Partnership Law and Legal Issues in Bangladesh

By Miss Jesy Chakma

Partnership is defined in the Partnership Act, 1932 is the relation between persons who have agreed to share all carry the profits of a business or acting for all. Persons who have entered into a partnership with another called individually ‘partners’ and collectively ‘firm.’ The name under which their business is carried on is called ‘firm name.’ The definition of partnership contains three elements, and they must be present to create a partnership (sec-4).
1. There must be an agreement entered by all the partners. A contract creates a partnership, and that may arise by the operation of law. This operation of law may occur by joint ownership/co-ownership but not partnership. On the death of a partner, his children may inherit the family property, and business and equally may share the business property, but not for the reason that they are partners. The heir can inherit the business property, including goodwill, but they do no become partners until there is an agreement to carry the business as partners.
2. The object of the agreement or contract is to carry on a business. Where there is no combination to carry on the business, there is no partnership. To make a valid partnership, there has a plan of business where all the partners make a profit. The purpose of business partners is expected to be on a legal contract.
3. The business must be carried by all or one of them is acting for all. But all the partners have the right to carry on the business. In the contract of partnership, there is an implied agency; each partner is an agent to each other. Any person can enter into a partnership if he/she has the capacity since collaboration cannot be created without an agreement. A person with an ‘unsound mind’ cannot be a partner.

Co-Ownership/ Joint Ownership
A co-owner is not the agent of the other owners. The right of co-ownership cannot be affected by the act done by the owners. The operation of law arises as a co-owner. And he/she can transfer the interest to any third party without the consent by the other co-owners.

Partner Rights and Liabilities:

An agreement by the partners creates partnership; they share mutual rights and responsibilities. So there needs to be consent by all partners in the interest of a business. However, such contracts are subject to the Partnership Act, 1931. Under general duties, partners are bound to carry on the business of the firm to the most significant common advantage. They ought to be faithful to each other with full information of all things affecting the firm to any partners of his legal representatives (sec-9). This section contemplates the relationship as one of ‘utmost good faith,’ though partners are not trustees for one another. In some cases, the relationship between partners is held of a fiduciary character. To conclude, every partner is liable to indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm (sec-10).
There are some rules between partners in the conduct of management:
a) This is a right entitled to every partner to take part in the management of the partnership business.
b) Every partner has the right to access to examine and copy books of accounts of the business.
c) No change can be made like a business without consent from all partners.
d) Every partner must attend diligently to the business of the firm (sec-13).
The partners may distribute the work of management among themselves in any way they want. There may be a partner who takes no part in the part of the business. The contract of a partnership may provide that he/she will not carry on any business other than that of the firm while he is a partner, and such agreement is not void on the ground of in restraint of trade [sec-11(2)]. It is a personal right by the partner to take part in the business, which cannot be claimed by the assignee during the continuance of the firm.

Minor’s Partnership in Terms of Business:

Partnership can only be created by an agreement under the Partnership Act 1932. However, a minor can be involved in the benefits of business with consent by all partners, but he cannot be a partner. Meanwhile, a minor can share the property and profits of the firm, which will be regulated by the agreement between the partners. But the minor has the privilege of access to the accounts of the firm, even not being a partner. [Sec 30(1) & (2)].
A minor is involved in the benefits of the firm, he might not personally be liable, but his share in terms of business is liable in the act of the firm. He cannot sue his partners for an account, payment share of his property, or profits of the firm, but he may do so only when he is serving his connection with the firm. [Sec-30, (3) & (4)]. Law prescribes that within six months of attaining his majority, he has to give a public notice intimating his intention to become a partner. If he fails to give notice, he shall be a partner after the expiry of six months [sec-30, (5)]. After attaining the majority and he becomes a partner, his liabilities will be the same as the other partners.

Retirement of a Partner: 

a) A partner may retire from a partnership with the consent of all the partners or,
b) Under an agreement by the partners.
c) By giving notice in writing to all the partners. (Sec 32, I).
d) A retiring partner has to give public notice of his retirement.
The expulsion of a partner is possible. Such power is given in the Deed of Partnership, and this has been used in ‘Good Faith.’ In the position of law, expelling a partner is the same as the retiring partner.
In the term of Bankruptcy of a Partner, he ceases to be a partner from the date of such adjudication, whether or not the firm is thereby to be dissolved. If it is provided in the Deed of Partnership, the bankruptcy of a partner will not dissolve the partnership business.
The death of a partnership has the effect of dissolving the firm. The continuing the firm, even after the death of the partner, needs to agree on this by the other partners.

Dissolution Mode and Liabilities for Acts Done After the Dissolution: 

A dissolution of partnership of a firm can be done by the consent of agreement by all the partner’s accordance with the contract between the parties. A firm dissolution can be happening automatically, a) by the adjudication of all the partners or all but one as bankrupt or b) any event which makes it an unlawful business of the firm is being carried on. There also circumstances that a partner has become unsound mind and that insanity must consist of a permanent nature. After the dissolution of a firm person dealing with its partners is entitled to assume that they continue to be each other’s agents until notice is given of the dissolution. However, in order to exempt partner from the liability to third parties for any act done by any of them subsequent to the dissolution. The partners must give public notice of dissolution so that customers may know that they are no longer working with the old firm.
In the Partnership Act, 1932 has provided the registration of a partnership firm, but registration is not mandatory. Non-registration does not make any partnership agreement or any transaction between the parties or third parties. A partner cannot sue the other partner under the law for the dissolution of the partnership unless the partnership is registered. Similarly, a firm cannot file a suit against a third party to enforce a contractual right. So in certain circumstances, a partnership firm necessary to register as a partnership firm.

Partnership is defined in the Partnership Act, 1932 is the relation between persons who have agreed to share all carry the profits of a business or acting for all. Persons who have entered into a partnership with another called individually ‘partners’ and collectively ‘firm.’ The name under which their business is carried on is called ‘firm name.’ The definition of partnership contains three elements, and they must be present to create a partnership (sec-4).

1. There must be an agreement entered by all the partners. A contract creates a partnership, and that may arise by the operation of law. This operation of law may occur by joint ownership/co-ownership but not partnership. On the death of a partner, his children may inherit the family property, and business and equally may share the business property, but not for the reason that they are partners. The heir can inherit the business property, including goodwill, but they do no become partners until there is an agreement to carry the business as partners.
2. The object of the agreement or contract is to carry on a business. Where there is no combination to carry on the business, there is no partnership. To make a valid partnership, there has a plan of business where all the partners make a profit. The purpose of business partners is expected to be on a legal contract.
3. The business must be carried by all or one of them is acting for all. But all the partners have the right to carry on the business. In the contract of partnership, there is an implied agency; each partner is an agent to each other.

Any person can enter into a partnership if he/she has the capacity since collaboration cannot be created without an agreement. A person with an ‘unsound mind’ cannot be a partner.

 

Co-Ownership/ Joint Ownership

A co-owner is not the agent of the other owners. The right of co-ownership cannot be affected by the act done by the owners. The operation of law arises as a co-owner. And he/she can transfer the interest to any third party without the consent by the other co-owners.

Classes of Partners

In terms of customs and usages in our region (British India) partners may be classified as-

• Active partners
• Nominal partner
• Sub-Partner

An active partner is one who participates in the business of the firm. Whereas a partner who joins the firm by agreement by do not take any part in the management of the firm known as nominal partners. But their liabilities are similar to the active partner. A sub-partner is the transferee of as share of partner’s interest in a firm. He/she is an owner with 25% of a firm.

 

Partner Rights and Liabilities

An agreement by the partners creates partnership; they share mutual rights and responsibilities. So there needs to be consent by all partners in the interest of a business. However, such contracts are subject to the Partnership Act, 1931. Under general duties, partners are bound to carry on the business of the firm to the most significant common advantage. They ought to be faithful to each other with full information of all things affecting the firm to any partners of his legal representatives (sec-9). This section contemplates the relationship as one of ‘utmost good faith,’ though partners are not trustees for one another. In some cases, the relationship between partners is held of a fiduciary character. To conclude, every partner is liable to indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm (sec-10).

There are some rules between partners in the conduct of management:

1. This is a right entitled to every partner to take part in the management of the partnership business.
2. Every partner has the right to access to examine and copy books of accounts of the business.
3. No change can be made like a business without consent from all partners.
4. Every partner must attend diligently to the business of the firm (sec-13).

The partners may distribute the work of management among themselves in any way they want. There may be a partner who takes no part in the part of the business. The contract of a partnership may provide that he/she will not carry on any business other than that of the firm while he is a partner, and such agreement is not void on the ground of in restraint of trade [sec-11(2)]. It is a personal right by the partner to take part in the business, which cannot be claimed by the assignee during the continuance of the firm.

 

Minor’s Partnership in Terms of Business

Partnership can only be created by an agreement under the Partnership Act 1932. However, a minor can be involved in the benefits of business with consent by all partners, but he cannot be a partner. Meanwhile, a minor can share the property and profits of the firm, which will be regulated by the agreement between the partners. But the minor has the privilege of access to the accounts of the firm, even not being a partner. [Sec 30(1) & (2)].

A minor is involved in the benefits of the firm, he might not personally be liable, but his share in terms of business is liable in the act of the firm. He cannot sue his partners for an account, payment share of his property, or profits of the firm, but he may do so only when he is serving his connection with the firm. [Sec-30, (3) & (4)]. Law prescribes that within six months of attaining his majority, he has to give a public notice intimating his intention to become a partner. If he fails to give notice, he shall be a partner after the expiry of six months [sec-30, (5)]. After attaining the majority and he becomes a partner, his liabilities will be the same as the other partners.

Retirement of a Partner

1. A partner may retire from a partnership with the consent of all the partners or,
2. Under an agreement by the partners.
3. By giving notice in writing to all the partners. (Sec 32, I).
4. A retiring partner has to give public notice of his retirement.

The expulsion of a partner is possible.  Such power is given in the Deed of Partnership, and this has been used in ‘Good Faith.’ In the position of law, expelling a partner is the same as the retiring partner.

In the term of Bankruptcy of a Partner, he ceases to be a partner from the date of such adjudication, whether or not the firm is thereby to be dissolved. If it is provided in the Deed of Partnership, the bankruptcy of a partner will not dissolve the partnership business.

The death of a partnership has the effect of dissolving the firm. The continuing the firm, even after the death of the partner, needs to agree on this by the other partners.

 

Dissolution Mode and Liabilities for Acts Done After the Dissolution

A dissolution of partnership of a firm can be done by the consent of agreement by all the partner’s accordance with the contract between the parties. A firm dissolution can be happening automatically, a) by the adjudication of all the partners or all but one as bankrupt or b) any event which makes it an unlawful business of the firm is being carried on. There also circumstances that a partner has become unsound mind and that insanity must consist of a permanent nature. After the dissolution of a firm person dealing with its partners is entitled to assume that they continue to be each other’s agents until notice is given of the dissolution. However, in order to exempt partner from the liability to third parties for any act done by any of them subsequent to the dissolution. The partners must give public notice of dissolution so that customers may know that they are no longer working with the old firm.

Partnership Act 1932  prescribe process for the the registration of a partnership firm, but registration is not mandatory. Non-registration does not make any partnership agreement or any transaction between the parties or third parties.  In case of unregistered partnership, one partner cannot sue another under the Partnership Act.  Similarly, a firm cannot file a suit against a third party to enforce a contractual right. So it is advisable to register the Partnership under the Act.