Business Law-Chapter 1....Law of partnership.pdf

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Contents ChapterI

Pages

1.0

The Law of Partnership

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1.1

Definitions of Partnership

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1.2

The Essential Elements of a Partnership

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1.2.1 There must be an agreement entered into by all the persons

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Concerned 1.2.2 The agreement must be to share the profits of a business

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1.2.3 Carried on by all or any of them acting for all

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1.3

Distinguish between Partnership and Company

1.4 Mode of Determining the Existence of Partnership 1.5

Different Kinds of Partnership

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1.5.1 Ordinary Partnership

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1.5.2 Partnership at – will

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1.5.3 Particular Partnership

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1.6

Property of the Partnership Firm

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1.7

Relationship of Partners

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1.7.1 Relationship of Partners to One Another 1.7.2

Relationship of Partners to Third Parties

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1.7.2.1 Implied Authority

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1.7.2.2

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Partnership by Holding Out

1.7.3 Minor Benefits to Partnership

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1.7.3.1 Rights

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1.7.3.2 Duties

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1.8

Reconstitution of a Partnership Firm

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1.8.1 Introduction of a Partner

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1.8.2 Retirement of the Partner

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1.8.3 Expulsion of Partner

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1.8.4 Insolvency of a Partner

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1.8.5 Death of a Partner

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1.8.6 Transfer of a Partner's Interest

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1.9

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Dissolution of a Firm (Partnership)

1.9.1 Modes of Dissolution of a Firm

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1.9.1.1 Dissolution by Agreement

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1.9.1.2 Compulsory Dissolution

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1.9.1.3 On the Happening of Certain Contingencies

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1.9.1.4

By Notice of a Partnership At will

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1.9.1.5

By the Court

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1.9.2 Division of Profits and Losses upon Dissolution

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1.9.3 Sale of Goodwill after Dissolution

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1.9.3.1. Rights of Buyer and Seller of Goodwill

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1.10

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Registration of a Firm

1.10.1 Application for Registration

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1.10.2 Effect of Registration

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1.10.3

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Effects of Non-registration

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Chapter 1

1.0

The Law of Partnership In our day to day life we usually enter into contracts for

commercial and non-commercial purposes. A contract is an agreement creating and defining obligations between the parties. Partnership also includes contrasts for commercial purposes. As soon as commerce develops beyond the most elementary stage, merchants begin to find it desirable to carry on their business in association. They may form loose associations for the purposes of carrying through some particular enterprises, sometimes called syndicates, or more stable groups intended to subsist for longer periods, called partnership. In Myanmar the Partnership Act was enacted as India Act IX of 1932 on the date of 1st October, 1932. In the Act there are altogether VIII Chapters and 74 sections.

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The relation of partnership arise from contract and not from status

-၅ The Section 5 of the Partnership Act, provide that, "the relation of partnership arise from contract and not from status". Therefore, partnership can only arise as a result of a contract between the parties and not from status. So, when a person agrees with another to share the profits of a business, to be carried on by them together, the partnership arising from such agreement is said to be outcome of contract. ၅

Joint or co-ownership does not itself create partnership whether the owner does or not share any profits made by the use of the thing owned. Partnership is necessarily the result of agreement. Co-ownership is not the result of contract.

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Partnership Act (1932) Act No. 9 The Myanmar Code Vol. 9 Page 171

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For example:Husband and wife are co-owners of the house but they are not partners. Although rent will be shared equally between them, it is only matrimonial right conferred by law. If they made an agreement to do hotel business by their house and to share the profits equally from such business there husband and wife are partners of such business.

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In particular Myanmar Buddhist husband and wife carrying on business are not partners. Similarly the members of a Hindu undivided family carrying on business are not partners.

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1.1 Definitions of Partnership

“Partnership” is defined as "the relation which subsists between persons carrying on a business in common with a view of profit."1 Section 239(d) of the Indian Contract Act

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defined that "Partnership is

the relation which subsists between persons who have agree to combine their property, labor or skill in some business, and to share the profits there of between them".

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In Myanmar Naing-Ngan, the term "Partnership" is defined by the Partnership Act4, Section 4 as "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.”

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Hindu undivided family The Partnership Act of 1890 Section (1) 2 Indian Act No. (9) of 1872 3 Contract Act (1872) sce: 239 4 Indian Act No. (9) of 1872 1

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Therefore, 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".

fir

1.2 The Essential Elements of a Partnership

The definition of "Partnership" under section 4 contains the essential element of the relationship of Partnership as follow:-

(1)

There must be an agreement between two or more persons.

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(2) The agreement must be with the intention to form a partnership business and to share the profits of that business.

(3) The business must be carried on by all or any of them acting for all.

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Agreement

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All these elements must be present before a group of associates can be held to be partners. These elements may appear to overlap, but they are nevertheless distinct. The first element relates to the voluntary contractual nature of partnership; the second gives the motive which leads to the formation of firms; and the third shows that the persons of the group who conduct the business as age for all the persons in the group, and are therefore liable to account for all.

1.2.1 There must be an agreement entered into by all the persons concerned

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This element shows that a partnership is formed by an agreement, either express or implied. It may be either in writing or oral or be inferred by the conduct of the parties who are said to be in such a relationship.

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Agreement

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A business without agreement, whether intends to do partnership or not, must be assumed by the conduct of persons, which was decided in the case of "Koo Gyee Hoke and six others vs. Wee Tin Shan and four others". In this case a partnership firm by the name of "Sin Eng Choon"1 was established some 70 years of age. There were only two partners called "Koo Ban Pan" and "Wee Po Ee". Wee Po Ee died in 1892 and Koo Ban Pan's conduct since the time of Wee Po Ee's death had all along been in the nature of a sole poprietorship. But Daw Khet, wife of Wee Po Ee enjoyed a defined share of the profits of the business of Sin Eng Choon. Section 42 provides that unless there is no contrary term, a partnership firm formed only two persons is dissolved when a partner dies. Daw Khet, even enjoyed a defined share of the profits of that business there was no testimony regarding the agreement between Daw Khet and Koo Ban Pan since Wee Po Ee died. Therefore, in the absence of any testimony regarding property 6

Expressed Oral 8 Implied 9 Conduct 1 1967. B.L.R. (C.C) P.170 7

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of the firm, it cannot be said that Daw Khet became a partner. After the death of Daw khet, her son, plaintiff Wee Tin Shan never became a partner and he has no right to sue as a partner, because there was no testimony that he was a partner in the business.

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In "Dawood Sahib vs. Sheik Mohideen"1 case, there were two persons, "A" and "B" agreed to form a partnership firm and to share to profits of continued that business as his father was alive. But there was no express agreement between "C" and "B" which made no objection for "C’s entrance. The Court held that "C" was entitled to get share profits as when his father was alive. *

Therefore, it can be seen that if there is no agreement either in writing or oral or by the conduct of the parties to enter into a partnership business, they cannot be held as partners.

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A.I.R. 1930. (Mad 5) P.46 Dawood Sahib Vs Sheik Mohideen. A.I.R. 1938: Mad, 5 (P.46)

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1.2.2 The agreement must be to share the profits of a business

The second element states that there must be a business and the agreement must relate to the sharing of profits arising from such business. The word "business" includes every trade, occupation and profession.

The sharing of profits is an essential element of a partnership agreement. “Profits”

ean “net profit”, that is to say, the excess of returns over advances.

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For example:'A' and 'B' agree to sell cotton in their joint account and to share the profits equally. Here, A and B are partners in respect of such cotton. This means a business without sharing profits is not a partner.

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Abdulla Vs. Allah Diya. 8. Lah: 310

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So, a business without the statement of sharing profits is not a partnership. In the case of a*

, the

court decided as follows:*

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*

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*

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In this case the court held that the firm is not a partnership firm because there is no agreement between the partners that they shall have to share the profit.

Therefore, the sharing of profits is only a prima facie evidence and not a conclusive evidence of the existence of partnership.

1.2.3 Carried on by all or any of them acting for all

The third element states the principles that "the law of partnership is branch of the law of principal and agent." This is a very important ingredient of a partnership. The underlying and fundamental principle which constitutes a partnership is the idea of "agency". That is to say, each partner is an agent binding the other persons who are his principals and each partner is again a principal, who is in turn bound by the acts of the other partners.

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Section 18 of the Partnership Act states that, "subject to the provisions of this Act, a partner is the agent of the firm for the purposes of the business of the firm". 10

For example:Each partner carrying on the business is regarded as a principal and as an agent for all the other partners. That is an act of each partner, when carrying on the business of the firm, is an act of the firm and it binds all the partners.

In the case of Cox vs. Hickman1 the Court held that, the true text of partnership is mutual agency that is whether there is sharing of profits so as to 10 1

Principal and Agent (1860), 8. H.L.C. 268

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constitute the relation of principal and agent between the persons taking the profits and those actually carrying on the business. CoxVs.Hickman*

In determining whether a person is or is not a partner in a firm, the Court must consider all the facts and circumstances of the case, e.g.,

(i)

the existence of any agreement between the parties,

(ii)

the conduct of the parties towards one another,

(iii)

the mode of doing business,

(iv)

the right to control property, ö

(v)

*

the manner in which the accounts of the business are kept,

Cox Vs. Hickman (1860, 8. H.L.C 268. (312)

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(vi)

the right to receive profits and etc.,

In other words, all the relevant facts taken together must show the existence of all three essential elements in a partnership agreement.

1.3 The Distinction between a Firm and a Company The distinctions between a firm and a company may be stated as follows:(1) A firm means all the partners collectively: it is not as distinct entity apart from its members. A company is a company which is a distinct person apart from its members.

(2) The property of the firm is the property of all the partners. The property of a company is not the property of its members.

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(3) All the partners are jointly and severally liable for all the debts of a firm. Members of a company are not, as such, liable for the debts of a company.

(4)

Members of a company are not its agents. Every

partner is an agent of the firm.

(5)

A partner cannot ordinarily transfer his share so as to make the transferee a partner. A member of a company can ordinarily transfer his shares so as to make the transferee a member.

(6)

The liability of partners in a firm is unlimited. The liability of the members of a company is usually limited to the extent of the amount unpaid on their shares or to the extent of their guarantee.

(7)

A partner cannot contract with his firm because it is not a person. A member of a company can contract with the company.

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(8)

Partners may make any agreement as they like and vary their contract as and when they please. A company is bound by its articles and memorandum which can be altered only to a limited extend as provided by the Company Law.

(9)

There is no such statutory provision for firms. A company is bound by law to maintain proper books of account and to have its accounts audited.

(10) A firm may be dissolved of any time by agreement. A company can only be dissolved as laid down by law.

(11) A firm is dissolved on the death of a partner in the absence of a contract. A company being a distinct person goes on though its members may change.

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(12) A firm cannot have more than twenty partners in any case and not more than ten if the business is a banking business. Except in the case of a private company there is no restriction on the number of members in a company.

1.4

Mode of Determining the Existence of Partnership

(The Test of Partnership) It is often a very difficult matter to determine, in the absence of a definite partnership agreement, whether a partnership exists or not. In determining whether a person is or not a partner of a firm, regard shall be had to the real relation between the parties, as shown by all the relevant facts taken together.

Section 6 of the Partnership Act also provides that, in determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between the parties, as shown by all relevant facts taken together.

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Explanation; The sharing of profits or of gross returns arising from property by persons holding a joint or common interest in that property does not of itself make such persons partners.

Example; Myanmar Buddhist husband and wife are co-owners of the house but they are not partners. Although rent will be shared equally between them, it is only the conferred by Myanmar Customary Law. -

Explanation; The receipt by a person of a share of the profits of a business, or of a payment contingent upon the earning of profits or varying with the profits earned by a business, does not of itself make him a partner with the persons carrying on the business, and in particular, the receipt of such share or payment –

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Real relationship

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(a) by a lender of money to persons engaged or about to engage in any business,

(b)

by a servant or agent as remuneration,

(c)

by the widow or child of a deceased partner as annuity,

(d)

by a previous owner or part owner of the business, as consideration for the sale of the goodwill or share thereof, does not of itself make the receiver a partner with the person carrying on the business.

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share

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Therefore according to paragraph (a) "a person who has lent money to persons engaged or about to engage in any business is not a partner. He is just a moneylender.

In paragraph (b), it shows that an agent or servant is not a partner although he takes the profits as remuneration. It was decided in the case of" 1

, it was stated that taking a "bonus" is not sharing benefits of the business.

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1961 ckESpf? r.w.p/ pm 143-146/

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( ) Foke Kyan Syndicate 14 Bonus 13

(

)

(

)

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Paragraph (c) was shown in the case of "Koo Gee Hoke and six others vs. We Tin Shan and four others".2 This case said that the widow of Wee Po Ee was not become a partner but merely enjoyed the defined profit from the firm. She enjoyed the share as the widow of deceased partner as annuity. *

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1967. B.I.R (C.C) P.170 ၅

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According to paragraph (d), a previous owner of the business who enjoyed the money from the sale of goodwill or share is not a partner in existing business.

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Therefore, in determining whether a person is or is not a partner in a firm, the court must consider all the facts and circumstances of the case and inductive approach to the provisions of Section 4, 5 and 6 of the Partnership Act. ၅

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So, in determining whether a group of persons is or is not a firm, or whether a person is or is not a partner in a firm, regard shall be had to the real relation between partners, as shown by all relevant facts taken together. *

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*

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1.5 Different Kinds of Partnership

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There are different kinds of partnership as follows:(1)

Ordinary Partnership

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(2)

Partnership at - will 16

(3)

Particular Partnership 17

1.5.1 Ordinary Partnership (

)

The parties are at liberty to fix the duration of the partnership or say nothing about it. Where the partners stipulate that they should carry on business for a definite period of time, it is called a partnership for a fixed term or ordinary partnership. When the fixed term is over, the partnership comes to an end.

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Ordinary Partnereship (or) Partneaship for a Fixed period. Partnerihip at will 17 Particular Partuership 16

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1.5.2 Partnership at – will (

) A partnership is deemed partnership-at-will when (i) no fixed has been

agreed upon the duration of the partnership and (ii) there is no provision made as to the determination of the partnership in any other way.

On the other hand, where no provision is made by contract between the partnerships for the duration of their partnership or for the determination of their partnership, it is called partnership-at-will.1

In the case of San Win vs. U Ba Nyunt2, it was decided about the partnership at-will. ၅

“

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Section 7 of the Partnership Act. U San Win vs. U Ba Nyunt , 1963. B.L.R (C.C) 644.

” ]]partnership at-will”

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Therefore, a partner, in the case of partnership-at-will, can retire from the firm dissolve it whenever he thinks proper by merely giving notice in writing to other partners of his intention to that effect.

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1.5.3 Particular Partnership

A partnership may be described as a "Particular partnership" when a person becomes a partner with another person in a particular adventure or under taking or an isolated transaction or speculation or course of trade voyage.

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Notice

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Therefore, a particular partnership means that, a person may become a partner with another person in adventure of undertakings. 1

In the case of "Tan Soon Le vs. Yoe Tong Hoe"2 , it also was held that a partnership relating to a particular venture can only be dissolved after the venture has come to an end. **

aafi

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1.6 Property of the Partnership Firm 2

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Section 8 of the Partnership Act 1962. B.L.R. (C.C) 117.

** **

SauelmNadar Vs. Thangayya Nadar. A. I. R. (1942) Mad; 104

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The property of the firm includes all properties, rights and interests in property originally brought into the stock of the firm or acquired by purchase of otherwise, by or for the firm, or for the purpose and in the course of business of the firm, and also includes the goodwill of the business.3 Thus, property of the firm includes:(a)

Property originally brought into the partnership stock;

(b)

Property acquired in the course of the partnership business;

(c)

The goodwill of the firm

Section 14 of the Partnership Act is laid down that goodwill of a business is to be regarded as the property of the firm.

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]

Unless the contrary intention appears, property, and rights and interests in property acquired with money belonging to the firm are deemed to have acquired for the firm.

Subject to the contract between the partners, the property of the firm shall be held and used by the partners exclusive for purposes of the the business. 1

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Section 14 of the Partnership Act Goodwill 1 Section 15 of the Partnership Act 19

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In settling the accounts of a firm after dissolution, the goodwill shall, subject to contract between the partners, be included in the assets and it may be sold either separately or along with other property of the firm.4 20

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]

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1.7 Relationship of Partners

Relationship of partners will be considered as two parts. One is relationship between Partners and relationship with third party.

1.7.1 Relationship of Partners to One Another 4

Section 55 of the Partnership Act Trade Mark 21 Assets of the firm * (21. C.W.N. 632) 20

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The relation of partners to one another is usually governed by the articles of the partnership firm. If there is no written partnership agreement, their relation will be governed by the course of dealing among themselves.

The mutual rights and duties of the partners of a firm may be determined by contract between the partners. Such a contract may be expressed or may be implied by a course of dealings of the firm. The contract may be varied by consent of all the partners. 2

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] Such contracts may provide that a partner shall not carry on any business other than that of the firm while he is a partner.

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Section 11 of the Partnership Act Expressedly 23 Impliedly 22

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1.7.2 Relationship of Partners to Third Parties

Every partner is the agent of the firm for the purposes of the business of the firm. 3

If two or more persons agree to carry on a partnership business and share its profits, each is a principal and each is an agent for the other, and also each is bound by the other contract in carrying on the business, as much as a single principal would be bound by the act of an agent.

An admission or representation made by a partner concerning the affairs of the firm is evidence against the firm, if it is made in the ordinary course of business.

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Section 18 of the Partnership Act

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This means that the principal of agency is the essence of the partnership relation.A partnership is both as a principal and an agent.

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Subject to the provisions of Section 22, the act of a partner which is done to carry on, in the usual way, business of the kind carried on by the firm, binds the firm.1

1.7.2.1 Implied Authority 26

The authority of a partner to bind the firm conferred by this section is called his "implied authority".

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Ordinary course of business Principal and Agent 1 Section 19 (1) of the Partnership Act. 26 Implied Authority 25

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In the absence of any usage or custom of trade to the contrary, the implied authority of a partner does not empower him to:-

(a) submit a dispute relating to the business of the firm to arbitrate

(b) open a banking account on behalf of the firm in his own name,

(c) compromise or relinquish any claim or portion of a claim by the firm,

(d) withdraw a suit or proceeding field on behalf of the firm, (

(e) admit any libel/liabilities in a suit or proceeding against the firm, ၅

(f) acquire immovable property on behalf of the firm,

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(g) transfer immovable property belonging to the firm, or

(h) enter into partnership on behalf of the firm.2

The reason, why a partner is not entitled to do above acts in the absence of agreement or custom, is that a dishonest partner may involve the firm and his co-partners in liability if he is allowed to act alone.

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Section 19 of the Partnership Act

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* **

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*

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Managing Partner Hari Sanker Misra V. Rirm Rai Bahadur Bansilal Abiehand. (1946: Nag. 301: A.I.R. 1946, Nag. P.266)

** 28 *

Ostensible Authority. Bond V.Gibvson, 10. R.A 665

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**

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It is, however, open to the partners by means of an express contract to extend or limit the implied authority but third parties will be bound by such a limitation only when they have notice of such a limitation. 1

All the partners are jointly and severally liable on any contract entered into by any of the partners.

၅ ၅ **

Mathura Nath V. Sree Jukta Rageshwari.46, Cal. L.J. 352. Title deeds *** Asan Kani V. Somasudaram. 31 Mad. 208 1 Section 20 of the Partnership Act 29

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Where by the wrongful act of a partner acting in the ordinary course of business or with authority of other partners, loss or injury is caused to third party, the firm is liable therefore to as the same extent as the contracting partner is. 2

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Where (a) a partner acting within his apparent authority receives money or property from a third party and minapplies,or

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Section 26 of the Partnership Act Wrongful act 31 Omission 32 Third paty 33 Loss 34 Injury 35 Penalty 30

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(b) a firm in the course of its business receives money or property from a third party, and the money or property is misapplied by any of the partners while it is in the custody of the firm, the firm is liable to make good the loss.

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*

36 *

Misappropriation

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*

It is, however, necessary that the obligation should have been incurred in such a way as to bind the firm that is the partner should not have contracted in his individual capacity but as a partner of the firm and agent of the other partners and in the name of the firm. 3

* 3

Section 22 of the Partnership Act

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Any admission or any representation made by any partner in the course of the business will bind the firm and other partners. This is again based on the principle that every partner is an agent of the other partners.5

1.7.2.2

Partnership by Holding Out 37

Anyone who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a partner in a firm, is liable as a partner in that firm to anyone who has on the faith of any such representation given credit to the firm, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit. 6 -

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Section 23 of the Partnership Act Holding Out. 6 Section 25(1) of the Partnership Act 37

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] Thus, if "A" induces "B" to believe that he (A) is the partner of a firm (AB) and "B" believing "A" to be a partner gives credit to the firm AB, "A" will be responsible to "B" for any loss suffered by him (B) and cannot deny himself to be a partner of the firm although in fact he is not a partner. This is known as partnership by holding out.

But, where after a partner's death the business is continued in the name of the old firm, the continued use of that the name, or of the deceased partner's name as a part thereof, shall not of itself make his legal representative or his estate liable for any act of the firm after his death.1

] The Doctrine of "Holding Out"38 1

Section 25(2) of the Partnership Act Holding Out.

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Under Sec.28 of the partnership Act, the "doctrine of holding out" is dealt with runs as follows:-

(1)

That by words or conduct he represented himself to be a partner or knowingly permitted himself to be represented himself as a partner anyone.

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(2)

That the other person on the faith of the representation gave credit to the firm.

(3)

Where after a partner's death the business is continued in the name of the old firm, the continued use of the decease partner's name as a part thereof shall not of itself make his

*

Mollow Marsh & Co. V. Court of Wards. 1872. L.R. 4 P.C. Page. 435.

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legal representative or his estate for any act of the firm done after his death. (3)

(4)

Where a man holds himself out as a partner, or allows other to do it, he is then properly by estoppels from denying the character he has assumed and upon the faith of which creditors may be presumed to have acted. A man so acting may be rightly held liable as a partner by estoppels.

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Therefore, the doctrine of "holding out" is a part of estoppels, that where one person by words or conduct includes another to believe him and act upon the existence of a particular state of facts, he cannot afterwards as regards that person deny the existence of such facts.

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Active Partner

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1.7.3 Minor Benefits to Partnership

Since a minor is not competent to enter into a contract, he cannot become a partner in a firm. However, a minor can be admitted to the benefits of an already existing partnership if all the partners agree to admit him. As he is not a partner, the minor is not personally liable nor is his separate property, for the debts of the firm; but his share in the partnership property and profits will be so liable.

ö

A person who is a minor according to the law to which he is subject may not be a partner in a firm. The following rights, liabilities and disabilities may be stated when a minor can be admitted to the benefits of firm.

Rights and duties of Minor

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1.7.3.1

Rights A person who is a minor according to the law to which he is subject may not 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.

Such rights are(a) A mionr has a right to such share of the property and of the profits of the firm as may be agreed upon and -

(b) he may have access to and inspect and copy any of the accounts of the firm.

(c) Such minor may not sue the partners of an account or payment of his share of the property or prefits of the firm save when severing his connection with the firm,

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(d) Where such person desires to become a partner to attaining majority, he has entitled to determind a partner in the firm.

(e) Where such person does not desire to become a partner after attaining majority, he shall give the public notice that he has elected not to become a parter in the firm.

(f) Where such person becomes a partner his rights and liabilities as a minor continue up to the date on which he become a partner, but he also become personally liable to third parties for all act of the firm done since he was admitted to the benefits of partnership.

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(g) his share in the property and benefits of the firm shall be the share to which he was entitled as a minor.

(h) Where such person elects not to become a partner-

(1) his share shall not be liable for any acts of the firm done after the date of the notice.

(2) he shall be entitled to sue the partners for his share of the property and benefits.

1.7.3.2 Duties

(a) For act doing of the firm before the attaining majority, he shall only be liable for the amount of his investment.

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(b) Where such person becomes a partner his rights and liabilities as a minor continue up to the date on which he become a partner, but he also become personally jointly or severally liable to third parties for all act of the firm done since he was admitted to the benefits of partnership.

(c) At any time within six months of his attaining majority, a minor shall be liable automatically as a partner if he does not give public notice.

(d) If a minor act as to be a partner after attaing majority, he shall be liable as a partner before public notice.

(e) Where a minor elects not to become a partner his rights and liabilities shall continue to be those of a minor up to the date on which he gives public notice.

54

(f) Where any person has been admitted as a minor to the benefits of partnership in a firm, the burden of proving the fact that such person no knowledge of such admission until a particular date after the expiry of six months of his attaining majority shall lie on the person asserting that fact.

1.8

Reconstitution of a Partnership Firm

The term "reconstitution of a firm" means the change takes place in the constitution of a firm. These changes occur by the:-

(1)

introduction of a new partner.

(2)

retirement of partner.

(3)

expulsion of a partner.

55

(4)

insolvency of a partner.

(5)

death of a partner.

(6)

transfer of a partner's interest.

Subject to contract between the partner, where a change occurs in the constitution of a firm, the mutual rights and duties of the partner in the reconstituted firm remain the same as they were immediately before the change ,as far as may be;

1

] 1.8.1 Introduction of a Partner No person shall be introduced as a partner in a firm without the consent of all the existing partners. The liability of the new partner commences from the date when he is admitted as a partner unless there is a contract providing otherwise.

1

reconstituted firm

56

]

1.8.2 Retirement of the Partner A partner may retire:(a)

with the consent of all the partners,

(b)

in accordance with an express agreement by the partners, or

(c)

where the partnership is at will, by giving notice in writing to all the other partners of his intention to retire. 40

-

] So a partner may, in a partnership as will, retire by without any condition or by prescribeing with conditions or by giving the notice to the other partner from a firm.

40

Voluntary Retirement

57

The retired partner continues to remain liable as partner to third parties for all acts of the firm if done before retirement until public notice is given of the retirement.

But a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner.

] -

-

58

Section 72 of the Act lays down the mode of giving public notice. In every case where a public notice is required by the Act, it must be affected by publication in the Official Gazette and in at least one vernacular newspaper circulating in the district where the firm to which it relates has its place or principal place of business.

Notwithstanding the retirement of a partner from a firm, he and partners continue to be liable as partners to third parties for any act done by any of them which would have been an act of the firm if done before the retirement, until public notice is given of the retirement:

59

] 72 (a) A public notice under this Act is givenWhere it relates to the retirement or expulsion of a partner from a registered firm, or the dissolution of a registered firm, or to the election to become or not to become a partner in a registeredfirm by a person attaining majority who was admitted as a minor to the benefits of partnership,by notice to the registrar of firms under section 63, and by publication in the Gazette and in at least one vernacular newspaper circulatingin the district where the firm to which it relates its place or principal place of business.

-

60

(b)in any other case, by publication in the Gazette and in at least one vernacular newspaper circulatingin the district where the firm to which it relates its place or principal place of business.

Provided that a retired partner is not liable to any third party who deals with the firm without knowing that he was a partner.

] 41

*

(4)

Notices under sub-section (3) may be given by the retired partner or by any partner of the reconstituted firm.

] The rights of a retired partner are as follows-

41 *

Sleeping Partner Rams Sami V, Kadar Bibi, 9, Mad, 492

61

An outgoing partner may carry on a business competing with that of the firm and he may advertise such business, but, subject to contract to the contrary, he may not

(a)

use the firm name,

(b)

represent himself as carrying on the business of the firm, or

(c)

solicit the custom of persons who were dealing with the firm before he ceased to be a partner.

] A partner may make an agreement with his partners that on ceasing to be a partner he will not carry on any business similar to that of the firm within a specified period or within specified local limits: and, notwithstanding anything contained in section 27 of the Contract Act, such agreement shall be valid if the restrictions imposedare reasonable.

62

42

] Where any member of a firm has died or otherwise ceased to be a partner, and the serviving or continuing partners carry on the business of the firm with the property of the firm without any final settlement of accounts as between them and the outgoing partner or his estate,then, in the absence of a contract to the contrary, the outgoing partner or his estate is entitled at the option of himself or his representatives to such share of the profitsmade since he ceased to be a partner as may be attributable to the use of his share of the property of the firm or to interest at the rate of six per cent, per annum on the amout of his share in the property of the firm.

42

Reasnnable

63

A continuing guarantee given to a firm, or to a third party in respect of the transactions of a firm, is, in the absence of agreement to the contrary, revoked as to future transactions from the date of any change in constitution of the firm.

၅

*

*

64

**

1.8.3 Expulsion of Partner

A partner can be expelled from a firm only under the following circumstances:-

(a)

the power to expel is conferred in the contract of partnership.

(b)

the power is exercised in good faith by the majority of the partners,

(c)

the expelled partner should have some intimation of the cause of complaint and an opportunity of meeting the case alleged against him. (Sec. 33)

As expelled partner is liable for all debts contracted before his expulsion and he continues to be liable for the debts of the firm contracted after his expulsion till a public notice of his expulsion is given. **

Wzekiel Moses V. The Russia Engineering Works.Ltd. 1 Rangoon. 47

65

1.8.4 Insolvency of a Partner 43

Where a partner in a firm is adjudicated an insolvent he ceases to be a partner on the date on which the order of adjudication is made.1

] If a firm is not dissolved by such order of adjudication, the share of the insolvent partner vests in the Official Assignee or Official Receiver and the insolvent partner ceases to be liable for any debts of the firm and the firm ceases to be bound by any act of such partner.

]

1.8.5 Death of a Partner 44

43 1

insolveney Section 34 of the Partnership Act

66

Ordinary the death of a partner has the effect of dissolving the partnership as regards all the partners. However the partners may agree that by the death of a partner the firm is not dissolved. Where a firm is not so dissolved, the estate of a deceased partner is not liable for any act of the firm done after his death.2

၅ Subject to contract between the partners, a firm is dissolved by the dead of a partner.

] Notwithstanding the dissolution of a firm, the partners continue to be liable as such to third parties for any act done by any of them which would have been an act of them if done before the dissolution, until public notice is given of the dissolution:

၅ 1.8.6 Transfer of a Partner's Interest

A partner may transfer his share to a third person, absolutely or by way of security.

44 2

Death Section 35 of the Partnership Act

67

If the firm is dissolved or if the transferring partner ceases to be a partner, the transferee is entitled as against removing partners to receive the share of the assets of the firm to which the transferring partners is entitled and for the purpose of ascertaining that share, to an account as form the date of the dissolution. 3

1.9

Dissolution of a Firm (Partnership)

45

"Dissolution of the firm" means the cessation of jural relationship amongst all the partners of a firm. 1

It differs from reconstitution in the following respects:-

(a)

In the case of dissolution, the whole firm is dissolved; whereas, there is no dissolution of the firm in the case of a reconstitution.

(2)

In the case of dissolution, there is complete cessation of jural relationship amongst all the partners; whereas in the case of

3

Section 29 of the Partnership Act Dissolution a firm 1 Section 39 of the Partnership Act 45

68

reconstitution, there is no such severance of jural relationship among the partners in the reconstituted firm and they carry on the business of the firm.

ö

1.9.1 Modes of Dissolution of a Firm

There are five different modes of the dissolution of a firm:၅ (a)

dissolution by agreement,

(b)

compulsory dissolution

(c)

dissolution on the happening of certain contingencies,

(d)

dissolution by notice of a partnership at will, and 46

(e)

46

Notice

dissolution by court.

69 47

၅

1.9.1.1 Dissolution by Agreement A firm may be dissolved with the consent of all the partners or in accordance with a contract between the partners. (Section 40)

1.9.1.2 Compulsory Dissolution (1)

by the adjudication of all the partners or of all the partners but one as insolvent, or

(ii)

by the happening of any event which makes it unlawful for the business of the firm to be carried on or for the partners to carry it on in the partnership.

But where more than one separate adventure or undertaking is carried on by the firm, the illegality of one or more shall not itself cause the dissolution of the firm in respect of its lawful adventures and undertakings (Section 41)

47

By Order of the Court

70

1.9.1.3 On the Happening of Certain Contingencies

Subject to contract between the partners a firm is dissolved:-

(i)

(ii)

if constituted for a fixed term, by the expiry of the term,

if constituted to carry out one or more adventures or undertakings, by the completion thereof;

*

(iii)

by the death of a partner; **

(iv) by the adjudication of a partner as an insolvent. (Section 42)

1.9.1.4 By Notice of a Partnership At will 48

*

T.P.Ma Mooty V.Ma Thein Hlaing (a) Ma Asara, 1969. B.L.R. P. 80 48 Notice **

71

(i)

where a partnership is at will, the firm may be dissolved by any

partner giving notice in writing to all the other partners of his intention to dissolve the firm.

(ii)

The firm is dissolved as from the date mentioned in the notice as

the date of dissolution or, if no date is so mentioned, as from the date of the communication of the notice. (Section 43)

*

49

*

Robertson V.Lockie (1846) 15 sim-285. Plaint

49

72 **

1.9.1.5 By the Court 50

(၅)

At the suit of a partner, the Court may dissolve a firm on any of the following grounds, namely:-

(i) that a partner has become of unsound mind, 51 52

(ii)

that a partner, other than the partner suing ,has become in any way permanently incapable of performing his duties as partner.

53

(iii)

that a partner other than the partner suing is guilty of conduct which is likely to affect prejudicially the carrying on of the business, regard being had to the nature of the business;

**

Sathapara V.Subrmanian. 1927.53 Mad. L.J. 245, 101.1.C. 17 By Order of the Court 51 Insanity 52 Next Friend 53 Incapacity 50

73

54

(iv)

that the partner other than the partner suing willfully or persistently commits breach of agreement relating to the management of the affairs of the firm or the conduct of its business or otherwise so ducts himself in matters relation to the business that it is not reasonably practicable for the other partners to carry on the business in partnership with him;

(v)

that a partner other than the partner suing has in any way transferred the whole of his interest in the firm to a third party or has allowed his share to be changed sold by the Court; ၅

(vi) that the business of the firm cannot be carried on save at a loss; or

54

Misconduct

74

(iv) that court is satisfied that the firm should be dissolved on any other just and equitable ground. (Section 44) 55

1.9.2 Division of Profits and Losses upon Dissolution

The partnership agreement may provide for the settlement of accounts between the partners upon dissolution. In the absence of such agreement, the following rules laid down by Section 48 of the Partnership Act must be observed.

(1) Losses, including deficiencies of capital, shall be paid out of profits, next out of capital and lastly, if necessary, by the partners individually in the proportions in which they were entitled to share profits. (Sec. 48(a)) )

55 56

just and equitable Deficiencies of Capital

56

57

75

(2) The assets of the firm, including any sums contributed by the partners to make up deficiencies of capital shall be applied in the following order: )

(i) In paying the debts of the firm to third parties;

(ii)

In paying to each partner ratably what is due to him from the firm for advances as distinguished from capital;

58

(iii)

In paying to each partner ratably what is due to him on account of capital;

59

57

Losses Advances 59 Ratio 58

76

(iv)

The residue, if any, shall be divided among the partners in the proportions in which they were entitled to share profits. (Sec 48 (b))

(3) When there are joint debts due from the firm and also separate debts due from any partners, the property of the firm shall be applied in the first instance in payment of the debts of the firm and, if there is any surplus, then the share of each partner shall be separate property of any partner shall be applied first in the payment of his separates, and the surplus, if any, in the payment of the debts of the firm. (Sec. 49)

There we see that when the partnership assets are not sufficient to pay of the joint debts of the firm the creditors of the firm can have received from the partner's separate property only after his separate creditors have been paid. A partner is not entitled to assist of the firm before proceeding against the partners individually. In order to discharge the joint debts of the firm after its dissolution each partner has assisted jointly if surplus is remained.

77

1.9.3 Sale of Goodwill after Dissolution

The term "goodwill" is not defined in the Act expressly. Goodwill is properly a commercial term, which is very easy to describe but very difficult to define.

It is a commercial term signifying the value of the business in the hands of a successor. It is something more than the mere chance or probability of old customers maintaining their connection thought this is a material part of the practical fruits. It may be summed up as "the whole advantage, whatever it may be, of the reputation and connection of the firm. In valuing the goodwill the Court should set such a value upon it as existing on the day of the dissolution.

Goodwill shall be included in the assets subject to contract between the partners and may be sold either separately or along with other properties of the firm settling the accounts of the firm.1

1

Section 55(1) of the Partnership Act

78

၅၅

]

Where the goodwill of a firm is sold after dissolution, a partner may carry on a business competing with that of the buyer and he may advertise such business.

but subject to agreement between him and the buyer he may not-

(a)

use the firm name;

(b) represent himself as carrying on the business of the firm, or

(c ) solicit the custom of persons who were dealing with the firm before its dissolution. (Sec. 55 (2))

However, any partner may, upon the sale of goodwill of a firm, make an agreement with the buyer that such partner will not carry on any business similar to that of the firm within a specified period or within specified local limits. Such an agreement shall be valid if the restrictions imposed are reasonable, notwithstanding that the agreement may amount to restraint of trade under Section 27 of the Contract Act.1

1

Section 55(3) of the Partnership Act

79

၅၅

]

Therefore, what goodwill means must depend on the character and nature of the business to which it is attached: it is composed of a variety of elements and is bound to differ in its composition in different trades and in different businesses in the same trade. One element may preponderate in one business and another in another business. Section 14 of the Partnership Act is laid down specially that goodwill of a business is, subject to contract between the parties, to be regarded as property of the firm. It may be sold either separately or along with other property of the firm.

1.9.3.1 Rights of Buyer and Seller of Goodwill

The goodwill of the business of a firm forms part of the property of the firm2 and therefore subsection (1) of the Section 55 is laid down that subject to contract between the partners, in settling the accounts of a firm after dissolution, the goodwill shall be included into the assets of the firm, and if may be sold either separately or along with other property of the firm. Where the goodwill of a firm is sold after dissolution;

2

Section 14 of the Partnership Act

80 60 61

၅၅

]

*

Rights of seller are as follows:-

(1) a partner may carry on a business competing with that of the buyer, and

(2) he may also advertise such business, but the seller (i) must not use the firm name; (ii) must not represent himself as carrying on the business of the firm, and (iii) must not solicit the customers of the old firm.

60

Trade Mark Assets of the firm * (21. C.W.N. 632) 61

81

Rights of the buyer are as follows:-

(i)He can use the firm name;

(ii)

He can claim the benefit of any convenient by a partner not

to carry on a competing business;

(iii)

He can trade as his vendor's successor.

1.10 Registration of a Firm

The Partnership Act has made no registration of firms compulsory of it has imposed any penalties for non-registration. It has only imposed certain disabilities on unregistered firms: but disabilities are such that a trading firm is obliged to get itself registered sooner or later.

On the other hand non-registered firms are legal associations as registration of the firm is not compulsory under the Partnership Act. But non-

82

registration of partnership gives rise to a number of disabilities which have a persuasive pressure for its registration.

In Myanmar Naing-Ngan, under the Section 56 of Partnership Act, the President of the Union may, by notification in the Gazette, direct that the provisions of Chapter VII, (Myanmar Gazette, 1956, Part I, Page 723), shall not apply to the Union of Myanmar, except the towns of Yangon, Mandalay, Mawlamyaing, Kyaukphyu, Pathein and Dawae; if the partnership firms are established in these areas, they shall be needed registration. Therefore, the firms established in Myanmar Naing-Ngan do not need to be registered, except the above six towns specified in notification. ၅ ၅

83

*

၅

62

၅ * 62

Conclusive Evidence

84

၅

*

၅

**

*

**

(

)

(

)

( ) K. Ghellabhai & Co. V, Churial & Harakchan Co. & another, 1941.

( R.L.R. 219

)

85

1.10.1 Application for Registration Section 58 (1)The registration of a firm may be affected at any time by sending by post or delivering to the Registrar of the area in which any place of business of the firm is situated or proposed to be situated, a statement in the prescribed form and accompanied by the prescribed fee, stating: ၅

(a)

the firm name,

(b)

the place or principal place of business of the firm,

(c)

the names of any other places where the firm carries on business,

(d)

the date when each partner joined the firm,

(e)

the names in full and permanent address of the partners. and

86

(F)

the duration of the firm.1

The statement shall be signed by all the partners or by their agents specially authorized in this behalf. 2

(2) Each person singing the statement shall also verify it in the manner prescribed.

(3) Afirm name shall not contain any of the following words, namely: "Crown" "Emperor" "Empress" "Empire" "Imperial" "King" "Queen" "Royal" "President" "Union" or words expressing or implying the section, approval or patronage of the Government of the Union of Myanmar, except when the President of the Union signifies his consent to the use of such words as part of the firm name by order in writing.

1 2

Section 58 of the Partnership Act Section 59 of the Partnership Act

87

Section 59 When the Registrar is satisfied that the provisions of section 58 have been duly complied with, he shall record an entry of the statement in a register called the register of firms, and shall file the statement.

၅ ၅

When an alteration is made in the firm name of in the location of the prinaipal place of business of a registered firm, a statement may be sent to the Registrar accompanied by the prescribed fee, specifying the alteration, and signed and verified in the manner required under section 58.

1.10.2 Effect of Registration

88

Any statement, intimation or notice recorded or noted in the register of firms shall, as against any person by whom or on whose behalf such statement, intimation or notice was signed, be the conclusive proof of any fact therein stated.3

A certified copy of an entry relating to a firm in the Register of Firms may be produced in proof of the fact of registration of such firm, and of the contents of any statement, intimation or notice recorded or noted therein. 4

Section 70 of the Act imposes a penalty of fine and imprisonment for furnishing false or incomplete particulars in any statement or document sent to the Registrar. Thus when once a firm is registered the Register of Firms will continue to contain a complete, correct and up-to-date list of all partners who will be liable for the debts of the firm, and the statements recorded in the Register would afford a strong protection against false denials of partnership and the evasion of liability to persons who propose to deal with the firm.

3 4

Section 68 (1) of the Partnership Act Section 68 (2) Ibid

89

Therefore, a partner of registered firm has the right to sue et een the hich ere decided in the case of

1

as follows:-

*

၅

63

1

1967. B.L.R (C.C) 383

* 63

Conclusive Evidence

90

၅

၅

So, the effect of registration of the firm according to the Act is so great. The registration of a firm may be affected at any time by sending by post or delivering to the Registrar of the area in which any place of business of the firm is situated, a statement in the prescribed form. And a partner of registered firm has the right to sue between the other partners of the firm in according to mention above.

91

1.10.3

Effects of Non-registration

As already stated registration of firm is not made compulsory under Section 69 of this Act, but if a firm carries on business without it being registered, the non-registration creates the following disabilities:

(1)

No suit to enforce a right arising from a contract or conferred by this Act shall be instituted in any court by or on behalf of any person suing as a partner in a firm against the firm or any person alleged to be or to have been a partner in the firm unless the firm is registered and the person suing is or has been shown in the register of the firm as a partner in the firm. (Sec. 69 (1))

92

(2)

No suit to enforce a right arising from a contract shall be instituted in any Court by or on behalf of a firm against any third party unless the firm is registered and the persons suing are or have been shown in the register of firms as partners in the firm. (Sec. 69 (2))

(3)

The Provisions of Sub-section (1) and (2) shall apply also to a claim of setoff or other proceeding to enforce a right arising from a contract, but shall not affect ; (a)the enforcement of any right to sue for dissolution of a firm or for accounts of a dissolved firm, or any right or power to realize the property of a dissolved firm,or

93

(b) the powers of the assignee, receiver or Court under the Yangon Insolvency Act or the Myanmars Insolvency Act to realize the property of an insolvent partner.

hair sarulla

* 64

*

Khair Diu v. Absarulla. 1963. B.L.R. (C.C) 12 Promssory Note 65 Third Party 64

65

in

94

Therefore, in the case of 1

, it was also decided the effects of non-

registration as follows:*

၅

So, a partner of an unregistered firm cannot sue except the provisions of Section 69 (3) of the Partnership Act.

However, this section shall not apply-

(a)

to the firms or the partners in firms which have no place of business in the Union of Myanmar, or whose places of business in the Union of Myanmar are situated in areas to which by notification of under Section 56, this chapter does not apply, or

1 *

1966 B.L.R. (C.C) 598 ၅

95

၅

(Section 69(4-1))

96

Key Terms Partnership – Partners firmfir

na e -

rdinary Partnership Partnership at- ill Particular Partnership -

implied authority oint-de tors oint- creditors Partnership stoc -

reconstitution of a firm nsolvency Liabilities Disabilities Retirement Expulsion Remuneration Dissolution o pulsory issolution ood ill -

97

EXERCISE QUESTIONS 1. 2.

efine the ter

“Partnership”.

What are the essential elements of Partnership? Discuss briefly on each of them.

3.

Distinguish between a firm and a company.

4.

"Partnership does not arise from status but comes up from contract." Discuss.

5.

Distinguish between Partnership and Joint Hindu Family.

6.

What do you mean by the term "Property of the Firm"?

7.

How will you determine whether a person is or is not a partner in a firm?

8.

Explain what property includes in the "property of the firm."

9.

Write short notes in the following:(1) Ordinary Partnership (2) Partnership at-will (3) Particular Partnership

10.

State the law relating to "holding-out" under the Partnership Act.

11.

What is the legal effect when a minor is held out as a partner? Explain.

12.

State the rights, liabilities and disabilities of a minor in firm.

13.

Discuss the liabilities of a partner to third parties.

14.

What do you mean by "reconstitution of a Firm? State the rights and liabilities of an incoming partner.

15.

What do you mean by "Dissolution of a Firm"? Answer.

16.

State the circumstances under which a firm is compulsory dissolved.

17.

What are the different modes in which a firm may be dissolved? State in brief.

98

18.

What circumstances under which and how may the court dissolve a partnership of the suit of a partner?

19.

When can partnership be dissolved by the court?

20.

State briefly the rights and obligations of a partner after dissolution.

21.

Explain the mode of settling of accounts between partners regarding losses of the firm.

22.

State the rights of a buyer and seller of the goodwill of a firm after dissolution.

23.

State briefly what ways a Partnership can be dissolved.

24.

State briefly the effect of non-registration of a firm under the Partnership Act.

25.

Explain the effect of non-registration of a partnership firm.

26.

State the law relating to registration of a firm.

27.

Can a Partnership business be conducted without registration? State the effect of non-registration of a Firm.