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Assignment On Partnership Act 1932 Of Pakistan

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In their most basic form, equity partners enjoy a fixed share of the partnership (usually, but not always an equal share with the other partners) and, upon distribution of profits, receive a portion of the partnership's profits proportionate to that share. In more sophisticated partnerships, different models exist for determining either ownership interest, profit distribution, or both. Two common alternate approaches to distribution of profit are "lockstep" and "source of origination" compensation (sometimes referred to, more graphically, as "eat what you kill").[10]

  • Lockstep involves new partners joining the partnership with a certain number of "points". As time passes, they accrue additional points, until they reach a set maximum sometimes referred to as a plateau. The length of time it takes to reach the maximum is often used to describe the firm (so, for example, one could say that one firm has a "seven-year lockstep" and another has a "ten-year lockstep" depending on the length of time it takes to reach maximum equity).
  • Source of origination involves the compensation of profits according to a formula that takes into consideration the amount of revenue and profit generated by each partner, such that partners who generate more revenue receive a greater share of the partnership's distributed profit.

Law firms[edit]

Source of origination compensation is rarely seen outside of law firms. The principle is simply that each partner receives a share of the partnership profits up to a certain amount, with any additional profits being distributed to the partner who was responsible for the "origination" of the work that generated the profits.[10]

British law firms tend to use the lockstep principle, whereas American firms are more accustomed to source of origination. When British firm Clifford Chance merged with American firm Rogers & Wells, many of the difficulties associated with that merger were blamed on the difficulties of merging a lockstep culture with an source of origination culture.[11]

Taxation[edit]

Partnerships recognized by a government body may enjoy special benefits from taxation policy. Among developed countries, for example, business partnerships are often favored over corporations in taxation policy, since dividend taxes only occur on profit before they are distributed to the partners. However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation. In such countries, partnerships are often regulated via anti-trust laws, so as to inhibit monopolistic practices and foster free market competition. Enforcement of the laws, however, varies considerably. Domestic partnerships recognized by governments typically enjoy tax benefits, as well.

Common law[edit]

At common law, members of a business partnership are personally liable for the debts and obligations of the partnership. Forms of partnership have evolved that may limit a partner's liability.

Forms of partnership[edit]

As common law there are two basic forms of partnership:[12]

  1. general partnership: a partnership in which all partners manage the business and are personally liable for its debts. General partners have an obligation of strict liability to third parties injured by the Partnership. General partners may have joint liability or joint and several liability depending upon circumstances.
  2. limited partnership (LP): a partnership in which general partners manage the partnership's operations, and limited partners forego the right to manage the business in exchange for limited liability for the partnership debts. The liability of limited partners is limited to their investment in the partnership.

More recently, additional forms of partnership have been recognized:

Silent partners[edit]

A silent partner is one who still shares in the profits and losses of the business, but who is not involved in its management.[13] Sometimes the silent partner's interest in the business will not be publicly known. A silent partner is often an investor in the partnership, who is entitled to a share of the partnership's profits. Silent partners may prefer to invest in limited partnerships in order to insulate their personal assets from the debts or liabilities of the partnership.

Australia[edit]

Main article: Partnership (Australia)

Summarising s. 5 of the Partnership Act 1958 (Vic) (hereinafter the "Act"), for a partnership in Australia to exist, four main criteria must be satisfied. They are:

  • Valid Agreement between the parties;
  • To carry on a business – this is defined in s. 3 as "any trade, occupation or profession";
  • In Common – meaning there must be some mutuality of rights, interests and obligations;
  • View to Profit – thus charitable organizations cannot be partnerships (charities are typically incorporated associations under Associations Incorporations Act 1981 (Vic))

Partners share profits and losses. A partnership is basically a settlement between two or more groups or firms in which profit and loss are equally divided

Bangladesh[edit]

In Bangladesh, the relevant law for regulating partnership is the Partnership Act 1932.[14] A partnership is defined as 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.[15] The law does not require written partnership agreement between the partners to form a partnership.[16] A partnership does not also required to be registered, however an unregistered partnership has a number of limitation regarding enforcing its rights in any court.[17] A partnership is considered as a separate legal identity (i.e. separate from its owners) in Bangladesh only if the partnership is registered. There must be a minimum of 2 partners and maximum of 20 partners.[18]

Canada[edit]

Statutory regulation of partnerships in Canada fall under provincial jurisdiction. A partnership is not a separate legal entity and partnership income is taxed at the rate of the partner receiving the income. It can be deemed to exist regardless of the intention of the partners. Common elements considered by courts in determining the existence of a partnership are that two or more legal persons:

  • Are carrying on a business
  • In common
  • With a view to profit.[19]

Hong Kong[edit]

Main article: Partnership (Hong Kong)

A partnership in Hong Kong is a business entity formed by the Hong Kong Partnerships Ordinance,[20] which defines a partnership as "the relation between persons carrying on a business in common with a view of profit" and is not a joint stock company or an incorporated company.[21] If the business entity registers with the Registrar of Companies it takes the form of a limited partnership defined in the Limited Partnerships Ordinance.[22][23] However, if this business entity fails to register with the Registrar of Companies, then it becomes a general partnership as a default.[23]

India[edit]

According to section 4 of the Partnership Act of 1932,"Partnership is defined as the relation between two or more persons who have agreed to share the profits of a business run by all or any one of them acting for all". This definition superseded the previous definition given in section 239 of Indian Contract Act 1872 as – “Partnership is the relation which subsists between persons who have agreed to combine their property, labor, skill in some business, and to share the profits thereof between them”. The 1932 definition added the concept of mutual agency. The Indian Partnerships have the following common characteristics:

1) A partnership firm is not a legal entity apart from the partners constituting it. It has limited identity for the purpose of tax law as per section 4 of the Partnership Act of 1932.[24]

2) Partnership is a concurrent subject. Contracts of partnerships are included in the Entry no.7 of List III of The Constitution of India (the list constitutes the subjects on which both the State government and Central (National) Government can legislate i.e. pass laws on).[24]

3) Unlimited Liability. The major disadvantage of partnership is the unlimited liability of partners for the debts and liabilities of the firm. Any partner can bind the firm and the firm is liable for all liabilities incurred by any firm on behalf of the firm. If property of partnership firm is insufficient to meet liabilities, personal property of any partner can be attached to pay the debts of the firm.[24]

4) Partners are Mutual Agents.The business of firm can be carried on by all or any of them for all. Any partner has authority to bind the firm. Act of any one partner is binding on all the partners. Thus, each partner is ‘agent’ of all the remaining partners. Hence, partners are ‘mutual agents’. Section 18 of the Partnership Act, 1932 says "Subject to the provisions of this Act, a partner is the agent of the firm for the purpose of the business of the firm"[24]

5) Oral or Written Agreements. The Partnership Act, 1932 nowhere mentions that the Partnership Agreement is to be in written or oral format. Thus the general rule of the Contract Act applies that the contract can be 'oral' or 'written' as long as it satisfies the basic conditions of being a contract i.e. the agreement between partners is legally enforceable. A written agreement is advisable to establish existence of partnership and to prove rights and liabilities of each partner, as it is difficult to prove an oral agreement.[24]

6) Number of Partners is minimum 2 and maximum 50 in any kind of business activities.Since partnership is ‘agreement’ there must be minimum two partners. The Partnership Act does not put any restrictions on maximum number of partners. However, section 464 of Companies Act 2013, and Rule 10 of Companies (Miscellaneous) Rules, 2014 prohibits partnership consisting of more than 50 for any businesses, unless it is registered as a company under Companies Act, 2013 or formed in pursuance of some other law. Some other law means companies and corporations formed via some other law passed by Parliament of India.

7) Mutual agency is the real test. The real test of ‘partnership firm’ is ‘mutual agency’ set by the Courts of India, i.e. whether a partner can bind the firm by his act, i.e. whether he can act as agent of all other partners.[24]

United Kingdom limited partnership[edit]

Main article: UK partnership law

A limited partnership in the United Kingdom consists of:

  • One or more people called general partners, who are liable for all debts and obligations of the firm; and
  • One or of the firm beyond the amount contributed.

Limited partners may not:

  • Draw out or receive back any part of their contributions to the partnership during its lifetime; or
  • Take part in the management of the business or have power to bind the firm.

If they do, they become liable for all the debts and obligations of the firm up to the amount drawn out or received back or incurred while taking part in the management, as the case may be.

United States[edit]

Main article: Partnership taxation in the United States

Under U.S. law a partnership is a business association of two or more individuals, through which partners share the profits and responsibility for the liabilities of their venture.[25] U.S. states recognize forms of limited partnership that may allow a partner who does not participate in the business venture to avoid liability for the partnership's debts and obligations.[26] Partnerships typically pay less taxes than corporations in fields like fund management.[27][28]

The federal government of the United States does not have specific statutory law governing the establishment of partnerships. Instead, every U.S. state and the District of Columbia has its own statutes and common law that govern partnerships. The National Conference of Commissioners on Uniform State Laws has issued non-binding model laws (called uniform act) in which to encourage the adoption of uniformity of partnership law into the states by their respective legislatures. Model laws include the Uniform Partnership Act and the Uniform Limited Partnership Act. Most U.S. states have adopted a form of the Uniform Partnership Act, which includes provisions reguating general partnerships, limited partnerships and limited liability partnerships.

Although the federal government does not have specific statutory law for establishing partnerships, it has an extensive statutory and regulatory scheme for the taxation of partnerships, set forth in the Internal Revenue Code (IRC) and Code of Federal Regulations.[29] The IRC defines federal tax obligations for partnership operations[30] that effectively serve as federal regulation of some aspects of partnerships.

See also[edit]

References[edit]

  1. ^Beerbühl, Margrit Schulte (13 January 2012). "Networks of the Hanseatic League". EGO European History Online. Retrieved 22 September 2017. 
  2. ^Jean Favier, Gold & Spices: the rise of commerce in the middle ages, Holmes & Meier Pub; 1st US edition, July 1998
  3. ^Jairus Banaji (2007), "Islam, the Mediterranean and the rise of capitalism", Historical Materialism15 (1): 47–74, Brill Publishers.
  4. ^Laiou, Angeliki E. (2008). The Economic History of Byzantium: From the Seventh through the Fifteenth Century. Dumbarton Oaks. ISBN 088402332X. 
  5. ^Larson, Aaron (9 July 2016). "What Is a Partnership". ExpertLaw. Retrieved 22 September 2017. 
  6. ^Bamford, James; Ernst, David; Fubini, David G. (3 February 2004). "Launching a World-Class Joint Venture". Harvard Business Review. Retrieved 22 September 2017. 
  7. ^Coispeau, Olivier (18 May 2015). Mergers & Acquisitions and Partnerships in China. World Scientific Publishing Co. p. 311. ISBN 9814641022. Retrieved 22 September 2017. 
  8. ^Zadek, Simon; Radovich, Sacha (April 2006). "Governing collaborative governance"(PDF). John F. Kennedy School of Government. Retrieved 22 September 2017. 
  9. ^Serrill-Robins, Mira (15 March 2010). "Equity vs. Non-Equity Partnerships". LexisNexis Legal Newsroom. Relx Group. Retrieved 22 September 2017. 
  10. ^ abClark, Norman (30 September 2016). "Better carrots for partner compensation strategies". Lexology. Retrieved 22 September 2017. 
  11. ^Becker, Amanda (5 July 2010). "Law firm merger activity picks up". Washington Post. Retrieved 22 September 2017. 
  12. ^"Partnership". Reference for Business. Advameg, Inc. Retrieved 22 September 2017. 
  13. ^"Silent partner". Wex. Cornell Law School. Retrieved 22 September 2017. 
  14. ^"The Partnership Act, 1932". Legislative and Parliamentary Affairs Division. Ministry of Law, Justice and Parliamentary Affairs. Retrieved 22 September 2017. 
  15. ^Section 4 of the Partnership Act 1932. 
  16. ^Goni, Osman. "Should you register your partnership?". Osman Goni. Retrieved 22 September 2017. 
  17. ^"Should you register your partnership?". Osman Goni. Retrieved 21 January 2016. 
  18. ^"How to start a partnership business in Bangladesh - OGR Legal". Resource Portal of OGR Legal. OGR Legal. Retrieved 29 April 2016. 
  19. ^"Part 1: Partnerships – Am I in One and Why Does it Matter?". Business Law Clinic. University of Victoria, Faculty of Law. 6 March 2012. Archived from the original on 24 February 2015. Retrieved 22 September 2017. 
  20. ^"Hong Kong Ordinances, CAP 38 Partnership Ordinance". Hklii.org. Retrieved 2012-07-31. 
  21. ^"Hong Kong Partnerships Ordinance, Chapter 38, section 3". Hklii.org. Retrieved 2012-03-31. 
  22. ^"CAP 37 Limited Partnerships Ordinance". Hklii.org. Retrieved 2012-07-31. 
  23. ^ ab"Hong Kong Limited Partnerships Ordinance, Chapter 37, section 4". Hklii.org. Retrieved 2012-03-31. 
  24. ^ abcdef"The Partnership Act, 1932"(PDF). Ministry of Corporate Affairs. Government of India. Retrieved 22 September 2017. 
  25. ^"Partnership". Wex. Cornell Law School. Retrieved 26 January 2018. 
  26. ^Larson, Aaron (9 July 2016). "What Is a Partnership". ExpertLaw. Retrieved 26 January 2018. 
  27. ^Espinoza, Javier; Indap, Sujeet (2018-02-19). "Private equity chiefs face conversion dilemma". Financial Times. Retrieved 2018-02-19. 
  28. ^"Ares Becomes Litmus Test for Buyout Firms Mulling Tax Change". Bloomberg.com. 2018-02-15. Retrieved 2018-02-19. 
  29. ^"Partnerships". IRS. Internal Revenue Service. 15 December 2017. Retrieved 26 January 2018. 
  30. ^"26 U.S. Code, Subtite A, Chapter 1, Subchapter K - Partners and Partnerships". Legal Information Institute. Cornell Law School. Retrieved 26 January 2018.