Indian Partnership Act, 1932 – CS Foundation Business Law Notes

Indian Partnership Act, 1932 – CS Foundation Business Law Notes

Introduction:

1. Law relating to partnership in India was first contained in Chapter XI of the Indian Contract Act, 1872.
2. Indian Partnership Act, 1932, came into existence (with effect from) 1^st October, 1932 except Section 69, which came into force on the 1^st October, 1933.
3. It extends to the whole of India except the State of Jammu and Kashmir.
4. Later, on 1^st October, 1932 Indian Partnership Act, 1932 came into force.
5. This Act deals partly with the rights and duties of partners between themselves and partly with the legal relations between partners and third persons.
6. It can be regarded as a branch of law relating to principal and agent.

Partnership:
As per Sec. 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.”

Essentials:

• It must be a result of an agreement between two or more persons to do a business.
• It is voluntary in nature.
• Agreement must be to share the profits of business.
• Business must be carried on by all or any of them acting for all.
• All the above essentials must co-exists before any partnership comes into existence.
• Relation of partnership arises from contract and not from status.
• Agreement may be express or implied.
• As per Sec. 2 (b),
• “Business includes every trade, occupation and profession.”
• Profit means the excess of return over advances.
• Sharing of profits includes sharing of losses.
• Sharing of profits is a prima facie evidence of the existence of partnership, this is not the conclusive test of the same.

True Test of Partnership:

• The Relation of mutual agency is the conclusive test of partnership.
• Mutual agency is the basic and most essential thing for partnership.
• Sharing of profit also involves sharing of loss.
• Sharing of profits is not a conclusive test of existence of partnership.
• Every partner is a principal and agent for him self and others.
• Agency relationship is the most important test of partnership.
  

Exceptions to Partnership Formation:

• Minor may be admitted to benefits of partnership with the consent of all partners.
• No consideration is required to create it.

Partners, Firm and Firm’s Name:

• Persons who enter into partnership with one another are individually called partners and collectively called firm.
• Firm cannot use the words “limited” in its name.

Partnership deed:

• The Firm name and business to be carried on under that name
• Names and Address of partners
• Nature and Scope of business and address(s) of business place(s)
• Commencement and Duration of partnership
• The Capital and the contribution made by each partner
• Provision for further capital and loans by partners to the firm.
• Partner’s drawings
• Interest on capital, loans, drawings and current account
• Salaries, commission and remuneration to partners
• Profit (or loss) sharing ratio of partners’
• The keeping of proper books of accounts, inspection and audit, Bank accounts and their operation
• The accounting period and the date on which that accounts are to be prepared
• Rights, powers and duties of the partners
• Whether and in what circumstances, notice of retirement or dissolution can be given by a partner
• Provision that death or retirement of a partner will net
• Valuation of goodwill on retirement, death, dissolution etc
• The method of valuation of assets (and liabilities)
• Provision for expulsion of a partner
• Provision regarding the allocation of business activities to be performed by individual partners’
  The arbitration clause for the settlement of disputes.
• It constitutes the mutual rights and obligations of partners in a written form.
• It is also known as partnership agreement, constitution of partnership or articles of partnership etc.
• It must be drafted and stamped as per the provisions of the Indian Stamp Act.

Classification of Partnership:
(1) Particular Partnership (Section 8): A person may become a partner with another person in a particular adventure or undertaking on for a particular period, such a partnership is called “Particular Partnership”.

(2) Partnership at Will (Section 7): ‘Where no provision is made by contract between the partners for the duration of their partnership or for the determination of their partnership, the partnership is called Partnership at Will”.

A partnership is deemed to be a partnership at Will when:

• No fixed period has been agreed upon for the duration of partnership.
• There is no provision made as to the determination of partnership in any other ways.

Co-ownership: “Co-ownership is a legal concept in a business where, there are only two ‘Co-owners’ share the legal ownership of a property”

• Co-ownership necessarily not involve community of profit and loss
• Co-owner can transfer his rights and interests to strangers without the consent of the others
• Co-owner can ask for division of property in specie
• Co-owner has no lien on the property.

Hindu Undivided Family / Hindu Joint Family Firm: A joint Hindu family firm is a business concern which operates under the provision of the Hindu Law and Hindu Succession Act, 1956.

• Head of the family is known as Karta
• Member of HUF are known as co-parceners
• Liability of each partner is limited except Karta
• A minor is also a co-parcener from the every day of his birth by virtue of his status
• No registration of a family firm is necessary
• No fixed share in business, it may be enlarged by death or reduce by birth in the family.

Company:
It is governed under Companies Act, 2013 and other previous Acts.

• Separate legal entity
• Limited liability
• Perpetual succession
• Separate property
• Separate management.

Active/Actual/Ostensible/Working/Managing Partner:

• He is not only contributing capital but also takes active part in the conduct of firm’s business.
• He shares its profits and losses.
• As per Sec. 12 (a),
• “Subject to contract between the partners, every partner is entitled to take part in the conduct of business of firm.”
• He has to give public notice of his retirement if he has to free himself from all liabilities.

Sleeping/Dormant Partner:

• He only contributes capital and share profit/loss without taking active part in the firm’s business.
• He has unlimited liability.
• He can retire from the firm without giving any public notice.
• He is entitled to access books and accounts of the firm, even though he performs no duty.

Sub Partner:

• He is third person with whom a partner shares his profit.
• He has no rights and duties towards the firm.

Nominal/Quasi Partner:

• He only lends his name and reputation for the firm’s benefit without sharing any profit/loss.
• He is known to outsiders as partners but actually he is not.
• He is liable to third party for all his acts.
• He is required to give public notice on retirement.

From duration point of view partnership may be:

• Particular Partnership – i.e. for a particular purpose or for particular undertaking or single venture.
• Partnership at will – No fixed duration or time period of partnership. It is dissolved by partner by giving notice in writing.

Partner in profits only:

• He gets a share in profits but does not share any losses of the firm.
• He has to bear all the liabilities to third party.

Partner by estoppel:

• He is not a partner of the firm but conducts himself in such a way which leads third party to believe that he is a partner.
• He is liable for all the debts to such third party.

Partner by holding out:

• He is declared by others as a partner of the firm but does not contradict it immediately and remains silent.
• He is liable to third party who is entering into contracts with firm on belief of he being the partner.
• Holding out means ‘to represent’
• It is based on the doctrine of Estoppel of Indian Evidence Act.

Exceptions:

• It does not apply to cases of torts committed by partners.
• It does not extends to bind the estate of a deceased partner.
• It does not apply if such partner is declared as an insolvent.

Minor’s Position in Partnership:

• Minor is a person who has not completed 18 years of age, thus cannot become a partner as he is not competent to contract.
• As per Sec. 30,
• He can however, be admitted to the benefits of partnership with the mutual consent of all partners.
• No partnership firm can be formed only with minors.
• A minor’s agreement is altogether void.
• If a minor has to be admitted into the benefits of partnership, there must be atleast 2 major partners.

Rights of Minor:

• Sec. 30(2): share profits of the firm.
• Sec. 30(2): Inspect and copy the book of accounts of the firm.
• Sec. 30(4): Can file a suit for accounts and his share in the firm but only when severing his connection with the firm.
• Sec. 30(5): Admitted to the benefits to during his minority within six months of attaining the age of majority or when he comes to know of his being so admitted.
  

Liabilities of Minor:
1. Sec. 30(3): His liability is limited to the extent of his share in the firm.

2. Sec. 30(3): He is liable for all acts of the firm but he is not personally liable.
(i) Within 6 months of his attaining majority or

(ii) On his obtaining the knowledge of he been admitted to the benefits of partnership, whichever is later he may give a public notice of not electing to become a partner.

Relation of Partners to one another:

• It arises through an agreement which provides for the rights and duties of partners.
• If articles are silent, rights and duties are governed by the Act.

Rights of Partners:

• To take part in management. [Section (2) (a)]
• To Express Opinion.
• To Inspect and to take out copies of Books of Accounts.
• To Share Profits equally.
• To have Interest on capital.
• To have Interest on Advances.
• Right to be indemnified.
• To have a joint share in the partnership property.
• To enforce the proper use of property.
• Right of Retirement.
• To prevent the introduction of new partner.
• Implied Authority.
• Right to Dissolve.
• Profits after retirement or death.

Duties and Liabilities of Partner:

• To carry on the business of the firm to the Greatest Common Advantage.
• Being diligent and honest.
• Being just and faithful.
• To render accounts and information.
• To indemnify the firm.
• Not to make any secret profits.
• Not to hold and use property of the firm.
• Not to start business in competition with the firm.
• Not to receive any remuneration.
• Not to transfer his interest.
• To act within the scope of his authority.
• To share losses.

Partnership Property (Sec. 14):

• It is also known as “property of the firm”, “partnership assets”, “joint stock”, “common stock”, “joint estate:”
• It represents the property to which all partners are entitled collectively.
• Every partner is a joint owner of partnership property.
• Every partner is entitled to hold and apply the same exclusively for business purpose.

It includes:

• All property, rights and interests which partners may have brought into the common stock as their contribution.
• All property, rights and interests which are acquired or purchased by the firm in the course of business.
• Goodwill of the business.

Relevant Case Law:
Narayanappa V. Bhaskaia Krishnappa

A partner’s property being used for firm’s business, does not automatically makes it a firm’s property.
Relevant Case Law:
Lachhman Dass V. Mrs. Gulab Devi

Goodwill:

• Goodwill is defined as the value of the reputation of a business house in respect of profits expected in future over and above the normal profits.
• It is a partnership property.
• In case of dissolution of firm, every partner has a right according to the deed in the absence of any agreement, to have a share in the goodwill on it being sold.
• It can be sold separately, or along with other properties of the firm.

Buyers Rights include:

• Representing himself in business continuation.
• Maintaining his exclusive rights of business continuation.
• Soliciting former customers and restraining the seller from it.

Changes in a Firm:

• Sec. 31: when a new partner comes in i.e. when some partner or partners go out
• Sec. 32: by retirement
• Sec. 33: by expulsion
• Sec. 34: by adjudication as an insolvent
• Sec. 35: by death
• Where partnership firm carries on the business other than the business for which it was originally formed.
• Where partnership business is carried on after the expiry of the term fixed.

Rights and Duties of Partners after change in the Firm’s Constitution (Sec. 17):

• If change occurs in any of the 3 ways mentioned above-rights and duties remains same.
• If firm continues its business after the expiry of fixed term – rights and duties remains same so long they are consistent with the incidents of partnership at will.
• If firm carries out ventures or undertakings other than for which it was formed, rights and duties for partners remain same as those in respect of original ventures.

Relation of Partners to Third Parties – As Agents of the firm (Sec. 18):

• Every partner is the agent of the firm for the purpose of business of the firm.
• Every partner is both the principal and agent.
• The law of partnership is regarded as the branch of law of agency.

Act of Every Partner binds the firm and Other Partners unless:

• Acting partner has no authority to act for the firm in such matter.
• Person with whom he is dealing knows that he has no authority.
• Believes such person to be a partner.

Authority of a Partner:
If refers to the capacity of a partner to bind the firm by his act.

Conditions for Implied Authority:

• Act must relate to normal business of the firm.
• Act must be done in the usual way of carrying on the firm’s business.
• Act must be done in the firm’s name.

Acts within Implied Authority (Expenses authority):

• To buy, sell and pledge goods on behalf of the firm.
• To raise loans on Security of such assets.
• To receive payments of debts due to the firm.
• To accept, make and issue bill of exchange etc. on firm’s behalf.
• To engage servants for the firm’s business.
• To take on lease a premises on firm’s behalf.

Acts Beyond Implied Authority [Sec. 19(2)]:

• Submission of dispute relating to business of firm to arbitration.
• Opening a bank account on firm’s behalf in his own name.
• Comprising or relinquishing any claim or portion of claim against third party by firm.
• Withdrawing a suit or proceedings filed on behalf of firm.
• Admitting any liability in a suit or proceedings against the firm
• Transferring immovable property of the firm.
• Entering into partnership on firm’s behalf.

Extension and Restriction of Partner’s Implied Authority (Sec. 20):

• The partners may either extend or restrictive the implied authority of any partner by contract between them.
• Third party is not effected by a secret limitation of a partner’s implied authority unless he had actual notice of it.
• All partner’s consent is required for it.

Acts in Emergency (Sec. 21):
Subject to provisions of Sec 20, each partner binds the firm by all acts done in the case of emergency, with a view to protect the firm from any loss provided. As he has acted as a man of ordinary prudence.

Notice to an Acting Partner (Sec. 24):

• Notice to a partner, who acts in a firm’s business, on matters relating to firm’s affairs, operates as a notice to the firm except in case of a fraud.
• Notice must be actual and not constructive.

Liabilities to Third Parties (Sec. 25 to 27):

• Sec. 25: Contractual Liability : Every partner is liable jointly and severally for all acts or omissions binding the firm while he is a partner.
• Sec. 26: Liability for tort or wrongful act:(generally other partners are not liable for one partners torts but where tort is committed by authority of other partners then partners are liable)

The firm is liable to the same extent as the partner for any loss or injury caused to the third party by wrongful acts of partner, if they are done by partner acting –

• in ordinary course of business
• with partner’s authority.

Sec. 27: Liability for misappropriation by a partner:

• When a partner, acting within his apparent authority, receives money or other property from a third person and misapplies it, or
• Where a firm, in business course, received money or property from third party and is misapplied by a partner, while it is in firm’s custody is liable to make good the loss.

Liability of Incoming Partner [Sec. 31(2)]:

• Liability of new partner ordinarily commences from the date of this admission.
• He can also agree to be liable for obligations incurred prior to that date by the firm.
• New firm constituted, may agree to assume liability for existing debts of old firm.
• Creditors may agree to accept the new firm as their debtor and discharge the old partners.
• Creditors consent is necessary.

Novation refers to a tripartite agreement between:

1. Firm’s creditor
2. Partners is existing at the time when debt was incurred.
3. Incoming partner.

Liabilities of outgoing or Retiring Partner (Sec. 32):

• Liability of such partner continues until a public notice of his retirement has been given.
• He remains liable for the firm’s acts done before his retirement, unless there is any agreement made.
• He may be discharged by novation.

Insolvency of a Partner (Sec. 34):

• Such a partner ceases to be a partner on the date of the order of adjudication.
• His estate ceases to be liable for any act of the firm done after that date of order.
• Firm is also not liable for any act of such a partner after such date.

Death of a Partner (Sec. 35):
1. If the firm is not dissolved, the estate of deceased partner is not liable for act of the firm after his death.

2. Modes of Effecting Registration:

• By Sending post, or
• By delivering a statement in prescribed form to the Registrar of the area, in which any place of business of firm is situated or proposed to be situated.

Statement must include:

• Firm’s name,
• Principal place of business,
• Other places of business,
• Date of joining of each partner,
• Partner’s full name and addresses
• Firm’s duration.

3. Statement should be signed by all the partners.

4. Registrar on being satisfied, shall record this entry in his register of firms and shall file the statement.

5. Registrar then issues a certificate of Registration.

6. An unregistered firm is not an illegal association.

Effects of non-registration:
1. Indian Partnership Act does not make registration of partnership compulsory nor does it impose any penalty.

2. However, non-registration give rise to certain disabilities U/S 69:

• Firm or any person on its behalf cannot bring action against third party for breach of contract, unless firm is registered and persons suing are shown in register of firms.
• Neither firm nor any partner can claim set off if any suit is brought by the third party against the firm.
• Partner of unregistered firm cannot bring any action against the firm or any partner of such firm.
• Unregistered firm however can bring a suit for enforcing the right arising otherwise than out of contract.

Suits allowed by Act:

1. Dissolution of a firm.
2. Rendering accounts of a dissolved firm.
3. Realisation of property of a dissolved firm.
4. Set off of values not exceeding ? 100.
5. Proceeding arising incidentally of value not exceeding ? 100.
6. Firm not having business place in territories to which Indian Partnership Act extends.
7. Realisation of property of insolvent partner.
8. Firm having business place in areas exempted from the application of chapter VII of the Indian Partnership Act, 1932.

Relevant Case Laws:

• Prithvi Singh V. Hasan Ali
• Kashav Lai V. Chuni Lai

Dissolution of Partnership Firm (Sec. 39):

• It takes place when the relationship between all the partners of the firm is so broken so as to close the business of the firm.
• As a result, firm’s assets are sold and its liabilities are paid off.

Dissolution of Partnership:
It takes place when there is an extinction of relationship between same partners only.

Modes of Dissolution of Partnership:

• Sec. 42 (a): By expiry of fixed term for which the partnership was formed.
• Sec. 42 (b): By completion of venture.
• Sec. 42 (c): By death of a partner.
• Sec. 42 (d): By insolvency of a partner.
• Sec. 42 (e): By retirement of a partner.

Modes of Dissolution of Firm:

• Sec. 40: Result of an agreement between all partners.
• Sec. 41 (a): By adjudication of all partners, or declaration of all partners 5 as insolvent except one.
• Sec. 41 (b): By firm’s business becoming unlawful. Subject to agreement between parties, on happening of certain , contingent events.
• Sec. 43: In case of partnership at will, by a partner giving notice of his intention to dissolve the firm. Firm dissolves from the date mentioned in the notice. If no date is mentioned, then from date of communication of notice.

Sec. 44: By court intervention in case of:

1. A partner becoming unsound mind.
2. Permanent incapacity of partners to perform his duties.
3. Misconduct of partners effecting the business.
4. Willful or persistent breaches of agreement by a partner.
5. Transfer or sale of whole interest of a partner.
6. Improbability of business being carried on except at a loss.
7. Court being satisfied on other just and equitable grounds.

Consequences of Dissolution:
1. Continuing liability until public notice:
Partners continue to be liable for any act done by them, done on behalf of firm until public notice of dissolution is given.

2. Sec. 46: Rights to enforce winding up:
Partner or his representative have a right against others, on dissolution.

• Apply firm’s property in payment of firm’s debt.
• Distribute surplus amongst all partners.

3. Sec. 47: Continuing authority of partners:
Authority of partners continue:

• So for as necessary to wind up the firm,
• To complete the pending transactions till the dissolution date.

4. Sec. 48: Settlement of partnership accounts:
(i) Losses including capital deficiencies:

• Are first paid out of profits
• Then out of capital.
• Lastly by partners in their profit sharing ratio.

(ii) Assets including partner’s contribution are applied in following order:

• In paying debts of third parties
• In paying advances of each partner
• In paying capital of each partner
• The residue is distributed among partners in their profit sharing ratio.

If the assets are not sufficient, the partners have to bear the loss in equal shares.

Note: This rule is known as Garner V. Murray

5. Sec. 50: Personal profits earned after dissolution:
If surviving partners along with the representatives of deceased partner carry on firm’s business and earn some personal profits, it must be accounted for by them to other partners.

6. Sec. 51: Return on premium of partnership’s premature dissolution: On dissolution of partnership earlier than fixed period in all cases except:

• death of a partner.
• misconduct of partner paying premium.
• subject to agreement containing no provision for return of premium, the partner paying premium is entitled for the return of a reasonable part of premium.

Specific Performance of Partnership Agreement:
This is not allowed, as the working of a partnership depends upon the personal inclination of the partners.

Relevant Case Law:
Scott V. Raymont

Suit for Libel or Slander:

• It means a libel or slander of its partners.
• Such partners themselves file such suit.
• A firm cannot bring such suit.

Relevant Case Law:
PK Oswal Hosiery Mills V. Tilak Chand

Limited Liability Partnership:
Nature of LLP:

• Hybrid of Companies & Partnerships: Benefit of limited liability of company and flexibility of partnership.
• Separate Legal Entity: Continue its existence irrespective of changes in partners.
• LLP itself can enter into contracts and hold properties.
• Partner’s liability limited to the agreed contribution.
• LLP concept exist in UK, US, Australia, Singapore & various Gulf Countries.
• Based on Indian LLP Act based on UK LLP Act, 2000 and Singapore LLP Act, 2005.
• Professional & non-professional (Businessman) both can set up LLP.

Advantages of LLP:

• Separate legal entity
• Easy to establish
• Flexibility without imposing detailed legal and procedural requirements.
• Perpetual existence irrespective of changes in partners.
• Internationally renowned form of business in comparison to company.
• No requirement of minimum capital contribution.
• No restriction as to maximum number of partners.
• LLP & its partners are distinct from each other.
• Partner are not liable for Act of other partners.
• Personal assets of the partners are not expect in case of fraud.
• Easy to dissolve or wind-up.
• No requirement to maintain statutory records except Books of Accounts.
• Less Cost of Formation (Compared to company).

Disadvantages of LLP:

• LLP cannot raise funds from public.
• Any act of partner without the knowledge of other partners may bind the up.
• Under some cases, liability may extend to personal assets of partners.
• No separation of Management from owners.

Liability of Partners:

• There shall be personal liability of a partner for his own wrongful act or omission.
• A partner shall not be personally liable for wrongful act or omission of any other partner of the limited liability partnership.

Partner as Agent:

• Every partner of LLP is agent of the limited liability partnership for the purpose of the business of the limited liability partnership.
• A partner is not agent of other partners of LLP.

Contribution:

• A contribution of a partner may consist of tangible, movable or immovable or intangible property or other benefit to the limited liability partnership.
• Money, promissory notes, other agreements to contribute cash or property, contracts for services performed, contract of services to be performed are valid contribution.

Designated Partner:

• Designated partners are the partners who manages day to day affairs of LLP.
• Every LLP shall have at least two Designated Partners.
• Designated partners shall be individual.
• At least one of these designated partners shall be resident of India.

Partner:

• Any individual or body corporate may be a partner in a limited liability partnership.
• A person may be admitted as partner in the LLP in accordance with LLP agreement of that LLP.
• Usually name of partner is mentioned in LLP agreement.

Eligibility to be a Partner:

• On the incorporation of a limited liability partnership, the person who subscribed their names to the incorporation document shall be its partners.
• Any other person may become a partner of the limited liability partnership by and in accordance with the limited liability agreement.

Disqualification :

1. he has been found to be of unsound mind by a court of competent jurisdiction and finding is in force.
2. he is undischarged insolvent or
3. he has applied to be adjudicated as an insolvent and his application is pending.

Number of Partners:
Every LLP shall have at least two partners.

Name of LLP:
Every limited liability partnership shall have either the words “Limited liability partnership” or acronym “LLP” as the last words of its name.

Contents of Incorporation Documents:

• Be in a form as may be prescribed.
• State the name of LLP.
• State the proposed business of the LLP.
• State the address of the registered office of LLP.
• State the name and address of each partner.
• State the name and address of the designated partner.
• Contain such other information concerning the proposed LLP.

Registration of LLP/Incorporation by Registration/ Certificate of Incorporation:

• An LLP when registered becomes incorporated.
• The Certificate given by registrar in which the name of the LLP is specified is known as Incorporation Certificate.
• The Incorporation Certificate shall be conclusive evidence that the limited liability partnership is incorporated by the name specified therein.

Effect of Registration:

• Suing and being sued
• acquiring, owning, holding and developing or disposing of property, whether movable or immovable tangible or intangible.
• having a common seal, if it decides to have one.
• doing and suffering such other acts and things as bodies corporate may lawfully do and suffer.

Registered Office:
Every LLP shall have a registered office to which all communications and notices may be addressed and where they shall be received.

Holding Out:
Meaning : to represent

• Any person holding off as partner is liable to any person who has on the faith of any such representation given credit to the limited liability partnership.
• The liability of LLP shall be without prejudice to the liability of the person so representing himself or represented to be a partner.

Legal Representative of a Partner shall not be Liable:

• Where after a partners death the business is continued in the same limited liability partnership name.
• The continued use of that 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 LLP done after his death.

Unlimited Liability in case of Fraud:
Liability of LLP and its fraudulent partner shall be unlimited, if any out carried out by a limited liability partnership or any of its partners,

• with in ent to defraud creditor or any ether person.
• for any fraudulent purpose.

Partner’s Transferable Interest:
The right of a partner:

• to a share of the profits and losses is of the LLP.
• to receive distribution in accordance with the LLP agreement.

In a same manner, a Partner may transfer all or any of these rights wholly or in part.

No transfer of Management or Control:
The transfer of transferable right does not the transferee or assignee :

• to participate in the management or conduct of the activities of the limited liability partnership.
• Access information concerning the transactions of the limited liability partnership.

Winding up and Dissolution:

• The winding up of a limited liability partnership may be either voluntary or by tribunal.
• The LLP, so wound up may be dissolved.

Winding up by Tribunal:
A limited liability partnership may be wound up by the Tribunal if;

• Decides that limited liability partnership would wound up by tribunal.
• For a period of more than six months, the number of partners reduced below two.
• Unable to pay its debts.
• Has acted against the interests of the sovereignty & integrity of India.
• Has made a default in filling with the Register of Statement of Account and solvency or annual return for any five consecutive financial year.
• If the Tribunal is of that is just and equitable that the LLP be would up.

Multiple Choice Questions

Question 1.
The objective of the Partnership Act, 1932 is to define and amend the law relating to:
(a) Partnership
(b) Joint Ventures
(c) Business collaborations
(d) All of the above.
Answer:
(a) Partnership

Question 2.
The Partnership Act, 1932 came into force on ___________.
(a) 1st day of April 1932
(b) 1st day of October 1932
(c) 1st day of January 1932
(d) 31st day of December 1932.
Answer:
(b) 1st day of October 1932

Question 3.
According to the Partnership Act, “Business” includes ___________.
(a) Trade
(b) Occupation
(c) Profession
(d) All of the above.
Answer:
(d) All of the above.

Question 4.
The relationship of Partnership arises out of ___________.
(a) Contract
(b) Status
(c) Operation of law
(d) Contract and status.
Answer:
(a) Contract

Question 5.
The name under which the partnership business is carried on, is called ___________.
(a) Trademark
(b) Partnership firm
(c) Firm Name
(d) Registered Name
Answer:
(c) Firm Name

Question 6.
Which of these are not necessary for constituting a partnership ?
(a) Sharing of business profits
(b) Mutual agency
(c) Two or more persons
(d) Written contract.
Answer:
(d) Written contract.

Question 7.
Liability of a partner is ___________.
(a) Limited to the extent of his share of the business profits.
(b) Unlimited
(c) Limited to the extent of capital
(d) Limited to the extent of loan given to the firm.
Answer:
(b) Unlimited

Question 8.
The true test of partnership is ___________.
(a) Mutual agency
(b) Profit sharing
(c) Agreement
(d) All of the above
Answer:
(a) Mutual agency

Question 9.
Partnership agreements may be ___________.
(a) Expressed
(b) Implied
(c) Neither (a) nor (b)
(d) Either (a) or (b)
Answer:
(d) Either (a) or (b)

Question 10.
Sharing of profits implies sharing otherwise.
(a) True
(b) Partly True
(c) False
(d) None of these
Answer:
(a) True

Question 11.
A partner who has not entered into a partnership agreement and conducts or represents himself as a partner in a firm is called ___________.
(a) Sleeping partner
(b) Partner by estoppel
(c) Working partner
(d) Sub-partner
Answer:
(b) Partner by estoppel

Question 12.
Partners are bound to render true accounts & full information of all things affecting the firm to ___________.
(a) Any partner
(b) Legal Representative of any partner
(c) Either (a) or (b)
(d) To the Government.
Answer:
(c) Either (a) or (b)

Question 13.
Every partner is bound to perform to his duties, in the conduct of the business.
(a) Systematically
(b) Diligently
(c) Sincerely
(d) Effectively.
Answer:
(b) Diligently

Question 14.
If there is a contract that the partner shall not carry on the business other than that of the firm while he is a partner, such contract is ___________.
(a) Valid
(b) Void
(c) Voidable at the option of the partner
(d) Voidable at the option of the firm.
Answer:
(a) Valid

Question 15.
Subject to contract between the partners, the ratio of profits or loss sharing will be ___________.
(a) Equal
(b) In the ratio of capital contribution
(c) In the ratio of loans given, if any
(d) In the ratio given by the Income Tax Act.
Answer:
(a) Equal

Question 16.
Partnership property vests hands of ___________.
(a) In the partner of the firm
(b) In the firm
(c) In the continuing partners of the firm
(d) In the retiring partners of the firm.
Answer:
(b) In the firm

Question 17.
Which of the following conditions is not necessary for the exercise of implied authority ___________.
(a) The act must relate to the business of the firm
(b) The act must be done in the firm’s business name
(c) The act must be done in the usual way of carrying on the firm’s business
(d) The act must be done in an emergency.
Answer:
(d) The act must be done in an emergency.

Question 18.
To bind the firm under-Implied Authority, the act must be done in the of carrying on the firm’s business.
(a) Regular way
(b) Usual way
(c) Routine way
(d) Extraordinary way.
Answer:
(b) Usual way

Question 19.
Which of these acts are within the implied authority of a partner?
(a) Acquire immovable property on behalf of the firm.
(b) Borrowing money on behalf of the firm.
(c) Enter into partnership on behalf of the firm.
(d) Transfer immovable property belonging to the firm.
Answer:
(b) Borrowing money on behalf of the firm.

Question 20.
A third party is not affected by the limitation of implied authority unless he has actual notice of it.
(a) True
(b) Partly True
(c) False
(d) None of the above.
Answer:
(a) True

Question 21.
Acts done by a partner in an emergency do not bind the firm if they do not form part of the partner’s implied authority.
(a) True
(b) Partly True
(c) False
(d) None of the above.
Answer:
(c) False

Question 22.
“Notice to acting partner is notice to firm.” This statement is based on the principle of ___________.
(a) Convenience
(b) Convention
(c) Mutual agency among partners
(d) All of the above.
Answer:
(c) Mutual agency among partners

Question 23.
For all acts of the firm done while he is a partner, every partner is ___________.
(a) Jointly liable
(b) Severally liable
(c) Jointly and severally liable
(d) Not liable at all.
Answer:
(c) Jointly and severally liable

Question 24.
Which of the following partners are not liable in relation to the firm?
(a) Partner by holding out
(b) Working partner
(c) Sub – partner
(d) Partner by estoppel.
Answer:
(c) Sub – partner

Question 25.
When a partner retires from a’firm but does not give a public notice to this effect, he shall be liable as a partner by holding out until he issues a public notice.
(a) True
(b) Partly True
(c) False
(d) None of the above.
Answer:
(a) True

Question 26.
For the acts of the firm ___________.
(a) Minor is personally liable
(b) Minor’s share is liable
(c) Guardian is personally liable
(d) There is no liability at all for or on behalf of the minor.
Answer:
(b) Minor’s share is liable

Question 27.
When the minor elects not to become a partner he is entitled to sue the partners for his share in the profits and property.
(a) True
(b) Partly True
(c) False
(d) None of the above.
Answer:
(a) True

Question 28.
A person can be admitted into an already existing firm. Only with the v consent of all the existing partners.
(a) True
(b) Partly True
(c) False
(d) None of the above.
Answer:
(a) True

Question 29.
In case of partnership at will, a retiring partner has to give a written notice.
(a) To the firm
(b) To the working partners
(c) To ail the partners
(d) To all partners other than working partners.
Answer:
(c) To ail the partners

Question 30.
Where a partner in a firm is adjudicated as insolvent ___________.
(a) The firm is automatically dissolved
(b) The firm is not automatically dissolved
(c) The firm is also deemed insolvent
(d) The firm becomes an illegal association.
Answer:
(b) The firm is not automatically dissolved

Question 31.
The firm is generally dissolved on the death of a partner.
(a) True
(b) Partly True
(c) False
(d) None of the above.
Answer:
(a) True

Question 32.
No public notice is required on the death of a partner.
(a) True
(b) Partly True
(c) False
(d) None Of the above.
Answer:
(a) True

Question 33.
Dissolution of partnership between all the partners of a firm is called ___________.
(a) Dissolution of partnership
(b) Dissolution of firm
(c) Dissolution of firm name
(d) Reconstitution of firm.
Answer:
(b) Dissolution of firm

Question 34.
Which of the following do not constitute ground for dissolution by court?
(a) Insanity of the partner
(b) Incapacitation of partner
(c) Admission of minor to the benefits of partnership
(d) Heavy losses of the firm.
Answer:
(c) Admission of minor to the benefits of partnership

Question 35.
Upon dissolution of firm, losses, including deficiencies of capital, shall be paid first out of profits and then ___________.
(a) Out of pro its
(b) Out of capital
(c) By the partners individually in their profit sharing ratio.
(d) By the
Answer:
(b) Out of capital

Question 36.
The accounting rule in respect of loss arising due to insolvency of a partner is dealt within ___________.
(a) Derry vs Peek
(b) Carlill vs carbolic Smoke Ball Co.
(c) Garner vs Murray
(d) Chinnaiah vs Ramaiya.
Answer:
(c) Garner vs Murray

Question 37.
A partner is entitled to return of premium even when the dissolution is mainly due to his own misconduct.
(a) True
(b) Partly True
(c) False
(d) None of the above.
Answer:
(c) False

Question 38.
Upon dissolution, the goodwill of the firm ___________.
(a) Must be sold separately
(b) Must be sold along with the assets to the firm only
(c) May be sold either separately or along with the assets of the firm
(d) Cannot be sold at all.
Answer:
(c) May be sold either separately or along with the assets of the firm

Question 39.
A partnership firm has to be compulsorily registered in order to commerce its business.
(a) True
(b) Partly True
(c) False
(d) None of the above.
Answer:
(c) False

Question 40.
Application for Registration of firms should be signed by ___________.
(a) All the partners or their agents
(b) Majority of the partners or their agents
(c) All working partners or their agents
(d) All minor partners.
Answer:
(a) All the partners or their agents

Question 41.
An unregistered firm cannot file a suit against to enforce any right arising from a contract.
(a) Partner
(b) Minor admitted to benefits of partnership
(c) Third party
(d) Out going partner.
Answer:
(c) Third party

Question 42.
Non – registration of the firm does not affect the right of the firm to institute a suit or claim of set – off not exceeding ___________.
(a) ₹ 100
(b) ₹ 1,000
(c) ₹ 10,000
(d) ₹ 50,000
Answer:
(a) ₹ 100

Question 43.
Provisions relating to partnership contracts are laid down in ___________.
(a) Indian Partnership Act, 1932
(b) Indian Partnership Act, 1962
(c) Indian Contract Act, 1872
(d) Indian Partnership Act, 1942
Answer:
(a) Indian Partnership Act, 1932

Question 44.
The least number of persons required to form partnership are ___________.
(a) 2
(b) 1
(c) 10
(d) 4
Answer:
(a) 2

Question 45.
Persons who have entered into partnership with one another are called ___________.
(a) Partners
(b) Co-partners
(c) Co-owners
(d) Members
Answer:
(a) Partners

Question 46.
The ‘firm name’ should not be such which ___________.
(a) Violates the rules regarding trade name/goodwill
(b) A name implying the sanction of patronage of Government
(c) Which uses ‘limited’ as part of its name
(d) All of the above
Answer:
(d) All of the above

Question 47.
Which of the following association cannot form a partnership ___________.
(a) Two natural persons
(b) A natural and a artificial person
(c) Two corporation
(d) Two minors
Answer:
(d) Two minors

Question 48.
The term ‘business’ includes every ___________.
(a) Trade
(b) Occupation
(c) Profession
(d) All of the above
Answer:
(d) All of the above

Question 49.
___________ means the excess of returns over advance
(a) Losses
(b) Profit
(c) Sales
(d) Goodwill
Answer:
(b) Profit

Question 50.
The Prima facie evidence of the existence of partnership is ___________
(a) Existence of an agreement
(b) Association of two or more partners
(c) Carry on business
(d) Sharing of profits
Answer:
(a) Existence of an agreement

Question 51.
The conclusive test for partnership is ___________.
(a) Sharing of Profits
(b) Mutual Agency
(c) Association of Persons
(d) Agreement
Answer:
(b) Mutual Agency

Question 52.
Exceptions to the definition of partnership are
(a) A minor may be admitted to the benefits of partnership
(b) No consideration is required to create partnership
(c) Both (a) and (b)
(d) None
Answer:
(c) Both (a) and (b)

Question 53.
A written agreement (properly drafted and stamped) of partnership to avoid future disputes is called:
(a) Partnership deed
(b) Partnership Agreement
(c) Articles of Partnership
(d) All of above
Answer:
(d) All of above

Question 54.
Which of the following must give a public notice of his retirement from the firm in order to absolve (free) himself from liability of the firm
(a) Sleeping partner
(b) Partner in profit only
(c) Active partner
(d) Sub-partner
Answer:
(c) Active partner

Question 55.
Every partner has an implied authority to bind the firm by following acts
(a) Open a bank account on behalf of the firm in his own name
(b) By purchasing goods for the firm
(c) Enter into a partnership on behalf of the firm
(d) Acquire immovable property on behalf of the firm
Answer:
(b) By purchasing goods for the firm

Question 56.
The estate of a partner who dies or became insolvent is not liable for partnership debts contracted after the date of death or insolvency ___________.
(a) True
(b) False
(c) Not stated in the Partnership Act
(d) Executors of the deceased partner are liable
Answer:
(a) True

Question 57.
Which of the following statement is not true?
(a) The dissolution of partnership between all the partners of a firm is called the dissolution of the firm
(b) All the partners are jointly and severally liable for the acts of the firm
(c) The dissolution of firm leads to discontinuation of the partnership business
(d) The dissolution of partnership means the dissolution of firm as well.
Answer:
(c) The dissolution of firm leads to discontinuation of the partnership business

Question 58.
A partnership cannot be for the following:
(a) For a fixed period
(b) For a particular venture
(c) Where no provision is made by contract between the partners for duration
(d) For carrying on a business for charity purpose
Answer:
(d) For carrying on a business for charity purpose

Question 59.
A partnership is deemed to be a ‘partnership at will’ ___________.
(a) When no fixed period has been agreed upon
(b) When there is provision made as to the determination of partnership in any other way
(c) When death or retirement does not affect the existence of such partnership
(d) All of the above
Answer:
(d) All of the above

Question 60.
The Indian Partnership Act, 1932 contemplates the following changes in constitution of firm ___________.
(a) Change in the duration of a firm
(b) A new partner retires
(c) A partner dies
(d) A new partner is admitted
Answer:
(a) Change in the duration of a firm

Question 61.
A change in constitution of a firm takes place when ___________.
(a) A partner is adjudicated as an insolvent
(b) A partner retires from a firm
(c) A partner dies
(d) All of the above
Answer:
(d) All of the above

Question 62.
Property of the firm includes:
(a) Assets acquired in the course of business with money belonging to the firm
(b) Assets jointly owned by partners which are used for purpose of partnership business
(c) Goodwill
(d) Both (a) and (c)
Answer:
(d) Both (a) and (c)

Question 63.
How can a dissolution of the firm come into existence?
(a) By mutual agreement
(b) By insolvency of all partners
(c) By business becoming illegal
(d) All of the above
Answer:
(d) All of the above

Question 64.
Following are not the effect of non-registration of firm ___________.
(a) Each partner can sue each other or the firm
(b) No third party can be sued by a non-registered firm
(c) A firm can bring a suit to enforce a right arising otherwise out of contract
(d) A partner filing a suit to compel other partner to join in the registration of firm
Answer:
(c) A firm can bring a suit to enforce a right arising otherwise out of contract

Question 65.
Sharing of profits is a conclusive test of partnership ___________.
(a) True
(b) Partly true
(c) False
(d) Partly false
Answer:
(c) False

Question 66.
There can be no specific performance of a partnership agreement ___________.
(a) True
(b) False
(c) Can’t say
(d) Allowed in certain conditions
Answer:
(a) True

Question 67.
By the expiry of the fixed term for which the partnership was joined is known as ___________.
(a) Partnership at will
(b) Particulars partnership
(c) None of the above
(d) Both (a) and (b)
Answer:
(b) Particulars partnership

Question 68.
From the following which of these are the kinds of a partner:
(a) Working partner
(b) Sleeping or dormant partner
(c) Nominal partner
(d) Both (b) and (c)
Answer:
(d) Both (b) and (c)

Question 69.
He is only entitled to his agreed share and can inspect books of account of the firm are related with ___________.
(a) Rights of unsound mind person
(b) Rights of nominal partner
(c) Rights of minor
(d) Rights of sleeping partner
Answer:
(c) Rights of minor

Question 70.
From the following what are the contents of partnership deed:
(a) The firm name and business to be carried on under that name
(b) Name and address of partners
(c) Both (a) and (b)
(d) None of the above
Answer:
(c) Both (a) and (b)

Question 71.
The partnership deed must be properly drafted and stamped according to the provision of:
(a) Indian Partnership Act
(b) Indian Stamp Act
(c) Income Tax Act
(d) The Companies Act
Answer:
(b) Indian Stamp Act

Question 72.
Minorcan be a partner in a newly formed firm. This statement is ___________.
(a) True
(b) False
(c) Partly true
(d) Partly false
Answer:
(b) False

Question 73.
Partners agree to share ___________ of business.
(a) Liabilities of a firm
(b) Assets of the firm
(c) Profits and losses
(d) None of these
Answer:
(c) Profits and losses

Question 74.
___________ is the essential feature for formation of partnership.
(a) Agreement
(b) Memorandum
(c) Relation
(d) All of above
Answer:
(a) Agreement

Question 75.
Which of the following partners are not liable in ‘relation to the firm’?
(a) Partner by holding out
(b) Working partner
(c) Sub partner
(d) partner by estoppel
Answer:
(c) Sub partner

Question 76.
A partner of an unregistered firm can sue for ___________ of the firm.
(a) Goodwill
(b) Share in property
(c) Dissolution
(d) None of these
Answer:
(c) Dissolution

Question 77.
Partnership is classified in ___________ categories.
(a) One
(b) Two
(c) Three
(d) None of these
Answer:
(b) Two

Question 78.
At the time of retirement, contentment is important in ___________.
(a) Partnership at will
(b) Hindu Joint Family
(c) Particular Partnership
(d) Both (b) & (c)
Answer:
(b) Hindu Joint Family

Question 79.
A partnership is deemed to be partnership at will when there is ___________.
(a) No fixed period & no provision
(b) Fixed time period & purpose
(c) Fixed purpose & no fixed period
(d) Fixed time period & no provision
Answer:
(a) No fixed period & no provision

Question 80.
‘Holding Out’ means ___________.
(a) Honour of firm
(b) To represent
(c) To sacrifice
(d) None of these
Answer:
(b) To represent

Question 81.
The general law of agency is incorporated in ___________.
(a) Law of property
(b) Law of co-ownership
(c) Law of partnership
(d) None of these
Answer:
(c) Law of partnership

Question 82.
Which type of firm arises as a result of status ___________.
(a) Co-ownership
(b) Articles of partnership
(c) Hindu Joint Family Firm
(d) None of these
Answer:
(c) Hindu Joint Family Firm

Question 83.
Number of partners in Hindu Joint Family Firm ___________.
(a) 10
(b) 20
(c) No limit
(d) Depends on Karta
Answer:
(c) No limit

Question 84.
A partnership firm cannot be formed if the partners are ___________.
(a) Only major
(b) Oniy minors
(c) Two major one minor
(d) None
Answer:
(b) Oniy minors

Question 85.
Which type of partner is not personally liable..
(a) Active
(b) Dormant
(c) Nominal
(d) Minor
Answer:
(d) Minor

Question 86.
The implied authority of a partner is termed as ___________.
(a) Ostensible Authority
(b) Tangible Authority
(c) Non-apparent Authority
(d) None of these
Answer:
(a) Ostensible Authority

Question 87.
Which type of partner must give public notice of his retirement ___________.
(a) Active
(b) Sleeping
(c) Nominal
(d) All of the above
Answer:
(a) Active

Question 88.
A change in constitution of a firm takes place when ___________.
(a) A partner is adjudicated as an insolvent
(b) A partner transfer his interest
(c) Both (a) & (b) true
(d) None of these
Answer:
(a) A partner is adjudicated as an insolvent

Question 89.
Registration is not required in which type of firm ___________.
(a) Company
(b) Partnership
(c) H J.F.
(d) both (b) and (c)
Answer:
(d) both (b) and (c)

Question 90.
Which type of partner do not participate in functioning of business ___________.
(a) Ostensible Partner
(b) Active Partner
(c) Sub-Partner
(d) None of these
Answer:
(d) None of these

Question 91.
Value of reputation of a business is ___________.
(a) Capital
(b) Interest
(c) Goodwill
(d) Debt
Answer:
(c) Goodwill

Question 92.
A partner who only give their name to business is ___________.
(a) Partner by Estoppel
(b) Dormant
(c) Nominal
(d) Ostensible
Answer:
(c) Nominal

Question 93.
When a partner agrees to share his profit in firm with a third person, that person is called ___________.
(a) Dormant
(b) Sub partner
(c) Nominal
(d) Partner in profit only
Answer:
(b) Sub partner

Question 94.
In a firm every partner is a/an ___________ of the rest of partner.
(a) Manager
(b) Friend
(c) Agent
(d) Unknown
Answer:
(c) Agent

Question 95.
Goodwill is a/an ___________.
(a) Tangible Asset
(b) Intangible Asset
(c) Liquid Asset
(d) vesting Asset
Answer:
(b) Intangible Asset

Question 96.
Who is personally liable in HUF firm ___________.
(a) Co-parcener
(b) Karta
(c) Both (a) & (b)
(d) Minor
Answer:
(b) Karta

Question 97.
Valuation of Goodwill in firm may arise ___________.
(a) When a firm is amalgamated
(b) When a partner retires or dies
(c) When the business is sold
(d) All of these
Answer:
(d) All of these

Question 98.
On dissolution, if the assets are not sufficient the partner have to bear ___________.
(a) Investment of Capital
(b) Outside Creditor
(c) Loss in equal shares
(d) Both (b) and (c)
Answer:
(d) Both (b) and (c)

Question 99.
When the partner becomes of unsound mind then ___________.
(a) There will be no effect in firm
(b) There can be dissolution of firm
(c) No dissolution of firm
(d) All of these
Answer:
(c) No dissolution of firm

Question 100.
In dissolution of firm, partnership among all partners ___________.
(a) Exists
(b) No Longer exists
(c) Both (a) & (b) true
(d) None of these
Answer:
(b) No Longer exists

Question 101.
Court will dismiss the case if ___________.
(a) Registration is not done before the suit
(b) Registration is done before the suit
(c) Partner become insolvent
(d) None of these
Answer:
(a) Registration is not done before the suit

Question 102.
The implied authority is subject to which condition ___________.
(a) The act must be done in unusual way
(b) The act must be done in name of partner
(c) Third party does not believe him to be a partner
(d) The act must be done in the name of firm
Answer:
(d) The act must be done in the name of firm

Question 103.
According to section 72 of Act, a partner should give express notice before his ___________ to protect himself from liability.
(a) Admission
(b) Retirement
(c) Death
(d) Insolvency
Answer:
(b) Retirement

Question 104.
The right of buyer in Goodwill is ___________
(a) Not to represent himself in continuing the business
(b) To give details of his personal property.
(c) Solicit former customers of the business.
(d) None of these.
Answer:
(c) Solicit former customers of the business.

Question 105.
According to rule, Garner v/s Murray deficiency of ;nsolvent partner will be allocated in ___________.
(a) Profit sharing ratio
(b) Loss sharing ratio
(c) Capital ratio agreed before dissolution
(d) Equal loss sharing ratio
Answer:
(c) Capital ratio agreed before dissolution

Question 106.
Where there is an extinction of relationship between some of partners, it is only ___________.
(a) Dissolution of firm
(b) Dissolution of partnership
(c) Partnership Deed
(d) Dissolution of firm and partnership both
Answer:
(b) Dissolution of partnership

Question 107.
In Hindu Joint Family firm, share of co-parcener is ___________.
(a) Equal to Karta
(b) According to profit sharing ratio
(c) Not fixed
(d) In ratio of capital invested
Answer:
(c) Not fixed

Question 108.
The maximum number of members for a private company is ___________.
(a) 55
(b) 200
(c) 45
(d) 60
Answer:
(b) 200

Question 109.
A Hindu joint family business is governed by which law ___________.
(a) Hindu Law
(b) Indian Partnership Act
(c) Company Law
(d) Family Law
Answer:
(a) Hindu Law

Question 110.
The capacity of a partner to bind the firm by his act is known as ___________.
(a) Duties of Partner’s
(b) Rights of Partner’s
(c) Authority of Partner
(d) None of these
Answer:
(c) Authority of Partner

Question 111.
A partnership which is entered for a single adventure or undertaking is called a ___________.
(a) Specific partnership
(b) Particular partnership
(c) Partnership at will
(d) Partnership by estoppel
Answer:
(b) Particular partnership

Question 112.
Which one of the following statement is not true regarding a partnership at will ___________.
(a) It is affected by the death o’retirement of the partners
(b) There is no fixed period regarding its duration
(e) It can be dissolved by any of the partners
(d) No provision is made for determination of partnership in any other way
Answer:
(a) It is affected by the death o’retirement of the partners

Question 113.
Which of the following statement is not true regarding a minor?
(a) He can inspect the books of accounts of the firm
(b) He is not personally liable to the third parties
(c) On attaining majority, he has to choose that he wants to become a partner within the period of one year
(d) None of the above
Answer:
(c) On attaining majority, he has to choose that he wants to become a partner within the period of one year

Question 114.
The law of partnership is also called as the branch of ___________.
(a) Law of agency
(b) Law of contract
(c) Law of Association
(d) All of the above
Answer:
(a) Law of agency

Question 115.
The implied authority of a partner is also called as ___________.
(a) Ostensible Authority
(b) Apparent Authority
(c) Both (a) and (b)
(d) None of the above
Answer:
(a) Ostensible Authority

Question 116.
What are the condition, the implied authority of partnership is subject to ___________.
(a) The act must be done in the normal course of business
(b) Consent of all the partners must be obtained before performing the act
(c) Both (a) & (b)
(d) None of the above
Answer:
(a) The act must be done in the normal course of business

Question 117.
Which one of the following acts of a partner does not come under his implied authority?
(a) Engaging and discharging employees
(b) Selling the fixed assets of the firm
(c) Purchasing goods of the firm
(d) All of the above
Answer:
(b) Selling the fixed assets of the firm

Question 118.
Which of the following statement is NOT true?
(a) The estate of the deceased partner is not liable for debts contracted after his death
(b) An incoming partner is not liable for debts incurred before his joining
(c) The other partners are not liable for fraud committed by a partner in the course of management of the business
(d) None of the above
Answer:
(c) The other partners are not liable for fraud committed by a partner in the course of management of the business

Question 119.
The partnership will not be dissolved under which of the following circumstances.
(a) By the death of the partner
(b) By retirement of partner
(c) When the business is in heavy loss
(d) By the completion of venture
Answer:
(c) When the business is in heavy loss

Question 120.
Which of the following statement is False?
(a) A partnership can be dissolved by mutual agreement
(b) A partnership firm will be dissolved if only one partner is solvent
(c) A partnership at will can be dissolved by any partner at any time
(d) None of the above
Answer:
(d) None of the above

Question 121.
As per Garner V/s Murray Rule, the deficiency attributable to the insolvency of a partner must be borne by other partner in ___________.
(a) In the ratio of profit
(b) In the ratio of capital
(c) It should be borne equally
(d) None of the above
Answer:
(b) In the ratio of capital

Question 122.
Which of the following statement is not true in context to an unregistered firm?
(a) The partner of the firm cannot sue each other
(b) The partnership firm cannot sue the third party
(c) The third party cannot sue the firm
(d) The partner of the firm cannot sue the firm
Answer:
(c) The third party cannot sue the firm

Question 123.
Which of the following statement is False?
(a) There can be no specific performance of a partnership agreement
(b) The registration of partnership is compulsory as per the Partnership Act, 1932
(c) The proceeds of sale of goodwill is to be divided in the profit sharing ratio
(d) All of the above
Answer:
(b) The registration of partnership is compulsory as per the Partnership Act, 1932

Question 124.
Which of the following is NOT an essential of a partnership?
(a) Association of two or more persons .
(b) Agreement
(c) Sharing of profits
(d) Registration of partnership
Answer:
(d) Registration of partnership

Question 125.
When a person behaves in a manner that he is a partner of the firm but actually he is not a partner, then it is called as
(a) Nominal partnership
(b) Partnership by estoppel
(c) Dormant partner
(d) None of the above
Answer:
(b) Partnership by estoppel

Question 126.
Where a partner does not participate into the affairs of a company and only shares the profit then, he is called ___________.
(a) Ostensible partner
(b) Dormant partner
(c) Sleeping partner
(d) Both (b) & (c)
Answer:
(d) Both (b) & (c)

Question 127.
If a partner only gives his name to the firm and does not participate in the management of the firm, then he is called as ___________.
(a) Dormant oartner
(b) Holding cut partner
(c) Nominal partner
(d) Sub partner
Answer:
(c) Nominal partner

Question 128.
When a partner agrees to share his profits with a third person, then such person is called as ___________.
(a) Sub partner
(b) Dormant partner
(c) Nominal partner
(d) None of the above
Answer:
(a) Sub partner

Question 129.
Every limited liability partnership shall have at least ___________ partners.
(a) 1
(b) 2
(c) 3
(d) 5
Answer:
(b) 2

Question 130.
At least ___________ of the designated partners of LLP shall be resident of India.
(a) 1
(b) 2
(c) 3
(d) 5
Answer:
(a) 1

Question 131.
Foreign limited liability partnership means a limited liability partnership formed, incorporated or registered outside India which establishes a place of business ___________.
(a) within India
(b) outside India
(c) both a & b
(d) none of these
Answer:
(a) within India

Question 132.
In which of the following cases a partnership firm is re-constituted:
(a) Admission
(b) Retirement
(c) Death
(d) All of the above.
Answer:
(d) Partners who have entered into partnership with one another are called individually ‘partners’ and collectively a ‘firm’.

Thus, when any partner entered into partnership or retired from partnership or died, in all three cases partnership firm will be re-constituted.

Question 133.
A partner may apply to the court for dissolution of the firm on:
(a) Insanity of a partner
(b) Misconduct of a partner
(c) Perpetual losses in business
(d) All of the above.
Answer:
(d) A partner can apply to the court for dissolution of the firm on:

• Insanity of a partner.
• Business of the firm becoming unlawful.
• Insolvency of all partner except a partner.
• Misconduct of a partner.
• Perpetual losses in business.

Thus, correct option is all of the above.

Question 134.
A partner who is entitled to share in the profits of a partnership firm without being liable to the losses, is called:
(a) Partner in Profits only
(b) Sleeping Partner
(c) Active Partner
(d) Dummy Partner.
Answer:
(a) A partner who is entitled to share in the profits of a partnership firm without being liable to share the losses is called a partner in profit only. Thus, a person who has sufficient capital but is not prepared to take risk may be admitted to the partnership by the other partners.

Question 135.
Death of a partner has the effect of:
(a) Dissolution of the firm
(b) Continuance of the business of the firm
(c) His legal heir joining the firm
(d) Shutting down the business for 15 days.
Answer:
(b) After the death of a partner, partnership firm continues to operate business as per provision laid down in partnership deed. In fact, death of a partner dissolves the partnership but it results in reconstitution of the partnership firm.

Question 136.
A person whose behaviour arouses misunderstanding that he is a partner in the firm but actually he is not, is called:
(a) Nominal partner
(b) Dormant partner
(c) Ostensible partner
(d) Partner by estoppel.
Answer:
(d) If the behaviour of a person arouses misunderstanding that he is a partner in a firm (when actually he is not) such a person is estopped from later on denying the liabilities for the acts of the firm. Such a partner is called partner by estoppel and is liable to all third parties.

Question 137.
Which one of the following cannot be claimed as a matter of right by a partner?
(a) To have access to books of account
(b) To take part in the conduct of the business
(c) To share the profits
(d) To receive remuneration.
Answer:
(d) (a) Every partner has a right to take part in the conduct and management of the business.

(b) Every partner has right of free access to books and accounts of business.

(c) Every partner in entitled to share in the profits.
Thus, all the above can be claimed by a partner as a matter of right.

(d) Every partner is bound to attend diligently to the business of the firm and in the absence of any agreement to the contrary, he is not entitled to receive any remuneration.
Thus, it cannot be claimed by a partner as a matter of right.

Question 138.
According to Section 25 of the Indian Partnership Act, 1932, the liability of a partner is:
(a) Joint
(b) Several
(c) Joint and several
(d) None of the above.
Answer:
(c) According to Section 25 of the Indian Partnership Act, 1932, all partners are liable jointly and severally for all acts omissions binding on the firm including liabilities arising from contracts as well as torts.

Question 139.
The relationship of partnership arises out of:
(a) An agreement
(b) Statute
(c) Operation of law
(d) Both an agreement and statute.
Answer:
(a) According to Section 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.”

Thus, we may say that the relationship of partnership arises from an agreement and not by any statute or operation of law.

Question 140.
Which of the following are the rights of a partner in a partnership firm?
X. To take part in the conduct and management of the business
Y. To receive remuneration for active working in the firm
Z. To receive interest on the capital invested in the firm
W. To receive share in the profit
Correct option is:
(A) X and Y
(b) X and Z
(c) X and W
(d) X, Z and W.
Answer:
(d) A partner has the following rights –

• to take part in the conduct and management of business.
• to access all records, books and accounts of business.
• to share in the profits of the firm.
• to receive interest on capital at a rate agreed upon.
• to indemnify firm for all expenses incurred by him.
• to apply partnership property for exclusive purpose of partnership.
• to act in emergency for Protecting firm from loss.
• to present introduction of new partner without his consent.
• right to retire by giving notice in case of partnership at will.

Thus, to receive remunerations for actual working in the firm is not a right of a partner. Thus, X, Z and W is the correct answer.

Question 141.
In which of the following cases, a partnership firm may be dissolved?
X. On the death of a partner
Y. On the insolvency of a partner
Z. On the retirement of a partner Correct option is:
(a) X and Y
(b) X and Z
(c) Y and Z
(d) X, Y and Z
Answer:
(d) Dissolution of partnership takes place in the following cases –

• by expiry of fixed term for which the partnership was formed.
• by completion of the adventure
• by death of a partner.
• by insolvency of a partner.
• by retirement of a partner.

Thus, X, Y, Z is the correct answer.

Question 142.
Which type of partner is not personally liable?
(a) Active
(b) Nominal
(c) Dormant
(d) Minor
Answer:
(d) Minor can be in partnership only for profit but not liable for losses. Any Josses can be recovered from Minor’s estate. Minor is not personally liable. ‘

Question 143.
Person doing business solely is known as:
(a) Single person
(b) Sole proprietor
(c) Company
(d) Partner
Answer:
(b) Sole proprietor refers to the person doing business solely.

Question 144.
Minor may be admitted in the firm for:
(a) Sharing of profits
(b) Mutual benefit
(c) Both (a) and (b)
(d) None of these
Answer:
(a) Minor cannot become a partner as he is not competent to contract. As per Section 30, he can however be admitted to the benefits of partnership with the mutual consent of all partners.

Thus, minor may be admitted in the firm only for sharing profits.

Question 145.
Voluntary registration is related with?
(a) HUF
(b) Partnership
(c) Sole – proprietorship
(d) Company
Answer:
(b) Partnership is as a result of an agreement between two or more persons, but this agreement is voluntary in nature.
Thus, voluntary registration is related with Partnership.

Question 146.
Agreement to share profits in a partnership firm ___________.
(a) Must be coupled with an agreement to share losses
(b) Is same as agreement to share losses
(c) Implies an agreement to share losses
(d) Does not necessarily mean an agreement to share losses.
Answer:
(c) The partners in a partnership firm share their profit and loss in any ratio as agreed in the partnership deed. In absence of an agreement, they share it equally.

Therefore, agreement to share profits in a partnership firm must be implied with an agreement to share losses.

Question 147.
B a partner in AB & Sons has transferred his interest in the firm to D. Is the transfer correct?
(a) No
(b) Yes
(c) D will decide
(d) Court will decide.
Answer:
(a) As per Sec. 29, No partner can assign or transfer his partnership interest to any other person, so as to make him a partner in the business. So, B as a partner cannot transfer his interest to D.

Question 148.
The court may not dissolve the firm in case of ___________.
(a) Insanity of a partner
(b) Permanent in capability of a partner
(c) Retirement of a partner
(d) Misconduct of a partner.
Answer:
(c) As per Sec. 44, the court may dissolve the firm in the case of:

• When a partner becomes of unsound mind.
• Permanent incapacity of a partner. .
• Misconduct of a partner affecting the business.
• Transfer of interest or share by a partner.
• Business working at a loss.

So, the court may not dissolve the firm in case of retirement of a partner.

Question 149.
When a minor attains majority, he is liable for ___________.
(a) from the date of attaining majority
(b) all the liabilities
(c) only for liabilities which are dealt by him
(d) for all liabilities since the date of admission to the firm as a minor
Answer:
(d) When a minor attains majority. He will be personally liable for all the acts of the firm, done since he was first admitted to the benefits of the partnership.

Question 150.
True Test of existence of partnership is ___________.
(a) Mutual agency
(b) Sharing of profits
(c) Sharing of losses
(d) All of the above
Answer:
(a) Mutual Agency the True Test:
Mutual agency is the foundation of partner’s liability. Each partner is both an agent and principal for himself and others.

Question 151.
A partner who does not get actively involved in business is a ___________ partner.
(a) Active
(b) Sleeping or Dormant
(c) Nominal
(d) Sub partner.
Answer:
(b) Sleeping or Dormant partner does not involve in business actively, such partners has no duties to perform but is entitled to have access to books and accounts of the firm and he can have a copy of them.

Question 152.
The Court may not dissolve the firm in case of ___________.
(a) Permanent in capability of a partner
(b) Insanity of a partner
(c) Misconduct of a partner
(d) Retirement of a partner.
Answer:
(d) In the following cases the firm is dissolved by the court.

• Partners become of unsound mind
• Permanent in capability of a partner
• Misconduct of a partner
• Transfer of interest or share by a partner etc.

The court does not dissolves a firm in case a partner retires from the firm.

Question 153.
Which of the following conditions are true against an unregistered firm?
(a) Paying outside creditors
(b) Represent himself in continuing the business
(c) A suit or claim of set off, the value of which does not exceed one hundred rupees
(d) Equitable
Answer:
(c) Suits allowed by Act for unregistered firm

• Dissolution of a firm
• Rendering accounts of a dissolved firm
• Realisation of property of a dissolved firm
• Set off of values not exceeding ₹ 100
• Proceeding arising incidentally of value not exceeding ₹ 100
• Firm not having business place in territories to which Indian partnership extends.

Thus, only option (c) is correct.

Question 154.
The circumstances of dissolution of firm does not include:
(a) Dissolution on the happening of certain contingency
(b) Dissolution by agreement
(c) Losses in the firm
(d) Compulsory dissolution.
Answer:
(d) The circumstances of dissolution of firm does not include compulsory dissolution. It can be by mutual agreement, insolvency of all the partners, business becoming illegal or by notice of dissolution for closing up of the business.

Question 155.
Each of the partner in a partnership firm is:
(a) Only agent of the firm
(b) Principal as well as agent
(c) Only co-partner of the firm
(d) Only representative of the firm.
Answer:
(b) Each partner is both an agent and principal for himself and others that is the significance of the phrase “carried on by all or any one of them acting for all”. Each partner is an agent binding the other partners who are his principal and each partner is again a principal, who in turn is bound by the acts of the other partners.

Question 156.
In setting the accounts of a firm during dissolution:
(a) The goodwill must not be included in the assets.
(b) The goodwill should be distributed among all the partners.
(c) The goodwill must be included in the assets.
(d) The goodwill should be separated before settlement.
Answer:
(c) In setting the accounts of the firm during dissolution the goodwill must be included in the asset as it is a partnership asset and means the benefits arising from a firm’s business connections and reputation.

Question 157.
The essential element of a partnership at will is that:
(a) Each partner at his will can choose a business.
(b) The partnership deed does not specify the ratio in which profits would be shared
(c) No period has been fixed by the partners for its duration
(d) Each partner at his will can fix his remuneration.
Answer:
(c) When no provision is made by contract between the partners for the duration of their partnership or for the determination of partnership, the partnership is called partnership at will. In other words, when no duration is fixed by partners it is called partnership at will.

Question 158.
Which of the following is not included in the implied authority of a partner?
(a) To borrow money for the purposes of firm
(b) To engage a lawyer to defend actions against firm
(c) To buy or sell goods on account
(d) To enter into partnership on behalf of firm.
Answer:
(d) The Acts falling within the implied authority are:

• Purchasing goods on behalf of the firm
• Selling goods on behalf of the firm
• Receiving payment of a debt due
• Settling account with the person dealing with the firm
• Engaging Servants for the partnership business
• Borrowing money on the credit of the firm
• Drawing, accepting and endorsing bills and other negotiable, instrument in the name of the firm.
• Pledging the goods
• Employ a solicitor to defend an action against the firm.

Question 159.
In case partnership deed is silent with regard to profit sharing ratio, profits would be shared:
(a) Equally
(b) Depends on the number of hours worked
(c) In ratio of capital contributions
(d) In ratio of business done by each partner.
Answer:
(a) If the partnership deed is silent:

• profit would be shared equally
• Interest on capital would not be given
• Interest on drawing would not be charged
• Salary will not be provided
• Interest on loan is given @ 6%.

Question 160.
On dissolution of partnership firm the partner? remain liable unless:
(a) Partners dues are paid off
(b) The registrar strikes off the name
(c) Public notice is given of the dissolution
(d) Accounts are settled.
Answer:
(c) The partners continue to be liable to outsiders for any act done by any of them which would have been an act of the firm if done before the dissolution, unless a public notice is given of the dissolution.

Question 161.
The Court may not dissolve the firm in case of ___________.
(a) Misconduct of a partner
(b) Insanity of a partner
(c) Retirement of a partner
(d) Permanent incapability of a partner
Answer:
(c) The court may order dissolution of the firm in the below grounds:

• Insanity of Partner
• Incapacity of Partner
• Misconduct of Partner
• Constant breach of agreement by partner
• Transfer of Interest
• Continuous L.osses
• Just and Equitable

Hence, the court will not dissolve the firm in the case of retirement of partner, as this can be a mode of dissolution of the partnership.

Question 162.
Who among the following can be a partner:
(a) A co-operative society ‘
(b) A business firm
(c) A sole proprietor
(d) A hindu undivided family
Answer:
(c) An individual, who is competent to ccntract, can become a partner in the partnership firm. If there are more than two partners in a firm, an individual can be a partner in his individual capacity as well as in a representative capacity as Karta of the Hindu Undivided Family. Hence, a sole proprietor can become a partner in the partnership firm apart from the Co-operative Society, HUF or business firm.

Question 163.
Every partner in a partnership firm has ___________.
(a) A right to inspect the books with the consent of the Registrar
(b) No right to inspect the books of the firm
(c) A right to inspect the books of the firm
(d) A right with the consent of other partners to inspect the books of the firm
Answer:
(c) Every partner in the partnership firm has right to inspect and to take out the copies of the books of accounts. The relation of the partners to one another arises through an agreement and if not then rights and duties are governed by the act. Thus, Option (c) is correct.

Question 164.
In case of Partnership, Registration of partnership is:
(a) Statutory
(b) Necessary
(c) Mandatory
(d) Voluntary but advisable
Answer:
(d) The registration of partnership is not compulsory under the Partnership Act. But it is advisable to do so because of various advantages available.

Question 165.
Who among the following can be a partner?
(a) A sole proprietor
(b) A Hindu Undivided Family
(c) A co-operative society
(d) A business firm.
Answer:
(a) A sole proprietor can be a partner in a firm as he is a person and any person can be a partner in a firm.

Question 166.
In partnership the liability of the partner is:
(a) Decided by other partners
(b) Unlimited
(c) Limited to share in partnership firm
(d) Decided by Court
Answer:
(b) One of the Disadvantages of the partnership is that its liability is unlimited. The partners are liable to full amount of liability jointly and severally.

Question 167.
In a partnership firm, if claim of interest on capital is made, it is payable only out of:
(a) Turnover
(b) Capital
(c) Assets
(d) Profit
Answer:
(d) Claim of interest on capital is made then it, paid only out of profit because it is an appropriation of profit, not a charge against profit.

Question 168.
A Person whose behaviour arouses misunderstanding that he is a partner in the firm but actually he is not, is called:
(a) Nominal Partner
(b) Dormant Partner
(c) Ostensible Partner
(d) Partner by Estoppel
Answer:
(d) When any person due to his behaviour shows to a third party that he is partner in the firm but he is not partner in real then such person is known as ‘Partner by Estoppel’ or ‘Partner by holding out’

Question 169.
Which one of the following cannot be claimed as a matter of right by a partner?
(a) To have access to books of Account
(b) To take part in the Conduct of the business
(c) To Share the Profits
(d) To receive remuneration
Answer:
(d) Partnership deed is a deed in which rights and duties and other contents are mentioned related to partners of firm. In absence of Partnership deed, Partner does not right to receive remuneration unless otherwise agreed.

Question 170.
According to Section 25 of the Indian Partnership Act, 1932, the liability of a Partner is:
(a) Joint
(b) Several
(c) Joint and Several
(d) None of the above
Answer:
(c) According to Section 25 of the Indian Partnership Act, 1932, all partners are liable jointly and severally for all acts omissions binding on the firm including liabilities arising from contracts as well as torts.

Question 171.
The relationship of partnership arises out of:
(a) An Agreement
(b) Status
(c) Operation of law
(d) None of the above
Answer:
(d) Unlike Co-owners, the relationship of partnership arises out of an agreement and law (statute) only. It does not arise from status.

Question 172.
If the behaviour of a person shows that he is a partner in a firm. (When actually he is not). Such a person is known as:
(a) Nominal partner
(b) Sleeping partner
(c) Sub-partner
(d) Partner by estoppel
Answer:
(d) If the behaviour of a person arouses misunderstanding that he is a partner in a firm (when actually he is not) such a person is estoppel from later on denying the liabilities for the acts of the firm. Such a partner is called partner by estoppel and is liable to all third parties.

Question 173.
Which of the following are the rights of a partner in a partnership firm?
X. To take part in the conduct and management of the business
Y. To receive remuneration for active working in the firm
Z. To receive interest on the capital invested in the firm
W. To receive share in the profit Correct option is:
(a) X and Y
(b) X and Z
(c) X and W
(d) X, Z and W
Answer:
(d) A partner has the following rights:

• to take part in the conduct and management of business.
• to access all records, books and accounts of business.
• to share in the profits of the firm.
• to receive interest on capital at a rate agreed upon.
• to indemnity firm for all expenses incurred by him.
• to apply partnership property for exclusive purpose of partnership.
• to act in emergency for protecting firm from loss.
• to present introduction of a new partner without his consent
• right to retire by giving notice in case of partnership at will.

Thus to receive remunerations for actual working in the firms is not a right of a partner. Hence X, Z and W is the correct answer.

Question 174.
In which of the following cases, a partnership firm may be dissolved?
X. On the death of a partner
Y. On the insolvency of a partner
Z. On the retirement of a partner Correct option is:
(a) X and Y
(b) X and Z
(c) Y and Z
(d) X, Y and Z.
Answer:
(d) Dissolution of partnership takes place in the following cases:

• by expiry of fixed term for which the partnership was formed.
• by completion of the adventure.
• by death of the partner
• by insolvency of a partner
• by retirement of a partner:

Thus, X, Y, Z is the correct answer.

CS Foundation Business Environment and Law Notes