Partnership law in India

Commonly asked questions on partnership firms

Mr. Vatsala Dhananjay, - M.A., L.L.B. Advocate (Estate Law)

1. Should a partnership firm be registered?
Not necessarily. However, unless a partnership firm is registered with the registrar of firms and societies, the rights of the partners inter se or against strangers cannot be enforced in a court of law. If the partnership deed itself creates, transfers or affects an interest in immovable property.

2. Is a partnership deed necessary to form a partnership firm?
No, it is not necessary. However it is often prudent to make a partnership deed to produce to the bank, income tax authorities and to clients with whom the partnership firm deals with.

3. Can a partnership firm be constituted for a particular business undertaking?
Yes. A person may become a partner with another for a single adventure or undertaking.

4. Is there a limit on the number of partners in a partnership firm?
Yes. If the number of partners is more than 20, it has to be registered as a company. 

5. Can a partnership firm be sued in the name of the firm?
A person may sue a partnership firm but the plaint has to disclose the name of all the partners who constitute the firm. However under the Income Tax Act, a firm can be assessed to tax independently of its partners. A partnership firm therefore enjoys a quasi independent status.

6. Can one deal with one of the partners of a partnership firm?
Yes. The law presumes that each partner is an agent of the other and dealing in good faith with one partner binds the other partners as well. There are certain exceptions to this rule, which is answered in the next question.
7. What are the acts that all partners should give express consent to do?
Submitting a suit for arbitration, transfer of immovable property, acquisition of immovable property, withdrawal of suits is all forbidden except by the consent of all partners or by the usage of custom to the contrary.

8. Is the firm liable for the wrongful act of one partner?
Yes. The firm and all the partners are liable for the wrongful act or fraud which causes loss or injury to any third parties. 

9. Should a retiring partner give notice of his retirement from the firm?
Every partner will be liable for the acts of the firm even if he has retired, if he has failed to give public notice of his retirement. Such notice should be given to the registrar of firms an by announcements in the local official gazette.
10. Does the death of a partner dissolve the partnership firm?
Yes. The death of a partner automatically dissolves the partnership firm. It is however usual for the partnership deed to provide before hand that the firm should continue in spite of death, retirement or insolvency of a partner. 

11. What is a partnership at will?
When the partnership deed does not contain any provision for the duration of the partnership nor conditions for the termination of partnership, it is a partnership at will.

12. What is the legal status of partnership property?
Any property can be treated as the property of the firm by simply showing it as such in the book of accounts. This would constitute partnership property and all partners are joint owners of the partnership property as increased or decreased by profits in the course of business. Property belonging to an individual partner does not become the firm's property simply by being used for the purpose of the partnership.

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