Business and Labour Laws


According to partnership act 1932 “partnership is the relation between persons who have agreed to share the profit of a business carried on by all or any or them acting for all”.


When two or more person becomes joint owner with an intention to carry on business jointly and share the profit of the business according to agreed ration, this is known as partnership. The person who forms this business is individually called partner and collectively called partnership or firm.

Features or Characteristics:

Following are the important features of partnership:

  1. Agreement:
    Agreement is the important feature of partnership, because a partnership cannot be formed without agreement. Agreement may be written or oral, but for the settlement of disputes in future it must be in writing.
  2. Number of Partners:
    For the formation of partnership, it is necessary that there should be at least two persons. In ordinary business the maximum numbers of partners must not exceed than twenty (20) and in case of banking business not more than ten (10).
  3. Registration:
    Registration of partnership is not compulsory by law but mostly firms get their registration for the attainments of various advantages.
  4. Business:
    The object of the partnership is to carry on any type of manufacturing or trading business. But the business of partnership must be under the law of state.
  5. Entity:
    Partnership is an independent form of business from its member, so it has no separate legal entity.
  6. Profit & Loss Sharing:
    The purpose of formation of partnership is to earn profit. This profit is distributed among the partners according to their agreed ratio. In case of loss each partner will sustain loss.
  7. Participation in Management:
    The partnership business may conducted by all the partners or any of them on the behalf of others. Its mean that every partner has a right to participate in the management of the business by law.
  8. Unlimited Liabilities:
    The liabilities of the partners in partnership is unlimited. Its mean that in case of loss the private properties of the partners are also liable to pay the debts or loss of the business.
  9. Share in Capital:
    In partnership every partner contributes his share in the capital of the business, but it is not necessary that all the partners should contribute equal amount of capital. Some person contributes their skill and experience and become the partner of the business.
  10. Transfer of Share:
    A partner cannot transfer his interest without the consent of the entire partner. If a partner wants to transfer his share to any other person, he must obtain the consent of all the existing partners.
  11. Agent:
    Every partner is an agent of other partners. He can do any contract with third parties on the behalf of other partners.
  12. Mutual Co-operation:
    It is an important factor for partnership. A business cannot run smoothly without the mutual co-operation and understanding of the partners.
  13. Duration of Partnership:
    Partnership business may be for a definite or indefinite period of time or formed for the completion of a particular venture. Duration period must be decided in partnership agreement.
  14. Tax Payment:
    In partnership every partner pays tax on his individual share of profit.
  15. No Audit Requirement:
    There is no audit requirement in case of partnership.
  16. Dissolution of Partnership:
    The life of partnership business is very limited, because the partnership is dissolved in case of retirement, death, insane or insolvency of any partner.


According to section 39 of partnership act 1932 dissolution of partnership between all the partners of the firm is called “Dissolution of the Firm”.


When one or more partners set aside from partnership due to death, retirement, insane or insolvency, but the others continue the business in partnership, it is called dissolution of partnership. If one partner is set aside from partnership due to death, retirement or insolvency and the other partners do not continue the business in partnership, it is called dissolution of firm. So its mean that dissolution of firm include dissolution of partnership.


Suppose X, Y and Z was partners in a firm. If X dies, insolvent or retire fro firm the “Partnership firm” as well as “Partnership” will dissolve. But if it is decided in “Partnership Agreement” that due to death, retirement or insolvency of partner, firm may not dissolve, then, the partnership will dissolve but the firm carry on its business under the same name.

Modes or Ways of Dissolution of Firm:

There are five different ways of dissolution of a firm.

  1. Dissolution by Agreement
    If all the partners are agrees to dissolve the firm and they do a contract to dissolve it then the firm may dissolve.
  2. Compulsory Dissolution
    The following are the circumstances of compulsory dissolution of partnership firm.
  1. By Insolvency of Partner
    If any partner declare insolvent the firm may dissolve.
  2. By Unlawful Business
    If due to happening of any event the business of the firm become unlawful or against the public interest, then the firm may dissolve.
  1. Contingent Dissolution
    Contingent dissolution may be due to the following reasons:
  1. Expiry of Period
    If a partnership is formed for a fixed period, then the firm may dissolved by the expiry of such fixed period.
  2. Death of Partner
    A firm may be dissolve due to the death of any partner
  3. Insolvency of Partner
    By the insolvency of a partner, firm may dissolve.
  4. Completion of Job
    If a partnership formed for the completion of any particular job, then after the completion of such job, firm may dissolve.
  5. Retirement of a Partner
    Due to retirement of any partner from partnership, the firm may dissolve.
  6. Insolvency of Partnership
    Due to insolvency of partnership, the firm may dissolve.
  1. Dissolution by Notice
    In case of partnership at will a firm may dissolve by any partner by any partner serving a 14 days notice in writing to all the existing partner of his intention to dissolve the firm.
  2. Dissolution by Court
    In following circumstances the court may dissolve the partnership.


  1. Breach of Agreement
    If any partner willfully commits a breach of contract in matter of partnership business, then the firm may dissolve.
  2. Continuous Loss
    If the firm continuously suffers a loss and there is no expectation of profit in future then a firm may be dissolved by the court.
  3. Transfer of Interest
    The court may also dissolve the firm if any partner transfers his share or interest to others without the consent of existing partners.
  4. Misconduct of Partner
    Court may also dissolve the firm due to misconduct of any partner.
  5. Case of Mad Partner
    The firm is dissolve by the court if any partner declared.
  6. Incapability of Partner
    Due to some reason if any partner is not capable to perform his duties, the firm may dissolve by the court.
  7. Unsound Mind
    When any partner has declared unsound mind, the court may dissolve the firm.
  8. Other Legal Grounds
    The court may dissolve the firm by any other legal grounds, which he deemed necessary.


After the dissolution of firm it is the liability of every partner to pay:

  1. The deficiency or loss first out of the profit of business.
  2. If profit of the firm is not sufficient to pay the deficiency of the firm, then pay it from capital.
  3. If capital is not sufficient, then each partner individually contributes the loss according to their profit sharing ratio.

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