BCOM 1st Year Partnership Account Short Question Answer Notes

Q.5. Can a minor be admitted to a partnership? If so, what are the rules governing his rights and liabilities?

Ans. Minor Admitted to the Benefits of Partnership: Partnership is based on mutual contract and therefore only those who possess the capacity to contract can be partners in a partnership firm. According to the Indian Contract Act, an agreement by a minor is void ab initio as against him but he can derive benefit under it. As such a minor cannot be a full-fledged partner, he can at most be admitted to the benefits of a partnership. Section 30 of the Partnership Act thus provides that though a minor cannot be a partner in a firm but with the consent of all the partners for the time being, he may be admitted to the benefits of partnership by an agreement executed through his guardian with the other partners.

The following points must be noted in this connection:

1. A minor can be admitted to the benefits of a partnership with the consent of all the existing partners. Consent only of the majority of partners would not be sufficient.

2. There must be a partnership in existence before a minor can be admitted to its benefits.

3. There cannot be a partnership consisting of all minors.

4. If a minor is made a full-fledged partner under the terms of a partnership deed, the deed uld be invalid not only vis-a-vis the minor but also in regard to other partners. Since a

to any contract of partnership, the deed representing the contract is void ab initio into and cannot be enforced even vis-a-vis the the remaining adult partners. The rights and liabilities of a minor who has been admitted to the benefits of partnership are governed by the following rules:

1. The minor is entitled to receive his agreed share of the property and of the profits of the firm.

2. The minor has the right of inspecting and taking copies of the books of accounts of the firm.

He has, however, no such right in respect of books other than accounts, as they may cotain secrets which should be restricted to real partners alone.

3. The minor is not personally liable to third parties for the debts of the firm but his liahility is limited only up to his share in the partnership assets and profits. If partnership assets fall short in extinguishing the debts of the firm, the separate personal property of the minor cannot be applied for payment of the firm debts. To put it differently, the minor shall be a partner in profits only and shall not share in the losses except when liability to third part has arisen but then too up to his share in the profits and property of the firm.

4. The minor is not entitled to take part in the conducting of the business as he has , no representative capacity to bind the firm.

5. The minor cannot bring about any suit against the partners for an account or payment of his share of the property or profits of the firm except when he severs his connection with the firm

6. On attaining majority or on knowing that he had been admitted to the benefits of partnership whichever data be later, the minor must decide within six months whether he would or would not like to become a partner in the firm and give public notice of his decision. If he remains silent and fails to give such a notice, it will be presumed that he has elected to be a partner in the firm.

The burden of proving the fact that the minor had no knowledge of his being a partner until a particular date after the expiry of six months of his attaining majority lies on the person asserting that fact.

7. Where the minor becomes a partner either by his own election or by his failure to give notice within the specified time, he becomes personally liable to the third parties for all the debts and obligations of the firm retrospectively from the date of his admission to the benefits of partnership. Of course his share in the property and profits of the firm shall be the same to

which he was entitled as a minor.

Q.6. How and when may a partner retire? What are the rights and liabilities of a retiring partner?

Ans. Retirement of a Partner (Sec. 32): A partner is said to retire when the surviving partners continue to carry on the business of the firm and the retiring member ceases to be a partner.

Method of Retirement: In case of a ‘Particular partnership’ a partner may retire with the consent of all the other partners, unless otherwise agreed. In case of ‘Partnership at will’ a partner may retire by giving a notice in writing to all the other partners of his intention to retire, unless otherwise agreed.

Liability of a Retiring Partner: A retiring partner continues to be liable for the acts of the firm done before his retirement. He may, however, free himself from his liability towards third parties for the debts of the firm incurred before his retirement by an agreement with such third parties and the partners of the reconstituted firm discharging the outgoing partner from all liabilities. The remaining partners alone cannot give this freedom to the retiring partner. He may be discharged only if the creditors agree.

A retiring partner also continues to be liable for the acts of the firm even after retirement until public notice is given of the fact of retirement. Similarly, the partners of the reconstituted firm continue to be liable for the acts of the retired partner though done after retirement, until public notice is given

the retirement. Such a public notice may be given either by the retiring partner or by any partner of the reconstituted firm. A dormant or sleeping partner, however, need not give any such notice.

Rule of Mis-joinder of Parties: The rule of law that ‘Separate suit for separate contract and hence no tw

inctly liable parties can be sued under one suit’ is known as the rule of mis-joinder of parties. This rule should be remembered while making an incoming or outgoing partner liable for the deb For example, if A, B, C and D are partners and D retires without giving public notice and E is admitted to the partnership on the same very day, i.e. on 1 july, 1993, and innocent creditor, who advances money to the firm after 1 July, 1993, can make all of them. i.e. A, B, C, D and E individually liable or existing partners, i.e. A, B, C and E jointly liable. He cannot make A, B, C, D and E jointly liable in one suit because all of them were never partners of the same partnership at one time.

Restrictions Imposed on a Retiring Partner: Section 36 has imposed the following Tesis on a retiring partner:

1 He must not use the name of the firm. Although he is has a right to carry on a competing business.

2 He cannot represent himself to the public as carrying on the business of the firm, e.g. as a branch or otherwise.

3. He must not canvass the old customers of the firm.

Some of these restrictions however may be removed by a contract between the outgoing and the other partners. On the other hand, additional restrictions may be imposed by means of a contract, e.g. the retiring partner may be prohibited from starting a competing business within a specified period or within specified local limits.

Right of a Retiring Partner in Certain Cases to Share Subsequent Prorts (Sec.37): If any member.of a firm ceases to be a partner and the business of the firm is carried on without any final settlement of accounts with him, then in the absence of a contract to the contrary he or his legal representative has an option either:

1. to claim such share of the profits made since he is ceased to be a partner as may be attributable. to the use of his share of the property of the firm (i.e. to claim profits in capital ratio) or

2. to claim interest at the rate of 6 per cent per annum on the amount of his share in the property of the firm.

Q.7. What are the liabilities of partners to third parties?

Ans. The liabilities of partners to third parties are as follows:

1. Liability of a Partner for Acts of the Firm (Sec. 25): Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he is a partners Further, the liability of all the partners is unlimited. By virtue of joint and several liability, a creditor of the firm has several of causes of action. He can sue all partners together or can sue them separately (in successive actions if necessary). As between the partners themselves, the partner paying for more than his share of the liability may claim contribution from the others according to the terms of the partnership agreement.

2. Liability of the Firm for Wrongful Acts of a Partner (Sec. 26): Where, by the wrongful act or omission of a partner acting in the ordinary course of the business of a firm or with the authority of his partners, loss or injury is caused to any third party or any penalty is incurred, the firm is liable therefore to the same extent as the partner. The wrongful act may be tort, fraud or negligence. It is important to note that although the firm is liable to the third party for loss caused to him by fraud committed by a partner but as between the partners, as per Section 10, the same must be done by the partner committing the fraud and cannot be shared among all the partners. Of course, in the case of loss caused by tort or negligence of any partner, all partners are liable inter-se in their profit sharing ratio and the firm is liable to the third party as it is liable in the case of fraud.

Q. 8. What are the mutual rights and duties of partners after change in the firm?

Ans. Mutual Rights and Duties of Partners after Change in the Firm [Sec. 17(a)]: Subject to contract between the partners, where a chang occurs in the constitution of a firm (i.e. where a new partner is admitted or where a partner ceases to be a partner buy retirement, expulsion, insolvency or death), the mutual rights and duties of the partners in the reconstituted firm remain the same as they were immediately before the change, as far as may be possible. Thus, where A, B and C are partners sharing profits in the ratio of 4:3:3 and D is admitted as a new partner who is to get ¼ of the profits, the remaining 3/4 of the profits will be distributed between A, B and C in their old ratio of the new partner. In that case, the new partner hould be deemed to share equally in the profits of the business and the remainder should be distributed among the old partners in their inter-se old profit sharing.

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BCOM 1st Year Partnership Account Short Question Answer Notes

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