An overview of Partnership Act, 1932

Here in this blog I am going to discuss about the Partnership Act, 1932. This blog is the detailed view of partnership Act in its nature, scope, various provisions, death of the partner etc. The partnership Firm Act was endorsed in 1932 and it came into existence on 1st October 1932. The new Corporation Act was replaced among the older one, which is mentioned in the chapter 11 of the Indian Contract Act, 1872. The newly established law has certain impacts on the Acts which are relating to the partnership and it sometimes proceed some amendments in the existing rules.

Partnership Contract

Partnership Act, 1932 - An Overview | Smartauditor

Results of each partnership is just a contract and it is governed by the Partnership Act 1932 and the general provision of Indian Contract Act. The provision of Indian Contract Act which is not cancelled will be applicable on partnership firm until such facility is in different to any provision of such Act, 1932. The rules of contract relates to the acceptance, offer, contract will also applicable to the partnership. But in case of Minor citizenship, it will be governed by the partnership Act, 1932 since section 30 of the act talks about the position and existence.

Nature of the Business

Partnership firm is a business organization where two or more people agreed to form together to carry the business to makes profits. It is the extension of a sole proprietorship business. In sole proprietorship, each individuals have limited skills and capitals. So a partnership is benefits than a sole business. A large business which require high capital and sources would not prefer sole proprietorship. They even don’t think about such adoptions. More number of partners join together with their specific capitals and form a business jointly.

“Company is the each other commitment of the persons who agreed to share the profits of the business.”

What are the requirements of a Business?
  • Each partners should sign the agreement copy of the partnership
  • Motive is to earn profits and shares between partners
  • The agreement state to carry out the business jointly or any of them acting on behalf of all.

Number of Partners

Partnership Act, 1932 - An Overview | Smartauditor

Any number of persons can form a partnership firm. There is no maximum and minimum limit according to that. But in accordance with the companies Act, 2013 the maximum number of 100 and the minimum number of 2 should have to follow in case of partnership Act. If the maximum amount reached high then it will calculated to the illegal association under the section 464 of companies Act 2013. For banking purpose we can include 10 persons and for other purposes there must be 20 persons can accept according to the section 11 of the companies Act.


Firm agreement is the truth of legal relationship. Two or more people has decided to carry out business and share the profits and losses equally. If you want to create a legal relationship then it is necessary to form a partnership agreement. Sometimes the partnership agreement becomes foundation or the basis regarding which it is based. The agreement can either be in oral or written. Partnership deed is the written agreement. Partnership deed contains the below details.

Details in a Deed

  • Business or the Firm name and address
  • Partner’s name and address
  • Each partner’s capital contribution
  • Loss sharing and Profit ratio
  • Interest rate on capital, loan, drawings etc.
  • Partner’s rights, duties and obligation
  • Account’s settlements
  • Payments payable to partners
  • Rules regarding admission, retirement and death of the partner
  • Other related rights of the partners

Intention of Partnership Firm

Partnership Act, 1932 - An Overview | Smartauditor

The main intention of partnership is to maintain the business which is legal in nature. Co-ownership of the property do not pay off to partnership firm . Business gives two assumptions, which is carried by all or by any one of them on behalf of all. Each partners are having same responsibility. There are some mutual agency exists in between the partners. Each partners are the principal agent of other partners. He can bound other partners by his own act.

Profit sharing

The partnership agreement is mainly to share profits and losses among the partners. The profits and sharing both have some ratios according to the capital contributed or equally. It avoids burdens among the partners in cases where the partnership suffers losses.

Partnership Liabilities

Every partners are having equal rights on pay off the debts and profits of the firm. Liabilities and responsibilities both are unlimited. Because the partner’s private assets are liable to paying off the debts of the firm. Partnerships are two kinds. One is based on the duration of the term of partnerships and other one is partnership at will. If there is no fixed validity of the expiration date then it is termed as partnership at will. In such mentioned condition there must be two conditions that have to fulfill according to the section 7 of the companies Act.

The conditions are
  • No agreement about the fixed period of partnership
  • No clause with respect to the determination of partnership.

Partnership for a fixed period of time

The expiry date of the partnership firm gets over, the partners comes to an end. When the partners decide to continue the togetherness then it becomes a partnership at will. It is on the basis of the extent of the business carried by a partnership.

Section 8 Particular Partnership

The partners always maintain a choice to continue with the firm. Cases like, if the partnerships are created for completing any projects and the partners have completed the project and results the end of the partnerships.

General Partnerships

When the partnership is created for carrying a business then there is no particular tasks assigned for partners to complete. This types may assigned into the general in nature category.

Partnership Act and its scope In Section 5

Partnership firm registration is arising on the basis of contracts not on the basis of status. Every partner’s intentions are the question in a firm. The partners may exercise any of its power at time but should not exercise any illegal or fraudulent activities. If any of the partners making an agreement without the knowledge of other partners, a question related to the validity of such contract may arises. If every other persons are accepted the agreement then there is no such question about the validity may arises.


Partners are the members of the partnerships. There is no mandatory that all the partners have to participate in company registration, profit or loss equality etc. Each partners in the partnership firm is classified based on the nature of the work, responsibility extent, etc. The classification of partners includes 6 categories. Active/managing partner, Sleeping/Dormant, Nominal partner, Partner in profit only, Minor partner, and Partner by estoppel. Let us discuss each.

  • Active/managing partner: Ostensible partner always makes his presence in the business daily. He can also known as Active or managing partner.
  • Sleeping/Dormant:  Dormant is the person who is not involved in the conduct of business. But he is bound by the conduct of all partners. Dormant is sometimes known as Sleeping.
  • Nominal partner: Nominal partners are the one who is link with the company only by his name. Rather than the name he do not have any real interests in the firm.
Partners relations with each other
  • Partner in profit only: Partners in profit only, the name reveals the definition and the role of the partner. He is only dealing with the profits. He is not dealing with the losses of the business and dealing with the third parties.
  • Minor partner: The minor person cannot be the part of a business according to the Indian Contract Act. But he can access the benefits of the partners in the firm. He shares the profits equally among the partners, but in case of losses he lose his responsibility.
  • Partner by estoppel:  The person who is not the partner of a partnership from but he is holding his presence by estoppel.

Each and every partners are having their own terms and conditions with regard to the affairs of the business in the partnership deed. The provisions governed by the Indian Company Act governs those provisions to identify the relations of partners. These provisions are applicable if there is no deed.

Section 11:- Right to determine the relationships of partners by contracts

The agreement in the Business firm determines the general management process like profit-sharing ration, who will do those works, etc. Each and every partner’s rights and duties are discussed in the partnership firm and for that why they created such firms.  Such agreements are created either expressly or by necessary implication. We can assume such cases in examples. If one person totally concentrates into sales and other partner do not have any objections on it, then his conduct will be assumed as the rights of all the partners in the absence of written agreement. All partners are have to create certain rights for their own.


If you want to register your Partnership Firm in Trichy you can contact Smartauditor Business Consultants. We are here to help you out. We offer our services over Salem, Erode and Trichy. Our expert company registration consultants here to resolve all your hindrances within a limited days.

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