Class 11: Partnership firm

 

#Definition of Partnership Deed 

A partnership deed is a written legal document that defines the terms, conditions, rights, duties, and obligations of all the partners involved in a partnership firm. It is also called an “Article of Partnership.”

This document is prepared when two or more persons agree to start a business together and want to make everything clear in writing — such as how profits will be shared, who will invest how much, who will manage what work, etc.

It helps to avoid disputes, ensures smooth operation, and acts as legal evidence in case of any disagreement among partners.

If the deed is registered, it can be used in court to settle disputes.

 Contents of a Partnership Deed:

  1. Name of the Firm:
    The official business name under which the partnership operates.
    Example: “Simara Furniture House.”

  2. Address of the Firm:
    The location where the firm is established or operates.

  3. Names and Addresses of Partners:
    Full details of each partner to identify who is legally involved.

  4. Nature and Objective of the Business:
    Type of business activity the firm will perform (e.g., trading, manufacturing, services).
    Example: “To sell furniture and home décor items.”

  5. Capital Contribution:
    The amount of money or assets contributed by each partner.
    Example: Partner A – Rs. 1,00,000; Partner B – Rs. 1,50,000.

  6. Profit and Loss Sharing Ratio:
    How profits and losses will be distributed among partners.
    Example: 60% to Partner A and 40% to Partner B.

  7. Rights, Duties, and Liabilities of Partners:
    Specifies each partner’s responsibility and authority in running the firm.
    Example: One partner manages accounts; another manages marketing.

  8. Interest on Capital and Drawings:
    States whether partners will get interest on their capital investment and if they have to pay interest on money withdrawn.

  9. Salary or Commission to Partners:
    If any partner receives salary or commission, it should be mentioned here.

  10. Admission, Retirement, or Death of Partner:
    Rules for adding a new partner, a partner leaving, or what happens if a partner dies.

  11. Duration of Partnership:
    Whether the partnership is for a fixed period, a specific project, or permanent until dissolved.

  12. Accounting and Audit:
    Procedure for maintaining accounts and auditing the firm’s financial records.

  13. Settlement of Disputes:
    Method of resolving disagreements (e.g., through arbitration or court).

  14. Dissolution of the Firm:
    Rules for closing the firm, sharing assets and liabilities after dissolution.

Example (Local Context):

If Rita and Gita open a beauty parlor in Simara, they prepare a partnership deed mentioning that:

  • Both invest Rs. 50,000 each,
  • Share profits equally,
  • Rita manages clients, and
  • Gita manages accounts.

This written document becomes their Partnership Deed.


Sure, here’s a detailed and student-friendly explanation of Rights and Duties of Partners — clear, complete, and suitable for class notes 👇

Rights and Duties of Partners

In a partnership business, every partner has certain rights (what they can do) and duties (what they must do).These are necessary to maintain trust, discipline, and smooth operation of the firm.All these rights and duties are generally written in the partnership deed, and if not written, they are decided according to the Partnership Act.

🟢 Rights of Partners 

  1. Right to Take Part in Management:
    Every partner has the right to take part in the day-to-day management of the business.Each partner can express opinions and participate in decisions related to firm operations.
    Example: In a boutique shop partnership, both partners can decide what designs to produce or what materials to buy.

  2. Right to be Consulted:
    Every partner has the right to be consulted and give opinions before important decisions are taken.
    No major decision should be made without the consent of all partners.

  3. Right to Share Profits:
    Partners have the right to get their share of the profits according to the agreement.
    If the partnership deed does not specify, profits should be shared equally among partners.

  4. Right to Access Books of Accounts:
    Every partner has the right to look into the firm’s books, records, and documents.
    This helps maintain transparency and trust among partners.

  5. Right to be Indemnified (Compensated):
    If a partner spends money or suffers a loss while working honestly for the firm, they have the right to be repaid by the firm.
    Example: If a partner travels for business purposes using personal money, that expense should be reimbursed.

  6. Right to Use Firm’s Property:
    Partners can use the property or assets of the firm only for business purposes, not for personal use.

  7. Right to Retire:
    Any partner can retire from the business with the consent of others or as per the conditions in the deed.

  8. Right to Object to New Partners:
    No new partner can be admitted into the firm without the consent of all existing partners.

  9. Right to Dissolve the Firm:
    Partners have the right to apply for dissolution (closing down) of the firm if there are valid reasons such as misconduct or insolvency.

🔴 Duties of Partners 

  1. Duty to Act Honestly and Faithfully:
    Every partner must act with good faith, honesty, and sincerity towards other partners and the firm.
    No partner should harm the reputation or interest of the firm.

  2. Duty to Share Losses:
    Just as partners share profits, they must also share any losses according to the agreement.
    If not mentioned, the loss should be shared equally.

  3. Duty Not to Make Secret Profit:
    Partners should not make any personal or secret profit from firm activities.
    If a partner earns such profit, it must be returned to the firm.

  4. Duty to Render True Accounts:
    Partners should keep accurate accounts of business transactions and provide true information when requested.

  5. Duty to Use Firm’s Property Properly:
    Partners should use the firm’s money and assets only for the firm’s benefit, not for private use.

  6. Duty to Attend Diligently to Business:
    Partners must take interest in the firm’s work and manage it carefully.
    Negligence or carelessness can cause loss to the firm.

  7. Duty to Compensate for Loss:
    If a partner causes loss to the firm due to negligence, fraud, or misconduct, they must repay the loss.

  8. Duty Not to Compete with the Firm:
    A partner should not engage in any other business that directly competes with the partnership firm.

  9. Duty to Cooperate:
    All partners should cooperate with one another and maintain harmony for the smooth running of the business.

Example (Local Context):

Suppose Rita and Gita run a beauty parlor in Jeetpursimara.

  • Rights: Both can take part in decision-making, check the accounts, and share profit equally.
  • Duties: They must act honestly, use parlor money only for business, and share any losses equally.

Registration Process of Partnership Firm

1) Submission of Registration Form

In the first step, the partners must fill out the registration form with all required details and submit it to the concerned Office of the Company Registrar or Cottage and Small Industry Office. The form generally includes the following details:

• Name of the firm

• Type and address of the business

• Names, addresses, and capital contribution of partners

• A copy of the Partnership Deed (Agreement)

2) Submission of Registration Fee

After submitting the form, the partners must pay the registration fee as prescribed by the office. The amount of the fee may vary depending on the size or capital of the business.

3) Obtain Registration Certificate

If all documents and fees are found satisfactory, the concerned office issues a Registration Certificate to the firm. After receiving this certificate, the partnership firm becomes legally registered and can operate its business officially.

Renewal Process of Partnership Firm 

  1. Submit Renewal Form – Partners fill out the renewal form with details of the firm, partners, capital, and business changes.
  2. Pay Renewal Fee – The required government fee is submitted along with the form.
  3. Obtain Renewal Certificate – After verification, the authority issues the renewal certificate, confirming the firm’s legal continuation.

Note: Renewal is necessary to maintain legal status and protect the firm’s name.

Modes of Dissolution of Partnership Firm 

The term dissolution of a partnership firm means the ending of the relationship between all the partners and the closing of the business. After dissolution, the firm’s assets are sold, liabilities are paid, and the remaining amount is distributed among the partners. A partnership firm can be dissolved in the following ways:

1. Dissolution by Agreement

When all partners mutually agree to close the business, the firm is dissolved by agreement. Since the firm was formed by agreement, it can also be dissolved in the same way.

Example: Partners decide to close the firm due to continuous loss.

2. Dissolution by Written Notice

In a partnership at will, any partner can dissolve the firm by giving written notice to other partners. The firm dissolves on the date mentioned in the notice.

Example: A partner sends written notice to dissolve the firm after 15 days.

3. Dissolution at Any Time

Partners may dissolve the firm at any time by mutual consent due to loss, misunderstanding, or business failure.

Example: Partners decide to stop the business immediately because it is not profitable.

4. Dissolution after Expiry of Time

When a firm is formed for a specific time or project, it automatically dissolves after that period or project is completed.

Example: A firm formed for 3 years ends after the time expires.

5. Dissolution at Once (Automatic Dissolution)

A firm may dissolve immediately due to unexpected events like:

- Death or insolvency of a partner

- Insanity of a partner

- Illegality of business

Example: If a partner dies, the firm dissolves at once.

6. Dissolution by Concerned Department or Court

The government or court can dissolve a firm if it:

- Engages in illegal or fraudulent activities

- Fails to renew registration or follow laws

- Faces continuous disputes among partners

Example: If a firm sells banned goods, the department can dissolve it.

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