Indian Partnership Act, 1932
What the exam tests
The Indian Partnership Act, 1932 tests the definition of partnership, tests of partnership, authority and liability of partners, registration effects, admission, retirement and dissolution.
Core rules
- Section 4 defines partnership as a relation between persons who agree to share profits of a business carried on by all or any of them acting for all. It arises from contract, not status (s 5). Sharing profits is prima facie evidence but not conclusive (s 6); there must be mutual agency.
- A partnership at will has no fixed term (s 7); a particular partnership is for a particular adventure or period (s 8).
- Every partner is an agent of the firm for business in the ordinary course (s 18). An act outside the usual course does not bind the firm unless authorised (s 19). Partners are jointly and severally liable for firm acts (s 25), and the firm is liable for wrongful acts and misapplication in the ordinary course (ss 26-27).
- Registration is optional, but an unregistered firm suffers disabilities under s 69: it cannot enforce contractual rights in court against third parties or partners, though third parties can sue it.
- Dissolution may be by agreement, notice, contingency, court order or business becoming unlawful (ss 40-44). Public notice is required in specified cases (s 45).
Worked example
A partner buys stationery on credit for the firm's office. The firm is bound because the purchase is in the ordinary course of business (s 18). If the same partner borrows money for a personal business, the firm is not bound unless it authorised or ratified the act.
Traps
- Confusing profit-sharing with conclusive partnership.
- Thinking registration is compulsory.
- Ignoring s 69 disabilities.
- Treating retirement and dissolution as identical.