Partnership Act 1932 :
Partnership Act 1932 Partnership Contract : ‘concurrent subject’(
in Entry 7 of List III (Seventh Schedule to Constitution). Indian
Partnership Act is a Central Act, special types of Contract
Unlimited liability is the major disadvantage Partnership Firm is
not a legal entity
Definition of partnership :
Definition of partnership “Partnership is the relation between
persons who have agreed to share the profits of a business carried
on by all or any one of them acting for all.”
ESSENTIALS OF A PARTNERSHIP :
ESSENTIALS OF A PARTNERSHIP AGREEMENT
ASSOCIATION OF TWO OR MORE PERSONS SHARING OF
PROFITS BUSINESS RELATION BETWEEN PARTNERS The
No. of partners in a firm shall not exceed 20 partnership having
more than 20 persons is illegal . When there is partnership between
two firms, all the partners of each firm will be taken into account.
If the partnership is between the karta or member of Hindu
undivided family the members of the joint Hindu family will not
be taken into account
Essentials elaborated :
Essentials elaborated A. agreement competent to contract. the age
of majority sound mind and is not disqualified from contracting by
any law to which he is subject B The following can enter into a
partnership INDIVIDUAL FIRM HINDU UNDIVIDED FAMILY
COMPANY TRUSTEES
MUTUAL AGENCY IS THE REAL TEST - The real test of
‘partnership firm’ is ‘mutual agency’, i.e. whether a partner can
bind the firm by his act, i.e. whether he can act as agent of all other
partners. 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
Partnership Firm is not a legal entity - It may be surprising but
true that a Partnership Firm is not a legal entity. It has limited
identity for purpose of tax law. As per section 4 of Indian
Partnership Act, 1932, 'partnership' is the relation between persons
who have agreed to share the profits of a business carried on by all
or any one of them acting for all. - - Under partnership law, a
partnership firm is not a legal entity, but only consists of individual
partners for the time being. It is not a distinct legal entity apart
from the partners constituting it
Difference between partnership and Company :
Difference between partnership and Company Regulating act
Number of members Entity Liability Authority of members
Management Transfer of Interest Audit Registration Winding Up
Ownership of the property Agency shareholder not agents
Contracting with the co. shareholder can do, partner cannot do with
firm Ultra vires in Co., not so in Partnership
Types of partnership :
Types of partnership Partnership at will Particular partnership(
specific venture) Kinds of Partners Active / actual / ostensible
partners: must give public notice of his retirement Sleeping/
dormant partners: undisclosed principal, have voice in Mgt .not
required to give PNoR
Silent partners: no voice in Mgt., fully liable for P/LPartner in
profits only: No voice in Mgt. only for P. now started in India, in
LLP Sub partner: A partner agrees to share his P with O/S this O/S
is Sub Partner Partner by estoppel /holding out/ Quasi Partner/
Nominal Partner: No agreement but the person holds out,
represents himself to be a partner, becomes responsible to O/s as
partner. It is not necessary that representation must be made
directly to the person so giving credit.
Formation Of Partnerships :
Formation Of Partnerships May be formed by oral or written
agreement All essential of valid contract be present Mutual rights
and Obligation to be in Partnership Deed The deed to be registered
Partnership Deed :
Partnership Deed A partnership deed should contain the following
clause Name of the parties Nature of business Duration of
partnership Name of the firm Capital Share of partners in profits
and losses Banking, Account firm Books of account Powers of
partners Retirement and expulsion of partners Death of partner
Dissolution of firm Settlement of disputes
GENERAL DUTIES OF A PARTNER :
GENERAL DUTIES OF A PARTNER- A. Absolute Duties carry
on the business with common advantage just and faithful render
true accounts to provide full information To indemnify for loss
caused by fraud liable jointly and severally not to assign his
interest
B. Qualified duties Not to carry on business competing with the
firm indemnify the firm for wilful neglect carry out the duties
diligently to work without remuneration to contribute to losses
Partners use firms property exclusively for the firm to account for
personal profits derived
RIGHTS OF THE PARTNERS :
RIGHTS OF THE PARTNERS To take part in the conduct and
management of the business free access to all the records To
express opinion in matters connected with the business share in the
profits of the business To get interest on the payment of advance
To be indemnified by the firm against losses or expenses
Registration of Firms :
Registration of Firms not compulsory Time of registration
Procedure for registration Change of particulars Effects of non
registration
Procedure for registration :
Procedure for registration sending by post /delivering to the
Registrar of Firms of the area a statement in the prescribed form
and accompanied by the prescribed fee, Signed by all partners/
agents Following to be in the application: The firm name the place
or principal place of business of the firm; the names of any other
places where the firm carries on business; the date when each
partner joined the firm; the names in full and permanent addresses
of the partners; and the duration of the firm
Effects of non Registration :
Effects of non Registration No suit in a civil court by a partner
against the firm or co partner No suit in civil court against third
parties Firm or partners cannot make claim to set off other
proceeding based upon a contract Registration of firms from IT is
different from the above registration. For the purpose of
assessment under IT separate registration with IT is required.
authorities :
authorities Express authority Implied authority: acts of a partner
which incidental or usually done in the course of the business. In
case of emergency; all acts as prudent The implied authority of a
partner does not empower him to Submit a dispute relating to the
business of a firm to arbitration Open a bank account in his own
name Compromise or relinquish any claim of the firm Withdraw a
suit or proceeding on behalf of the firm Admit any liability in a
suit or proceeding against the firm Acquire immovable property on
behalf of the firm Transfer immovable property belonging to the
firm, or Enter into partnership on behalf of the firm
Liabilities of partners to third parties :
Liabilities of partners to third parties L of a partner for acts of the
firm: liable jointly and severally L of firm for wrongful act of
partner: firm liable to 3rd party for loss caused by partner ,the
same will be borne by the partner who committed the fraud and not
shared by the partners L of firm for misapplication by partners: if
partner misappropriates received in repayment on account of the
firm, 3rd party can make the firm liable for it
PARTNERSHIP – INTRODUCTION
1. Define partnership.
Accounts to section -4 of the Indian partnership act 1932, 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.
2. Characterstics of partnership.
The essential element of a partnership are as follows .
(1) There must be two or more persons to form a partnership
(2) There must be an agreement .This agreement may be written
oral .
(3) The agreement must be conduct a business for profit.
(4) There must be sharing of profit .
(5) There must be a mutual agency . It is because of this mutual
agency that the business may be carried by all or any of them
acting for all.
3. What is partnership deed? What are its important contents ?
Partnership deed is a document which contains the term of partner as
agreed among the partners . In other words , the documents in writing
containing various terms and condition as the relationship of the
partners to each other is called the partnership deed .
Contents of partnership deed :(1) Name and address of the firm .
(2) Nature and place of business .
(3) Commencement of business and its duration .
(4) Capital of each partners .
(5) Rights and duties of partners .
(6) Safe custody of accounts .
4. What are the accounting provision of the Indian partnership act that
will apply in the absence of any agreement between the partners ?
(1) Sharing of profits and losses => profits and losses share
equally.
(2) Interest on capital => No interest is to be allowed.
(3) Interest on drawings => No interest is to be allowed.
(4) Remuneration => No remuneration is to be allowed in any
partner.
(5) Interest on loans => Interest @ 6% is to be allowed.
5.
Basic
Fixed capital
Fluctuating capital
1. Change in capital
It remains unchanged
unless further capital is
introduced or capital is
withdraw.
Along with fixed capital
accounts , current
accounts are also
maintained.
Fixed capital accounts of
partners will always
have credit balance.
It fluctuates quite
frequently from time to
time.
2. No. of accounts
3. Balance
Only capital accounts
are maintained.
Fluctuating capital
accounts may have debit
balance also.
6. List the items that may appears on the credit side of a partners
fluctuating capital accounts.
(1) By balance b/d down (opening balance of capital).
(2) By cash A/c.
(3) By interest on capital.
(4) By salary A/c.
(5) By profit and loss A/c.
(6) By goodwill A/c.
(7) By balance c/d (closing balance of capital).
7. Ujala , Jyoti and Kiran were capital are fixed of Rs. 50000, Rs. 40000
respectively, profits before interest were divided among the partners for a
year ending.
Particular
Ujala
Jyoti
Kiran
Total
1. Interest
on capital.
6000 (cr.)
4800 (cr.)
3600 (cr.)
14400
2. Loss due
to interest
should be
equally
Total
4800 (dr.)
4800 ( dr.)
4800 ( dr.)
14400
1200
Nil
1200
___
Kiran’s current A/c
To Ujala’s current A/c
1200
1200
10. The capital’s of A,B,C stood at Rs. 20000 , Rs. 15000 and Rs. 10000
respectively. After the necessary adjustment in respect of drawings and
net profit . It was discovered that interest on capital at 10% and interest
on drawings Rs. 130, Rs. 90 and Rs. 50 respectively. Profit of the year
already adjusted was Rs. 10000.
Calculation of opening capital
Particulars
Closing capital
Add:- Drawings
Less:-profit
10000
(2:1:1 )
A
20000
1000
5000
B
15000
800
2500
C
10000
500
2500
16000
13330
8000
P&L A/c (app. A/c)
To int. on capital
A-
1600
Br profit
10000
BCTo net profit
A 3270
B 1635
C 1635
Adjustment
Int. on capital
Int. on drawings
Net profit
Previous profit
1330
800
By int. on
drawing
A 130
B 90
C 50
6540
10270
A
1600 ( cr. )
130 (dr.)
3270
5000
260
A’s cap. A/c
260
C’s cap. A/c
115
To B’s cap. A/c
270
10270
B
1330 (cr.)
90 ( dr.)
1635
2500
375
C
800 (cr.)
50 ( dr.)
1635
2500
115
375
11. Mr. Manish Vikas Tharki is a particular in a firm . He withdraws the
following amts. For 1998 for personal use.
DATE
Jan 31
2000
March 1
3000
Sept. 1
1000
Dec. 31
500
Date
Jan 31
March 01
Sep 01
Dec 31
Amt.
2000
3000
1000
500
Months
11
10
4
0
Total
Product
22000
30000
4000
0
56000
Int. on drawings = 56000 X 15/100 X 1/12
= Rs. 700
P & L ( App. A/c )
Particular
To P&L A/c. ( If
loss can
transferred from
P&L A/c)
Amts
To salary to par.
To int. on capital
To net profit
-
Particulars
By P & L
By int. on
drawing
By net loss
-
Amts
-
Fixed Accounts
Particular capital A/c
To cash
A
-
To balance C/d
B
-
-
A
By balance b/d
By G.R
By
realization
By interest
on capital
By P&l ad
B
-
A
B
-
Particular current a/c
A
B
To
drawings
To interest
on
drawings
To balance
c/d
By interest
on capital
By share
profit