Creating and dissolving business partnership

Last updated: December 2020 | 5 min read

Indian Partnership Act, 1932


A partnership is a contract between individuals who, in a spirit of cooperation, agree to carry on an enterprise, contribute to it, by combining property, knowledge or activities and share its profits. Partners may have a partnership agreement, and in some jurisdictions such agreements may be registered and available for public inspection. A partnership is a legal entity. The most basic form of partnership is a general partnership, in which all partners manage the business and are liable for its debts. Law of Partnership in India is guided by The Indian Partnership Act, 1932.

Essential Features:

Creation of partnership has four essential features;

  • That it is the result of an agreement;
  • That it is organized to carry on a business.
  • That the persons concerned agree to share the profits of the business;
  • That the business is to be carried on by all or any of them acting for all.

Incoming and Retiring of a Partner:

A new partner can be admitted into a firm with the consent of all partners. Liability of the new partner commences from the date of admission.

A partner may retire in any of the following ways:

  1. By Consent

A partner may retire at any time with the consent of his partners.

  1. By Agreement

Where there is an agreement between the partners about retirement, a partner may retire in accordance with the terms of that agreement.

  1. By Notice

Where the partnership is at will, a partner may retire by giving to his partners, notice of his intention to retire.

  1. By Insolvency

A partner ceases to be so from the date he is adjudicated an insolvent. This effect will follow whether the firm is dissolved or not. Secondly, where the firm is not dissolved, and consequently, therefore, it remains in business, the insolvent partner’s estate is not liable for any acts of the firm after the date of his insolvency. Nor is the firm liable for any act of the insolvent partner.

  1. By Death

When a partner dies, he ceases to be a partner. The partnership may or may not be dissolved. The estate of the deceased is protected from any further liability in respect of any act of the firm done after his death.

  1. By Expulsion

A partner may be expelled in the exercise in good faith of the power of expulsion given to the partners by their mutual agreement. Expulsion is justified only when it is authorized by an agreement between

the partners. The power of expulsion can be exercised by majority and not by a single partner.A partner who is expelled is in the same position as that of a retired partner. The expelled partner is entitled to be reinstated in his position.

Dissolution of Partnership:

When a partnership firm is wound up as between all partners, it is called dissolution. Dissolution is something different from the retirement of a partner, because in retirement the business is continued by one or more of the remaining partners. Where immediately after dissolution, the firm is reconstituted and the business resumed by remaining of the partners, even if in the same name and place.

A firm may be dissolved in the following ways:

  1. By Consent

A firm may be dissolved at any time with the consent of all the partners. This applies to all cases whether the firm is for fixed period or at will.

  1. By Agreement

A firm may be dissolved in accordance with a contract between the partners. Partners can consent to dissolution regardless of what their previous agreements are. But in dissolution by contract they have to follow their subsisting agreement.

  1. Compulsory Dissolution

Insolvency of all, or all but one partners, or illegality of business, are considered grounds of compulsory dissolution because they operate to bring about such necessary dissolution that there can be no agreement to the contrary.

  1. Contingent Dissolution

A firm is dissolved on any of the following contingencies

If the firm is constituted for a fixed period, by the expiry of that term.

If the firm is constituted to carry out one or more adventures or undertakings, when they are completed.

By the death of the partner.

By the adjudication of a partner as insolvent.

  1. By Notice

When the partnership is at will, it may be dissolved at any time by any partner by giving notice of his intention to dissolve it. Notice should be in writing, signed by the partner giving it and should be served upon all the partners. It must be factual, explicit and final.

  1. Dissolution by Courts

The court is empowered to order the dissolution of a firm at the suit of a partner on grounds of insanity, permanent incapacity, misconduct, persistent breach of agreement, transfer of interest, perpetual losses and other just and equitable grounds.

  1. Stamp duty

A partnership agreement is treated like any other ordinary agreement for the purposes of Stamp Duty.

  1. Registration

Registration of the Partnership agreement is not mandatory though it should essentially be notarized.

Net Lawman:

Net Lawman documents comply with the legal requirements when dealing with the concept of Creation/Dissolution of a partnership or retiring one partner. Some examples of all time best creations in the area of Partnership are as follows:

One of these may definitely suit your requirements. In the event that your requirements and expectations are different, we also offer a service to draft legal documents to specific requirements of the clients, where we guarantee client satisfaction so that you can return to us for your future needs. We therefore invite you to kindly visit Contract drafting service to find the necessary help and assistance.

© 2000 - 2024 Net Lawman Limited.
All rights reserved