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Patnership Firm full chapter detailed explaintion for class 12th
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CAS1501 Assignment 3 (COMPLETE ANSWERS) Semester 2 2024 (854162) - DUE 17 September 2024
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Introduction for Partnership Firms: FundamentalsIntroduction:
As business expand, one needs more capital and larges number of people to manage the business and share its risk..
Because one man’s capital, skill, controlling and risk taking capacity are generally limited. In such a situation, some
persons (two or more) may combine inter into an agreement to adopt the partnership form of organisation.
Meaning and Definition of Partnership:
In India, Partnership Business concerns are governed by the Indian Partnership Act, 1932.
Definition:
Section 4 of the Indian Partnership Act, 1932, defines partnership as follows:
“Partnership is the relation between person who have agreed to share the profits of a business carried on by all or any
of them acting for all”
Partners, Firm and Firm Name:
The person who have entered into a partnership which one another individually are called Partner and collectively a
firm. The name under which the business is carried is called firm name.
e.g., Mr. X and MR. Y come together and forms a partnership business XY & Co.
In this example, Mr. X and Mr. Y are partners. XY & Co. is a partnership firm.
Nature of Partnership Firm:
As per accounting point of view, Partnership firm is treated as a separate business entity, which is distinct from its
partners. [ Entity Concept]
However, as per point of view, it is not a separate legal entity from its partners since the firm’s debt can be paid from
private (personal) asset of the partners, if the firm is not able to pay its liabilities.
Essential Features/ Elements/ Characteristics of Partnership:
1) Two or More Person [Min. 2 & Max. 50]:
There must be atleast two persons to form a partnership. There is however, a limit on maximum no. of partners.
Partnership Act does not specify the maximum no. of person, but section 464 of companies act (read with rule 10
of company rule 2014), restrict the no. of partners to 50.
,2) Agreement:
Partnership comes into existence by an agreement, either written or oral. An oral Agreement equally valid, but in
order to avoid dispute. It is preferred that the partners have a written agreement. The written agreement among the
partner is knowns as “Partnership Deed”.
3) Business:
The agreement should be to carry on some business. Mere co-ownership of a property does not amount to
partnership. For example, it Rohit & Sachin jointly purchase a plot of land, they become the joint owners of the
property and not the partners. But if they are in the business of purchase and sale of land for the purpose of making
profit, they will be called partners.
4) Mutual Agency:
The business of partnership concern may be carried on by all the partners or any of them acting for all the partners.
In other words, partnership are agents as well as the principle.
As on Agent, he represents other partners and thereby, binds them through his acts.
As on Principal, he is bound by the act of other partners.
5) Sharing of Profit:
Another important element of partnership is that, the agreement between partners must be to share profit & loss of
business. But it is not necessary that all partners should share the losses also. It may be agreed between the partners
that one or more of them shall not be liable for losses.
If some person join hands for the purpose of some charitable activity. It will not termed as partnership.
6) Liability of Partnerhsip:
Each partner is liable jointly with all the other partners and also severally to the third party for all the acts of the
firm done while he is a partner. Not only that the liability of a partners for acts of the firm is also unlimited. This
implies that his private asset can also be used for paying off the firms debts.
Rights of Partners:
1. Every partner has the right to participate in the management of the business.
2. Every partner has the right to be consulted about the affairs of the business.
3. Every partner has the right to inspect the books of account and have a copy of it.
4. Every partner has the right to share profits or losses with others in the agreed ratio.
5. If a partner has advanced loan, he has the right to receive interest thereon at an agreed rate of interest. In case
the rate of interest is not agreed, interest is paid at the rate provided in the Indian Partnership Act, 1932, ie., 6%
p.a.
, 6. In case of an emergency, a partner has the right to act according to his best judgment and be indemnified for the
expenses incurred by him.
7. A partner has the right not to allow the admission of a new partner.
8. After giving proper notice, a partner has the right to retire from the firm .
9. If a partner incurs expenses on the business or he pays amount on behalf of the firm, that partner gets indemnified
for the payments made by him from the firm.
Limited Liability Partnership (LLP)
The Limited Liability Partnerships (LLPs) in India came into existence with the enactment of‘Limited Liability
Partnership Act, 2008’ which lay down the law for the formation and regulation of Limited Liability Partnerships.
Definition: ‘Limited Liability Partnership’ means a partnership formed and registered under this Act.
Nature of Limited Liability Partnership (LLP)
(i) A LLP is a body corporate formed and incorporated under this Act.
(ii) It is legal entity separate from that of its partners.
(iii) A LLP shall have perpetual succession.
(iv) Any change in the partners of a LLP shall not affect the existence, rights or liabilities of the LLP.
Indian Partnership Act, 1932 shall not apply to a LLP.
Distinction between an Ordinary Partnership Firm and an LLP
Basis of Distinction Partnerships LLPs
1 Applicable Law Indian Partnership Act, 1932. The Limited Liability Partnership Act, 2008.
2. Registration Optional Compulsory with Registrar of Companies
3. Creation Created by an Agreement Created by Law
4. Body Corporate Body Corporate cannot become a Body Corporate can become its partner.
partner.
5. Separate Legal Entity It is not a separate legal entity. It is a separate legal entity.
6. Perpetual succession Partnerships do not have It has perpetual succession and individual
perpetual succession. partners may come and go-
7. Number of Partners Minimum 2 and Maximum 50. Minimum 2 but no maximum limit
8. Ownership of Assets Firm cannot own any asset. The The LLP as an independent entity can own
partners own the assets of the assets.
firm.
, 9. Liability Unlimited. Limited to the extent of their contribution
towards LLP.
Partnership Deed:
Meaning Partnership Deed' is a written document which contains the terms and conditions of
partnership agreed upon by all the partners.
Importance 1) It is important to have Partnership Deed in writing to settle any possible dispute with
regard to the terms of partnership
2) It serves as an evidence in the Courts of Law.
Signature Partnership Deed must be signed by all the partners.
Stamping Partnership Deed must be duly stamped as per Indian Stamp Act, 1889.
Is it essential to have a No. It is not essential to have a partnership deed. In this case the relevant provisions of
partnership deed? the Indian Partnership Act, 1932, would be applicable.
It is essential to have the No since an agreement to form a partnership may be implied or express (oral or written).
partnership agreement
in writing?
Need for Partnership 1) To Settle the dispute and misunderstanding with regard to the terms and conditions
Deed of partnership
2) To regulate the Rights, Duties and Liabilities of each Partner.
Contents 1) Name of the firm;
2) Names and addresses of all partners;
3) Nature and place(s) of the business;
4) Duration of Partnership
5) Date of commencement of partnership;
6) Amount of capital contributed or to be contributed by each partner;
7) Ratio in which profits and losses are to be shared;
8) Interest on partners' capitals and drawings;
9) Interest on loan by a partner to the firm;
10) Salary, commission etc., if any, payable to a partner;
11) Method of computation and treatment of goodwill on the reconstitution of a firm;
12) Mode of settlement of accounts in case of retirement/death of a partner;
13) Mode of settlement of accounts in case of dissolution of a firm.
Terms of partnership Terms of Partnership may be changed by consent of all partners.
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