Q.1
Define Partnership and explain it briefly.
Answer
Partnership:
According to partnership acct 1932 partnership is
“A type of business in which two are more than
individuals agreed to share profit on agreed ratio and also acting all or on of
than act for all”
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 Persons who have entered into partnership
with one another are called individually “partners” and collectively “a firm”,
and the name under which their business is carried on is called the “firm
name”.
Things to Consider
When Forming a Partnership
1. Plan for the worst
One of the very first things
you should think about is a buy/sell agreement. Essentially this is a
discussion of what will happen if someone wants out. How assets, liabilities,
equipment, clients, the company should be handled. This alone can be an
incredibly complex process to outline.
2. Keep it Equal in Shares
There is a tendency to want to be the majority shareholder, or to
have one person as the majority shareholder in the company. After all if a
decision can be reached, what do you do if no one has more weight than the other?
However it is better to develop system of deliberation and problem solving than
to assign majority shareholding to one person. To have majority ownership of a
company would permit one to fire the other partners, spend all the profits of
the company in his/her own salary and essentially leave the person who has
minority ownership with nothing.
3. Develop an Operating Agreement
It is important that
everyone is on the same page when it comes to how the business will be run.
Like anything in life the more you plan the smoother things will run. You would
hate to arrive day one and realize that no one wants to do the sales, and the
company can’t even get off the ground. This will also help establish validity
if you feel that one partner is not pulling their weight, and should be paid
less because of it.
Q.2 Explain mutual rights and liabilities of partners in a Partnership according to section 13 of the Partnership Act 1932
Answer
Rights of a Partner:
The rights of a partner are as follows:
i. Right of the partner to take part in the
day-to-day management of the firm.
ii. Right to be consulted and heard while
taking any decision regarding the business.
iii. Right of access to books of accounts and
call for the copy of the same.
iv. Right to share the profits equally or as
agreed upon by the partners.
v. Right to get interest on capital
contributed by the partners to the firm.
vi. Right to avail interest on advances paid
by the partners for business purpose.
vii. Right to be indemnified in respect of
payment made or liabilities incurred or for protecting the firm from losses.
viii. Right to the use of partnership property
exclusively for partnership business only not himself.
ix. Right as agent of the firm and implied
authority to bind the firm for any act done in carrying the business.
x. Right to prevent admission of new
partners/expulsion of existing partners.
xi. Right to continue unless and otherwise he
himself cease to become partner.
xii. Right to retire with the consent of other
partners and according to the terms-and conditions of deed.
xiii. Right of outgoing partner/legal heirs of
deceased partner.
2. Liabilities of a Partner to Third Parties:
The following are the liabilities of a partner to third
parties:
i. Liability of a partner for
acts of the firm:
Every partner is jointly and severally liable for all
acts of the firm done while he is a partner. Because of this liability, the
creditor of the firm can sue all the partners jointly or individually.
ii. Liability of the firm for
wrongful act of a partner:
If any loss or injury is caused to any third party or any
penalty is imposed because of wrongful act or omission of a partner, the firm
is liable to the same extent as the partner. However, the partner must act in
the ordinary course of business of the firm or with authority of his partners.
iii. Liability of the firm for
misutilisation by partners:
Where a partner acting within his apparent authority
receives money or property from a third party and misutilises it or a firm
receives money or property from a third party in the course of its business and
any of the partners misutilises such money or property, then the firm is liable
to make good the loss.
iv. Liability of an incoming
partner:
An incoming partner is liable for the debts and acts of
the firm from the date of his admission into the firm. However, the incoming
partner may agree to be liable for debts prior to his admission. Such agreeing
will not empower the prior creditor to sue the incoming
partner. He will be liable only to the other co-partners.
v. Liability of a retiring
partner:
A retiring partner is liable for the acts of the firm
done before his retirement. But a retiring partner may not be liable for the
debts incurred before his retirement if an agreement is reached between the third
parties and the remaining partners of the firm discharging the retiring partner
from all liabilities. After retirement the retiring partner shall be liable
unless a public notice of his retirement is given. No such notice is required
in case of retirement of a sleeping or dormant partner.
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