LESSON 6 PARTNERSHIP (Continued)

LESSON 6

PARTNERSHIP (Continued)

Partnership is the second stage in the evolution of forms of business organization.  It means

an association of two or more persons to carry on a business for profit.

According to 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 active for all.”

PARTNERS

“The individuals who comprise a partnership are known as partners.”

KINDS OF PARTNERS

Partners can be classified into different kinds, depending upon their extent of liability,

participation in management, share of profits and other facts.

1. Active Partner

A partner who takes active part in the affairs of business and its management is called active

partner.  He contributes his share in the capital and is liable to pay the obligations of the firm.

2. Secret Partner

A partner who takes active part in the affairs of the business but is unknown to the public as a

partner is called secret partner.  He is liable to the creditors of the firm.

3. Sleeping Partner

A partner who only contributes is the capital but does not take part in the management of the

business is known as sleeping partner.  He is liable to pay the obligations of the firm.

4. Silent Partner

A partner who does not take part in the management of business but is known to the public as

partner is called silent partner.  He is liable to the creditors of the firm.

5. Senior Partner

A partner who invests a large portion of capital in the business is called senior partner.  He has

a prominent position in the firm due to his experience, skill, energy, age and other facts.

6. Sub-Partner

A partner in a firm can make an agreement with a stranger to share the profits earned by him

from the partnership business.  A sub-partner is not liable for any debt and canot interfere in

the business matters.

7. Junior Partner

A person who has a small investment in the firm and has a limited experience of business is

called junior partner.

8. Major Partner

A major partner is a person who is over 18 years of age.  A person is allowed to make contract

when he has attained the age of majority.

9. Minor Partner

A person who is minor cannot enter into a valid contract.  However, he can become a partner

with the consent of all other partners.  A minor can share profits of a business but not the

losses.

10. Nominal Partner

A partner who neither contributes in capital nor does he take part in the management of the

business but allows he name to be used in the business is known as nominal partner.  He is

individually and jointly liable for the debts of the firm along with other partners.

11. Deceased Partner

A partner whose life has expired is known as deceased partner.  The share of capital and

profit of such partner is paid to his legal heirs in lumpsum or in installment.

12. Limited Partner

A partner whose liabilities are limited to his share in business is called limited partner.  He

cannot take active part in the management of the firm.

13. Unlimited Partner

A partner whose liabilities are unlimited is known as unlimited partner.  He and his personal

property both are liable to clear the debts of the firm.

14. Incoming Partner

A person who is newly admitted in the firm with the consent of all the partners is called

incoming partner.  He is not liable for any act of the firm performed before he became the

partner unless he agrees.

15. Retired Partner

A partner who leaves the firm due to certain reasons is known as retired partner or outgoing

partner.  He is liable to pay all the obligations and debts of the firm incurred before his

retirement.

16. Partner for Profits only

If a partner is entitled to receive certain share of profits and is not held liable for losses is

known as partner in profits only.  He is not allowed to take part in the management of the

business.

17. Quasi Partner

A person, who was the par4tner of a firm but has now retired from active participation in

business and has left his capital in the business as a loan, receiving interest on it, is known as

quasi partner.

18. Partner by Estoppels

A person who holds himself out as a partner of a firm, before a third party or allows other to do

so, though he is not a partner of that firm, is called partner by estoppels or holding out partner.

He is not entitled to any right like other partners of the firm. He is not entitled to any right like

other partners of the firm.  He is personally liable to the third party for the credit given to the

firm, on the faith of his representation.

What are kinds of partnership?

KINDS OF PARTNERSHIP

There are three kinds of partnership which are described as under:

1. Partnership at will

2. Particular partnership

3. Limited partnership

PARTNERSHIP AT WILL

If the partnership is formed for an undefined time, it is called partnership at will.  Any partner

can dissolve it at any time by giving the notice.

According to Partnership Act, 1932:

“If no provision is made in the agreement regarding the partnership, it is called

partnership at will.”

Partnership at will may be created under the following circumstances:

1. Indefinite Period

If partnership has been formed for an indefinite period, it is called partnership at will.

2. Existence after Completion of Venture

If partnership has been formed for a particular venture and after completion such venture it

remains continue, it becomes a partnership at will.

3. Existence after Expiry of Period

If partnership has been formed for a definite time period, so after the expiry of this period, it

becomes partnership at will.

PARTICULAR PARTNERSHIP

If the partnership is formed for a particular object of temporary nature, it is called particular

partnership.  On completion of a particular venture, it comes to an end.  Under this no regular

business is done.  For example, partnership for the construction of a building and partnership

for producing a film.

LIMITED PARTBNERSHIP

Limited partnership is that in which liabilities of some partners are limited up to the amount of

their capitals.  In this partnership, there is at least one partner who has unlimited liability.

In Pakistan, this type of partnership is not formed.  There is a separate partnership act for it.

MAIN FEATUTRES

Main features of partnership are:

1. Limited Partner

There is at least one partner who has limited liability.

2. Unlimited Partner

There is at least one partner who has unlimited liability.

3. Number of Partners

There are at least two partners or maximum 20 in an ordinary business and not more than 10

in banking business.

4. Admission of New Partner

New partners may be admitted in this partnership without the consent of limited partners but

with the consent of unlimited partners.

5. Registration

The registration of this partnership is compulsory by law.

6. Transferability of Shares

Limited partner can transfer his shares to any other person with the consent of all other

partners.

7. Inspection of Books

Limited partner has a right to inspect the books of accounts.

8. Rights of Suggestions

Limited partner has a right to give suggestions to others who manage the business.

9. Participation in Management

A limited partner cannot take part in the management of the business.

10. Withdrawal of Capital

A limited partner cannot withdraw his capital until he remains in partnership business.

11. Separate Legislation

It is enrolled under the Limited Partnership Act, 1907, instead of Partnership Act, 1932.

TERMINATION OF PARTNERSHIP

All forms of partnership under Islamic law may be terminated as:

1. Notice

In all the above forms of partnership each partner has a fight to terminate the partnership by

giving notice to other partners.

2. Death

Partnership is also terminated on the death of a partner.