The Indian Partnership Act, 1932 is an important law governing the formation, operation, and dissolution of partnerships in India. It defines a partnership as 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. Here is an overview of the key provisions of the Indian Partnership Act, 1932:
- Formation of partnership: A partnership can be formed by two or more persons who agree to carry on a business together and share the profits. The partnership can be formed for any lawful purpose.
- Partnership agreement: The terms of the partnership are usually laid out in a partnership agreement. The agreement should contain details such as the name of the partnership, the nature of the business, the capital contribution of each partner, the profit-sharing ratio, and the duration of the partnership.
- Registration of partnership: Although it is not mandatory, it is advisable to register the partnership with the Registrar of Firms. Registration provides the partnership with various legal benefits, including the right to sue third parties and other partners.
- Rights and duties of partners: Each partner in a partnership has the right to take part in the management of the business, share in the profits, and have access to the books of accounts. Partners also have a duty to act in good faith, not to carry on competing businesses, and to contribute their share of capital.
- Liability of partners: Partners in a partnership are jointly and severally liable for all debts and obligations of the partnership. This means that each partner is responsible for the entire debt of the partnership in case the partnership assets are insufficient to meet the obligation.
- Dissolution of partnership: A partnership can be dissolved in various ways, including mutual agreement, expiration of the partnership term, death of a partner, or court order. Upon dissolution, the partnership assets are liquidated and the proceeds are used to settle the partnership debts. Any surplus is distributed among the partners in accordance with their profit-sharing ratio.
- Limited liability partnership (LLP): The Indian Partnership Act, 1932 was amended in 2009 to introduce the concept of LLP. An LLP is a separate legal entity, distinct from its partners, and provides limited liability to its partners. The LLP Act, 2008 governs the formation and operation of LLPs in India.