Table of Contents
CAIIB Paper 4 BRBL Module D Unit 10 : Definition, Meaning And Nature Of A Partnership (New Syllabus)
IIBF has released the New Syllabus Exam Pattern for CAIIB Exam 2023. Following the format of the current exam, CAIIB 2023 will have now four papers. The CAIIB Paper 4 (BANKING REGULATIONS AND BUSINESS LAWS) includes an important topic called “Definition, Meaning And Nature Of A Partnership”. Every candidate who are appearing for the CAIIB Certification Examination 2023 must understand each unit included in the syllabus.
In this article, we are going to cover all the necessary details of CAIIB Paper 4 (BRBL) Module D (COMMERCIAL & OTHER LAWS WITH REFERENCE TO BANKING OPERATIONS) Unit 10 : Definition, Meaning And Nature Of A Partnership, Aspirants must go through this article to better understand the topic, Definition, Meaning And Nature Of A Partnership and practice using our Online Mock Test Series to strengthen their knowledge of Definition, Meaning And Nature Of A Partnership. Unit 10 : Definition, Meaning And Nature Of A Partnership
Partnership Act, 1932
- The Partnership Act, 1932 lays down the important provisions relating to partnership contracts. However, the general principles of the Contract Act also continue to apply to the partnership contracts.
- A business can be carried on by a single individual by using his own funds (Sole Proprietorship) or by two or more persons together in which case some of them would bring in money and some of them would use their business skills (Partnership). In the latter type of organization persons agree to share the profits and losses of their venture and it amounts to a contract. The rights and liabilities arising out of such a mode of carrying on business are governed by the Partnership Act.
Meaning And Definition Of Partnership
Section 4 of the Partnership Act, 1932 defines a partnership, partner, firm and firm- name as follows – “Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all.”
Thus, Partnership is the result of an agreement between the persons joining together to do some lawful business and
- The contract between the partners may be oral or written.
- The partnership must be formed to carry on some lawful business.
- The business must be carried on to earn and share the profits and returns of the business.
- There must be a mutual relation of ‘agency’ between the partners. This means that any partner can by his acts bind all the partners of the firm.
Partnership Act, 1932
- Section 464 of the Companies Act 2013 has prescribed that the number of persons in case of a partnership firm should not be more than 100.
- Two partnership firms cannot enter into a partnership though all the partners of two separate firms may join together and form a partnership which would be distinct from the two firms.
- A Company being a legal person is an entity distinct from its members and is a ‘person’ as per Section 4. Hence a Company may enter into a contract of partnership if authorized by its Memorandum of Association.
Agreement between two or more persons:
- At least two persons competent to contract are necessary to form a partnership
- In terms of Section 5 of the Act, “The relation of partnership arises from contract and not from status”. The contract may be express (oral or written) or implied.
- The agreement may have its own characteristic like being for a fixed period or for a completion of a particular task etc. The partnership being a contract never arises from the operation of law or inheritance. Thus it must have all the characteristics of a valid contract.
- It is imperative that a partnership is formed for carrying on some business. Business has been defined in Section 2(b) of the act as “Business” includes every trade, occupation and profession. The term business also conveys some actions involving transactions. However, the business being carried out by the persons forming the partnership must be legal.
- It is also necessary that the object of carrying on the business is to make profits, which may be shared amongst the partners in a definite ratio, as agreed.
- If any person declared as a partner is deprived of a share in the profits, he/she will not be considered as a partner as the motive for carrying on the business, in such an eventuality, is not profit. However, the reverse is not necessarily true as one or more partners may contract out of sharing losses while sharing the profits and it is also possible that all persons sharing profits may not be partners.
- Since the business of a partnership firm may be carried out by all the partners or any or few of them acting for all, a partner is both an agent and the principal. Agent, because a partner can bind by his acts the firm /other partners, and principal because a partner is bound by the act of any of the other partners. Thus, a contract of partnership is regarded as an extension of the contract of agency.
Types Of Partnership
Partnership at will (Sec. 7):
- Where no provision is made by a contract between the partners for the duration of their partnership or for the termination of the partnership – the partnership is known as ‘partnership at will’.
- A partnership at will can be dissolved by any partner by giving notice in writing to all the other partners of his intention to dissolve the firm. The firm gets dissolved from the date mentioned in the notice as the date of dissolution and if no date is mentioned, the/firm gets dissolved from the date of the commencement of the notice.
Partnership for a fixed period:
- When two or more persons enter into a partnership agreement for a fixed period of time, it is known as a partnership for a fixed term.
- In such a case, when the fixed period of partnership is over, it comes to an end. However, the partners can continue to carry on the business after the fixed period. In that case, the mutual rights and duties remain absolutely unaffected and the partnership is automatically transformed into a partnership at will.
- Such partnership is entered into, for completing a particular job or assignment taken up by two or more persons jointly and to share the profits arising there from. Hence, a person may become a partner with another person in particular adventures or undertakings.
Limited Liability Partnership (LLP)
- Limited Liability Partnership Act, 2008 came into effect by way of notification dated 31st March 2009. A LLP is a body corporate and a legal entity separate from its partners.
- The mutual rights and duties of the partners of the LLP and those of the LLP shall be is governed by an agreement between the partners, subject to the provisions of the Act.
- No partner is liable on account of the independent or unauthorized actions of other partners or their misconduct.
- Every partner in a LLP is an agent of the LLP but not of other partners of LLP.
- Every LLP has at least two partners and also has at least two individuals as Designated Partners having Designated Partner Identification Number (DPIN), of whom at least one should be resident in India.
- The Central Government has powers to investigate the affairs of a LLP, if required, by appointment of competent inspector, for the purpose.
- A firm, private company or an unlisted public company is allowed to be converted into a LLP in accordance with the provisions of the act.
- Indian Partnership Act, 1932 is not applicable to LLPs unless as expressly provided in the LLP Act.
- The winding up of LLP may be either voluntary or by the National Company Law Tribunal (NCLT) under certain circumstances, etc.