The Indian Partnership Act, 1932 for CA Foundation
The Indian Partnership Act, 1932: what a partnership is, registration, minors, partners' rights, authority and liability, and dissolution.
Business LawsPaper 213 MCQs2 lessons2 flashcards3 memory tricks
Practise The Indian Partnership Act, 1932 free
What you'll learn
- Nature, registration and kinds of partners
Apply the definition of partnership and the effects of non-registration. - Rights, authority, liability and dissolution
Apply the default rules, implied authority and the settlement of accounts.
Key formulas
| Profit sharing (deed silent) | Equal |
|---|---|
| Interest on capital | None unless agreed; only out of profits |
| Interest on partner's advance | 6% per annum |
| Remuneration | None unless agreed |
| Liability | Unlimited, joint and several (s.25) |
Concepts explained
Partnership: nature, registration and minors
A partnership is an agreement to share the profits of a business carried on by all or any of them acting for all. Mutual agency is the true test.
What it means
- Essentials: agreement (not status), business, sharing profits, mutual agency.
- Registration is optional; an unregistered firm can't sue outsiders or partners on contracts (s.69), but can be sued.
- A minor can only be admitted to the benefits (s.30); on majority he has 6 months to elect, by public notice.
- Kinds: active, sleeping, nominal, partner in profits only, sub-partner, partner by estoppel.
- Two people jointly own a house and share the rent
Answer: Not a partnership (no business carried on for all)
- Minor turns 18 and gives no notice for 6 months
Answer: Becomes a partner, liable from the date of admission
Related terms
- Partnership deed: written agreement; stamp duty applies
- LLP: body corporate with limited liability, under the LLP Act, 2008
Exam tip: Profit sharing alone doesn't make a partnership; mutual agency does.
Partners' rights, authority and liability
Each partner is an agent of the firm with implied authority for acts done in the usual way of business. Liability for the firm's debts is unlimited, joint and several.
What it means
- Deed silent: share profits equally, no salary, no interest on capital, 6% interest on advances (s.13).
- Implied authority (s.19) does not cover: arbitration, a bank account in own name, compromise or relinquishing claims, withdrawing a suit, admitting liability in a suit, buying or transferring immovable property, entering a partnership on behalf of the firm.
- Liability: joint and several for all acts while a partner (s.25).
- Holding out (s.28): a person who represents himself as a partner is liable to those who gave credit on that basis.
- Partner opens an account in his own name for the firm's money
Answer: Outside implied authority; firm not bound unless authorised
- Firm owes ₹6 lakh; partners A, B, C
Answer: Creditor can recover the full ₹6 lakh from any one partner
Related terms
- Retiring partner: liable to third parties until public notice is given
- Incoming partner: not liable for acts before admission
Exam tip: For 'which act needs express authority', remember: arbitration, own bank account, immovable property.
Dissolution and settlement of accounts
A firm can be dissolved by agreement, compulsorily, on contingencies, by notice or by the court. Section 48 sets the order in which losses and debts are paid.
What it means
- By agreement (s.40); compulsory (s.41): all or all but one insolvent, or business unlawful.
- Contingencies (s.42): expiry of term, completion of venture, death or insolvency of a partner (subject to contract).
- By notice (s.43): only a partnership at will. By the court (s.44): unsound mind, misconduct, persistent breach, perpetual loss, just and equitable.
- Settlement (s.48): losses from profits, then capital, then partners individually; assets go to outside debts, then partners' advances, then capital, then surplus.
- Assets ₹9L; creditors ₹4L; partner loan ₹1L; capitals ₹5L
Answer: Creditors, then loan, then capitals after sharing the ₹1L loss
- New law bans the firm's trade
Answer: Compulsory dissolution (s.41)
Related terms
- Dissolution of partnership vs firm: partnership can change without the firm closing
- Garner vs Murray: rule on a partner's capital deficiency (where applicable)
Exam tip: Order of payment: Outsiders, Loans, Capital, Surplus.
Memory tricks
Profits equal; no salary; no interest on capital; 6% on partners' advances.
Section 48: third-party debts, partners' loans, capital, then surplus.
Unregistered firm can't sue outsiders, but can be sued.
Try 3 CA Foundation-style questions
Q1. Under a partner's implied authority, a partner CANNOT, without express authority,
- buy goods for the firm's business
- receive payment of debts due to the firm
- employ a servant for the firm's business
- submit a dispute of the firm to arbitration
Show answer
Answer: (4) submit a dispute of the firm to arbitration
Section 19(2) lists restrictions: submitting disputes to arbitration, opening a bank account in his own name, compromising claims, acquiring or transferring immovable property, and so on.
Q2. On attaining majority, a minor admitted to the benefits must elect whether to become a partner within
- 1 month
- 6 months
- 1 year
- 3 years
Show answer
Answer: (2) 6 months
Section 30(5): within six months of attaining majority (or of learning of his admission), he must give public notice of his choice; otherwise he becomes a partner.
Q3. A partnership where no provision is made for its duration or end is called
- a particular partnership
- a partnership for a fixed term
- a partnership at will
- a limited liability partnership
Show answer
Answer: (3) a partnership at will
Section 7: a partnership at will has no fixed duration and can be dissolved by any partner giving notice.
Practise all 13 questions Free · explanations for every option · see where you go wrong