y can form a single partnership, subject to the rules regarding the number of partners. However, it is assumed that except the followings all are eligible to become a partner of a firm:
a. Minor: A minor cannot be a partner. But in an existing partnership, a minor can be admitted into a firm if all the partners of the firm agree. Such minor gets all the benefits of the partnership.
b. Person of unsound mind: A person who is of unsound mind cannot become a partner.
c. Insolvent: A person, who is adjudged insolvent by the court, cannot become a partner.
d. Company:In a Company the capacity to enter into contract is determined by the Memorandum and Articles of the Association of the Company. The liability of the members of a firm under the Partnership Act, for the debts of the firm, is unlimited. But a company cannot incur unlimited liability. Therefore a company cannot become a partner of a firm.
e. An alien enemy: An alien enemy cannot enter into a contract of partnership with a citizen of the country.
f. Ambassador: Any foreign ambassador in Bangladesh cannot enter into a partnership in the country.

Q17. What are the difference between Partnership and Co-ownership?
Partnership: Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.
Co-ownership: Co-ownership means joint ownership
Subject
Partnership
Co-ownership
1. Agent
In a partnership each partner is the agent of the others.
But a co-owner is not the agent of the other owners.
2. Agreement
Partnership always arises out of agreement.
Co-ownership may arise by agreement or by operation of law.
3. Business
A partnership always implies a business.
Co-ownership may exist without any business.
4. Sharing of profit
In a partnership there must be sharing of profit.
Since a co-ownership may exist without a business, the question of sharing profits or loss is immaterial in a co-ownership.
5. Lien on assets
A partner has a lien on the partnership assets for moneys spent by him for the partnership.
But a co-owner has no lien under similar circumstances.
6. Transferring of interest
A partner can transfer his interest, under certain circumstances, but the transferee can never become a partner of the business without the consent of the other partners.
A co-owner can transfer his interest to a third party without the consent of the other co-owners.

Q18. What are the types of partnership forbidden by law?
a. Number of partners.
b. An agreement to form a partnership, for the purpose of carrying on an illegal trade.

Q19. What do you mean by 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”

Q20. What is the legal status of a Firm?

Q21. What are the classes of Partners?
a. Active partner: An active partner is one who actually participates in the business of the firm. A person becomes a partner only by agreement.
b. Dotrmat, Sleeping or Nominal partner: These partners joint the firm by agreement but do not take any active part in the business. Their liabilities are same as of Active Partners.
c. Sub-partner : The transferee of a share of a partner’s interest in a firm is called a sub-partner. Suppose P, the owner of ¼ of firm, transfers ½ of his share to Q. Q will be called a sub-partner. His rights and liabilities are limited.

Q22. What are the classes of Partnership?
Partnership
General Partnership Limited Partnership
Partnership-at-Will Particular Partnership
1. Partnership-at-will: U/s 7 of the Act, partnership is called a partnership-at-will;
c. when the partnership is not for a fixed period of time, and
d. when no provision is made as to when and how the partnership will come to an end.
2. Particular partnership: U/s 8 of the Act, a particular partnership is one, which is formed for a particular adventure or a particular undertaking. Such a partnership is usually dissolve on the completion of the adventure or the undertaking.
3. Limited partnership: If the liability of one or more partner of a partnership is limited whether by the contract or by legislation, such a partnership is called limited partnership.

Q23. What do you mean by Partnership property?
The property of the firm includes all property and rights and interests in property originally brought into the stock of the firm or acquired by purchases or otherwise, by or for the firm, or for the purposes and in the course of the business of the firm, and includes also goodwill of the business. Thus the property of the firm means –
a. property originally brought in by the partners
b. property obtained while the firm was in business and
c. the goodwill of the firm.

Q24. What do you mean by Goodwill?
Goodwill may be described as the advantage, which is acquired by a firm (over and above the value of stock in trade and capital and funds) from the connections it has built with its customers and the reputation it has gained.

Q25. What do you mean by Partnership Agreement?
The writing or oral agreement in which the terms are incorporated to carry on business in a partnership is called the Deed of Partnership or the Articles of Partnership.

Q26. When can the partnership business be registered?
A firm can be registered at any time. But an unregistered firm cannot file certain suits. A firm must be registered before it can file suits or claim set-off. A firm can be registered even after the partners have agreed to dissolve the firm.

Q27. What re the general rules regarding the conduct of he partners to one another?
a. General duties of partners.
b. Indemnity.

Q28. What are the rules regarding the relationship between the partners as regards the management of the business ands their mutual rights?
a. Rules regarding the conduct of the business.
b. Mutual rights and duties
c. Personal profits earned by partners
d. Continuance of per-existing terms

Q29. What are categories of the authority of a Partner?
The authority of a partner to act on behalf of the firm can be divided into two categories:
a. Express Authority: Any authority, which is expressly given to a partner by the agreement of partnership called Express Authority. The firm is bound by all acts done by a partner by virtue of any express authority given to him.
b. Implied Authority: Implied Authority means the authority to bind the firm which arises by implication of law from the facts of partnership.
Provided that bind the firm means those act which must be:
i. with the name of the firm, or
ii. to show an intention to bind the firm.
Examples:
i) X, the partner of a firm of confectioners, purchases sugar on credit in the firm’s name. The firm is bound to pay for the sugar.
ii) Y, the partner of a firm of confectioners, purchases a horse on credit in the firm’s name. The firm is not bound in the absence of any express authority from the other partners because this act dose not come within the scope of a confectioner’s business.

Q30. What are the limitations of a partner in case of implied authority?
The section 19(2) of Partnership Act 1932, which are given below, limits the implied authority of a partner:
1. submission of a dispute relating to the business of the firm to arbitration,
2. open a banking account on behalf of the firm in his own name,
3. compromise or relinquish any claim or portion of a claim by the firm,
4. withdraw a suit or proceeding filed on behalf of the firm,
5. admit any liability in a suit or proceeding against the firm,
6. acquire immovable property on behalf or the firm,
7. transfer immovable property belonging to the firm, or
8. enter in partnership on behalf of the firm.

Q31. What are the rules regarding the alteration of authority?
The express or implied authority of a partner may be altered, extended, or restricted by agreement between the partners at any time.

Q32. What are the rules regarding the authority in Emergency?
A partner has authority in an emergency, to do all such acts for the purpose of protecting the firm from loss as would be done by a person or ordinary prudence, in his own case, acting under similar circumstances, and such acts bind the firm.

Q33. What are the liabilities of partners to outsiders?
1. Liability of a partner for acts of the firm.
2. Liability of the firm for wrongful act of a partner.
3. Liability of firm for misapplication by partners.

Q34. What are the rights of Partners?
1. Conduct of business.
2. Can express opinion.
3. Access, inspection, copy.
4. Equity of profits.
5. Interest on capital.
6. Interest on advance.
7. To get indemnity.
8. Application of property of firm.
9. Partner’s authority.
10. Powers in an emergency.
11. Reconstitution.
12. Dissolution.
13. Rights to carrying on a competing business.
14. Right to share profit after retirement.

Q35. What are the duties of Partners?
1. Justice, Faithfulness, True Accounts, Full Information.
2. To pay indemnity.
3. To attend diligently.
4. No remuneration.
5. Equity of losses.
6. To pay indemnity for willful neglect.
7. No private benefit.
8. No secret profit.
9. Unlimited liability.

Q36. Describe rules regarding the partnership by Holding Out or Estoppels.
A person may, under certain circumstances, be liable for the debts of a firm although he is not a partner. If a person, by words spoken or written, or by conduct, represents himself or knowingly permits himself to be represented, to be a partner in a firm, he is liable as a partner in that firm to any one who has on the faith of any such representation given credit to the firm. – Sec. 28.
To hold a person liable as a partner by holding out, it is necessary to establish the following:
a. He represented himself, or knowingly permitted himself to be represented as partner.
b. Such representation occurred by words spoken or written or by conduct.
c. The other party on the faith of that representation gave credit to the firm.
d. A retired partner of the firm is liable to third parties by the principle of holding out if he allows using his name in connection with the firm.

Q37. What do you mean by retired partner and deceased partner?
Retired partner: A partner who has retired from the firm but allows the use of his name in connection with the firm may become liable to third parties by the principle of holding out.
Deceased partner: The legal representative of a deceased partner do not become liable for the debts of the firm merely because the name of the deceased is used as a partner of the firm name.

Q38. What are the rights and liabilities of a minor partner?
The rights and liabilities of a minor partner can be described based on the time of before maturity and after maturity which are described hereunder:
Before attaining maturity:
1. He has right to take share of profit, agreed by all partners.
2. Right to access, inspect and copy any of the accounts of the firm.
3. His liabilities in the firm is limited to the extend of his share in the firm. He is not personally liable.
4. He has no right to sue against other partner for profit or accounts, but may sue for separation.
5. He cannot adjudicated as an insolvent, but, if the firm become insolvent the property of minor shall be transferred to the official assignee.
After attaining maturity:
Within 6 months of his attaining date of maturity, or within knowledge that he had been admitted to the benefits of partnership, whichever date is later, the minor may give public notice that he has elected to become or that he has elected not to become a partner in the firm. If he does not do so, he shall become a partner of the firm on the expiry of the said six months.
If he elect to become a partner or becomes a partner by failing to notice otherwise:
a. His right and liabilities for profit & property will continue up to date of elected as a partner. But he will be personally liable for these acts, which was previously done by the firm.
b. His share of profit & properties will remain same as before.
If he elect not to become a partner:
a. His rights and liabilities will continue up to notice.
b. He will not liable for any act done by the firm after such notice.
c. He can sue for his share of profit & properties
d. If he acts as holding out, he will be liable under prescribed method.

Q39. When can the constitution of a firm be changed?
1. Introduction of a new partner.
2. Retirement of a partner.
3. Expulsion of a partner.
4. Insolvency of a partner.
5. Death of a partner.
6. Transfer of s partner’s interest.

Q40. When can a partner be expelled?
1. When the contract of a partnership contains a provision for explosion under stated circumstances.
2. The power to expel is exercised in good faith by the majority of the partners
3. The expelled partner has been notice of the charges against him and has been given an opportunity to answer the charges.

Q41. What are the rights of an outgoing partner?
1. Restraint of trade.
2. To carry on competing business.
3. To share subsequent profits.
4. Revocation of continuing guarantee by change in firm.

Q42. What do you mean by dissolution of firm?
Dissolution of a firm means the end of a firm by the break up of the relation of partnership between all the partners.

Q43. What are the consequences of dissolution?
1. Acts done after dissolution: Until public notice is given of the dissolution, the partners continue to be liable to third parties for all acts done in connection with the affairs of the firm.
2. Winding up: Partner is liable to winding up by the following way:
a. Meet up liabilities by sale of properties; and
b. Meet up liabilities of 3rd parties at first
If any deficit arise in doing the above work partners will bear that according to the terms of agreement of partnership. And
If any surplus arises they have right to take the same in proportion of their respective share.
3. Continuing authority of partners for purposes of winding up: Partners have right to-
a. complete pending work regarding winding up; and
b. complete incomplete transactions.
4. Profit earned after dissolution: If any partner earns any profit from any transaction connected with the firm after its dissolution, he must share it with the other partners and the legal representative of the deceased partners.
5. Returns of premium: Where a partner has paid a premium on entering into partnership for a fixed term, and the firm is dissolved before the expiration of that term, he shall be entitled to repayment of the premium.
6. Right to restrain from use of firm’s name: Every partner has right to restrain any other partner from using firm’s goodwill. But if a partner has purchased the goodwill of the firm, he can use the firm’s name.

Q44. What are the modes of setting accounts upon dissolution?
Subject to agreement between the partners following rules are laid down for settlement of accounts—
1. Losses are to be paid first out of profits, next out of capital, and lastly if necessary by the partners individually in the proportions in which they were entitled to share profits. Capital deficiency is to be treated as loss and is to be borne by the partners in proportion to the profit sharing ratio.
2. The assets of the firm including any sums contributed by the partners to make up deficiencies of capital, shall be applied in the following manner and order:
a. In paying the debts of the firm to third parties;
b. In paying to each partner ratably what is due to him from the firm for advances as distinguished from capital;
c. In paying to each partner ratably what is due to him on account of capital; and
d. The residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits.
e. If a partner becomes insolvent or otherwise cannot pay his share of the contribution, the capital of the solvent partners cannot be returned in full. In this case, the solvent partners must share ratably the available assets, i.e. the rule laid down in the English case, Garner Vs. Murray.
3. Payment of the firm debts and of separate debts: Where there are joint debts from the firm, and also separate debts due from any partner, the property of the firm shall be applied in the first instance in payment of debt of the firm, and if there is any surplus, then the share of each partner shall be applied in payment of his separate debts or paid to him The separate property of any partner shall be applied first in the payment of his separate debts, and the surplus (if any) in the payment of the debts of the firm.