DD: Indian Partnership Act, 1932

S. 4: 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.

Elements of Partnership:

1. At least two persons
2. A relationship arising out of an agreement between two or more persons to do a business.
3. The agreement must be to share the profits of a business.
4. The business must be carried on by all or any of them acting for all. Mutual agency can be said to be the true test to determine whether something is a partnership.

A partnership firm has no legal existence apart from its partners. It isn't a legal entity, nor does it have a separate personality as does a corporation - it merely represents the collective of its partners. A partnership arises through signing of the partnership deed by all partners. 

Classification:

1. Particular Partnership: S. 8: When two or more persons agree to do business in a particular adventure or undertaking or for a particular period.
2. Partnership at will: S. 7: Where no provision is made by contract between partners for the duration of the partnership or its determination. S. 43(1): The firm may be dissolved by any partner giving notice in writing to all the other partners of his intention to dissolve the firm.

S. 12(c): A change in the nature of business of a partnership can only be brought about with the consent of all the partners. A partnership formed for a definite purpose, agreed upon at the time of formation of the partnership, cannot depart from the agreed purpose without the consent of all the partners. S. 17 (c): Where a partnership is formed for a particular undertaking(s), it proceeds to carry on other undertaking(s) in the event that the mutual rights and duties of the partners in respect of other undertakings remain the same as those in respect of the original ones.

In the absence of any agreement to the contrary, partnership property would generally include:

1. all property, rights and interests which have been brought into the common stock for the purposes of the partnership by individual partners, whether at the commencement of the business or subsequently added thereto.
2. Those acquired in the course of the business with money belonging to the firm.
3. S. 14: The goodwill of the business.

The property of the firm belongs to the firm and not to individual partners - no partner can deal with these properties as though they were his own, nor do they possess any assignable interest in such property. (Narayanappa vs. Bhaskaia Krishnappa, AIR 1966 SC 1300)

What constitutes partnership property ultimately depends on the agreement between the partners, and their intention. (Lachhman Dass vs. Mrs. Gulab Devi, AIR 1936 All 270)

Kinds of Partners:

1. Active/ Actual/ Ostensible: Ordinary types of partners who invest money into the business of the firm, actively participate in the functioning and management of the business and share its profits or losses. S. 12(a) - subject to contract between the partners, every partner is entitled to take part in the conduct of the business of the firm. Such partner should give public notice of his retirement from the firm to absolve himself from liability for the acts of the other partners done after his retirement.
2. Sleeping/ Dormant: These partners invest money in the firm's business and take their share of profits but don't participate in the functioning and management of the business. Their liability is unlimited. A sleeping partner can retire from the firm without giving any public notice to this effect. His liability ceases soon after retirement. Such partners have no duties to perform but are entitled to have access to the books and accounts of the firm and can have a copy of them. 
3. Nominal: Partners who don't invest or participate in the management of the firm but only give their name to the business or firm. Liable to third parties for all acts of the firm. Unlike sleeping partner, they are known to outsiders as partners in the firm even though they are actually not, and therefore are required to give public notice at the time of being separate from the firm. 
4. Partner in Profits only: A partner who is entitled to share in the profits of a partnership without being liable to share the losses. In spite of this position, a partner in profits only is still liable to third parties for all acts of the firm.
5. Sub-Partner: Where a partner agrees to share his profits in the firm with a third person, that third person is called a sub-partner. A sub-partner isn't a partner in a firm, but a partner of a firm. He has neither rights nor duties towards the firm, and carries no liability towards its debts. 
6. Partner by Estoppel or Holding Out: If the behaviour of a person arouses misunderstanding that he is a partner in a firm when actually he isn't, such a person is estopped from later on denying the liabilities for the acts of the firm. Similarly, if a person declared to be a partner when he isn't doesn't deny that fact, he becomes liable for the business.
   The holding out partner becomes personally and individually liable for the acts of the firm, but can recover the amount from the partners of the firm under the doctrine of subrogation and/ or on the basis of quasi contract.
   Exceptions: The Doctrine of Holding out isn't applicable in these cases:?
   1. It doesn't apply to cases of torts committed by partners.
   2. Doesn't extend to bind the estate of a deceased partner, where firm business is continued after the partner's death in the old name.
   3. Doesn't apply where the Holding out partner has been adjudicated insolvent. 

Minor admitted to the Benefits of Partnership

S. 11, Indian Contract Act, 1872 r/w Mohri Bibi v. Dharmo Das Ghose, (1903) 30 IA 114: A minor's agreement is altogether void and not enforceable, and agreement being an essential element to partnership, a minor cannot be a partner. Under S. 5, Indian Partnership Act, A partner has to be competent to contract, BUT S. 30 allows a minor to be admitted into the benefits of a partnership with the consent of all partners for the time being.

Rights: U/S. 30(2), the minor is entitled to his agreed share and can inspect books of account of the firm. U/S. 30(4), he can bring a suit for account and his share when intends to sever his connections with the firm, but not otherwise. S. 30(5): A minor admitted to the benefits of a partnership during his minority can elect whether he wants to become a partner or sever connections with the firm within six months of attaining majority by giving public notice of his decision. If he fails to give public notice, he will be deemed to have become a partner. 

Liabilities: The minor's liable to the extent of his share in the firm: S. 30(3). When the minor elects to become partner upon minority, he will become liable as all partners are. 

Mutual Agency: S. 18: Each partner is an agent of the firm and of the other partners for the purpose of the business of the firm. Exceptions:

1. The partner so acting has no authority to act for the firm in that matter; and

2. The person with whom he is dealing knows he has no authority; or 

3. Doesn't know or believe him to be a partner.

Authority of a Partner: The capacity of a partner to bind the firm by his act. May be express or implied.

1. Express Authority: When given by words, spoken or written. The firm is bound by all acts of a partner done within the scope of his express authority even if the acts aren't within the scope of the partnership business.
2. Implied Authority: Authority inferred from the conduct of the parties, nature of business, circumstances, customs and usage. Ss. 19 and 22.

Liability of Incoming and Outgoing Partners

S. 31(2): An incoming partner isn't liable for the debts incurred before he joined the firm. However, he may assume liability for past debts by novation - tripartite agreement between the creditor of the firm, partners existing at the time the debt was incurred, and the incoming partner.

An outgoing partner remains liable for the debts contracted while he was a partner, but may be discharged by novation. 

Dissolution - S. 39: Dissolution of partnership between all the partners of a firm - doesn't necessarily occur because partnership has ceased to do business as the partnership may continue for the purpose of realising assets.

Dissolution of partnership vs. dissolution of firm - the latter is where the relationship between all partners comes to an end. The former is where there is an extinction of relationship between some of the partners only. 

Dissolution of Partnership:

1. By expiry of the fixed term for which the partnership was formed. S. 42(a)
2. By the completion of the adventure S. 42(b)
3. By the death of a partner S. 42(c)
4. By insolvency of a partner S. 42(d)
5. By retirement of a partner S. 42(e)

Dissolution of the Firm

1. By mutual agreement S. 40
2. By insolvency of all partners except one S. 41(a)
3. By business becoming illegal S. 41(b)
4. By notice of dissolution S. 43

A partnership for a fixed period cannot be dissolved by a notice, unlike a partnership of will. Therefore u/S. 44, the court may order dissolution under the following circumstances:

1. When a partner becomes of unsound mind
2. Permanent incapacity of partner 
3. Misconduct of a partner affecting the business
4. Persistent regard of partnership agreement by a partner.
5. Transfer of interest or share by a partner 
6. Business working at a loss
7. Any just and equitable ground 

Effect of Dissolution:

Authority of the partners to bind the firm continues as long as is necessary to wind up the business, provided that the firm is in no case bound by the acts of a partner who has been adjudged insolvent except on the principle of holding out. S. 47. The partners continue to be liable to outsiders for any act done by any of them which would have been the act of the firm if done before the dissolution, unless a public notice is given of the dissolution. 

Right to return of premium:

To buy entry into an existing firm, a new partner sometimes has to pay a premium to the existing partners in addition to any investment of capital. On dissolution, he's entitled to demand the return of a proportion of the premium if the partnership was for a fixed term and dissolved before its expiry, unless the the dissolution was caused by a) agreement, b) misconduct of the party seeking return of premium c) death of a partner. S. 51

Garner vs. Murray, 1904 73 LJ Ch 66 prescribes the principle to be used in case a partner is insolvent and unable to contribute towards the deficiency:

a) The solvent partners will contribute only their share of deficiency.

b) The available assets should be distributed among the solvent partners in proportion to their capital.

c) The deficiency of the capital of the insolvent partners will be distributed among the solvent partners in the ratio of their respective capitals.

Goodwill: A partnership asset - the benefit arising from the firm's business connections or reputation - the advantage acquired by a business beyond the mere value of the capital, stock fund and property employed therein, in consequence of general public patronage and encouragement. 

Unless otherwise agreed upon, the goodwill must be sold upon dissolution and the proceeds distributed as capital in the same manner as sharing of profits and losses. If the goodwill is sold and there's no agreement as to its disposal, any partner can carry on the business provided that by doing so he doesn't expose former partners to liability.