Uploaded by Amreena Malik


Essentials, Rights and Duties of
Partners, Settlement of Accounts
Partnership Act , 1932 (Sec. 3 )
A partnership is a voluntary association of two
or more persons, who contribute, money,
property, time, care or skill, to carry on, as coowners, a lawful business for profit and to
share the profits and losses of the business.
1. Agreement:
A partnership is the result of an agreement
between persons who want to form a
partnership. An agreement may be written or
2. Number of partners:
According to section 14 of company’s ordinance,
1984 a partnership consisting of more than
20 persons for carrying on any business is
3. Existence of business:
The partners must agree to carry on a business.
If the purpose is to carry on some charitable
work, it will not be a partnership.
4. Sharing of profits:
The agreement between the parties must be to
share the profits of a business. The profit will
be distributed among the partners according
to their agreement.
5. Duration:
The partnership continues at the will of the
partners. It comes to an end if any of the
partners retires, dies or becomes insolvent.
However, if the remaining partners agree to
continue the business, the firm will not
1. Active partner:
A partner who takes an active part in the
management of the firm is called active
2. Sleeping partner:
One who does not take an active part in the
management of the firm is called sleeping.
3. Nominal partner:
One who lends his name and reputation to the
firm is called nominal partner. He does not
invest in business. He does not get share in
profits. But, he is regarded as partner in the
eye of law. He is liable to the outsiders for
the debts of the firm.
4. Senior partner:
A partner who has made more investment in the
firm and receives more profit is called a
senior partner.
5. Junior partner:
A junior partner is the one who has a small
investment in the business and receives a
nominal share in the profits.
6. Partner in profits only:
He is a partner who shares the profits of the firm
but is not liable for the losses. But he is
equally liable as other partners to the
1. Partnership at will:
Where no provision is made in the contract
regarding the duration of partnership.
2. Particular partnership:
Where partnership is formed to do a particular
business. Such partnership is dissolved
immediately after the completion of that
1. Right to take part in business:
It is not essential for every partner to take part in
business but the right of participation should
be available to every partner.
2. Right to inspect books.
Every partner has rights to inspect an take copies
of books of the firm.
3. Right to share profits.
Every partner has rights to share equally in profit
earned and is liable to contribute equally to
losses suffered by the firm .
4. Right to give consent.
Every partner has rights to prevent the
introduction of new partner unless he
consents to that .
5. Right to retire:
A partner can retire with the consent of other
partners or according to the agreement or by
giving notice to all the partners.
1. Duty to carry on Business:
It is the duty of every partner to carry on the
business of the firm for the common
2. Duty to be just and faithful:
The partners should be faithful and just towards
the firm and towards other partners in their
actions specifically in maintaining the firm’s
3. Duty to indemnify:
Every partner is bound to indemnify the firm for
any loss caused to it by his conduct like fraud
or misrepresentation.
4. Duty to share losses :
Every partner shall bear the losses equally borne
by the firm irrespective of their capital
contribution .
1. A firm may be dissolved with the consent of
the partners.
2. A firm is compulsorily dissolved if all the
partners except one, become insolvent
3. If a firm is constituted for a certain term, then
it stands dissolved after the expiry of the
4. A firm may be dissolved by the order of the
court if any of the partners files a suit for
the same on any of the following grounds:
a. A partner has become of unsound mind.
b. A partner has become insolvent
c. A partner has committed breach
d. The firm is running on losses
5. Where the partnership is at will, any partner
giving notice in writing to all the other
partners may dissolve the firm.
1. The partners shall pay losses, first from their
profits, next out of capital and lastly if
necessary by the partners individually
according to the proportion of their expected
2. The assets of the firm shall be applied to pay
the debts of third parties, to pay each partner
what is due to him, the rest if any to be
divided among the partners according to the
proportion in which they were to receive
1. Easy Formation :
The partnership can be easily formed because
no complicated legal formalities are for its
formation .
2. Larger Capital :
There are more persons who persons who can
collect large amount of capital . The capital
can also be increased by admitting new
partners .
3. Better Management :
The partners may perform only those activities
for which they are more suitable .
4. High Credit Standing :
In partnership , the liability of all the members
is unlimited . It means that in case of loss,
personal assets of all the partners can be held
liable to meet the claims of the creditors .
5. Public Relations:
The partners personally look after the affairs of
business , so they develop good relations with
the employees and customers .
4. Risk of Dissolution :
In case of death , insolvency of the partner , the
partnership is terminated . The remaining
partners will have to make a new agreement if
they want to continue with the business.
5. No transfer of ownership :
In case of partnership , the partner cannot
transfer his ownership to any other person
without the consent of all the other partners .
3. Unlimited Liability :
The partners have unlimited liability with regard
to debts of the business . Every Partners is
individually and jointly liable for all debts of
the firm .
4. Lack of Public Confidence :
A partnership have independent decision
making authority in the management .
5. Lack of authority :
All partners have independent decision making
authority in the management . As a result ,
many types of problems may arise when there
is no mutual trust , understanding and
corporation .