Frequently Asked Questions (FAQs) about Partnership Law in Pakistan:
Q. What is the definition of partnership under Partnership Act, 1932?
A. “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. Persons who have entered into partnership with one another are called individually “partners” and collectively “a firm”, and the name under which their business is carried on is called the “firm name”.
Q. What are the rules framed under Partnership Act, 1932?
A. By the Provincial Governments in exercise of powers conferred by section 71 of the Partnership Act, 1932 rules which framed are Punjab Partnership (Registration of Firms) Rules, 1932, North-West Frontier Province Partnership Rules, 1932 and Sindh Partnership Rules, 1932.
Q. Is registration of partnership compulsory?
A. No, registration of partnership is not compulsory by law but it’s better to do so.
Q. Is a written partnership agreement required for partnership?
A. Yes there must be an agreement between the partners.
Q. What are different types of partnerships?
A. Partnership Act, 1932 provides different types of partnership i.e. Partnership at-will and Particular partnership. Partnership at-will is a partnership where no provision is made by contract between the partners for the duration of their partnership, or for the determination of their partnership. It is a partnership for indefinite period but can be dissolve after giving notices to all the partners. Particular Partnership is a partnership where a person may become a partner with another person in particular adventures or undertakings for a specified period. Particular partnership will be dissolved on the completion of particular business or undertaking.
Q. What is a Partnership Deed or Partnership Agreement?
A. Partnership deed or agreement is a document in which mutual rights and obligations of all the partners and conditions relating to partnership and the regulations governing its internal management and organizations are documented, the said deed should be signed by all the partners.
Q. What is deed of dissolution?
A. When the firm is dissolved by mutual consent of partners, deed of dissolution is executed. The dissolution deed provides for the valuation of assets including goodwill and distribution of the same amongst the partners. The deed of dissolution should clearly mentions debts, liabilities and obligations of the firm who will pay or discharge the same in the audit and accounts.
Q. Is deed of dissolution should be registered?
A. Yes deed should be registered.
Q. What is the difference between dissolution of partnership and dissolution of firm?
A. A firm can continue on dissolution of partnership, but on dissolution of firm, partnership will automatically end.
Q. What is meant by firm?
A. A firm is a relationship between two or more persons who have agreed to share profits of a business according to their participation. The partners are collectively called a “firm” and the name under which they do business is called the “firm name”. Any two or more persons but not more than twenty can form a partnership to do any one or more businesses through an agreement in writing.
Q. What is meant by dissolution of firm?
A. The dissolution of partnership between all the partners of a firm is called the “dissolution of firm”.
Q. How a firm can be dissolved?
A. A firm can be dissolved by agreement, by compulsory dissolution, by happening of certain contingencies, by notice of partnership at-will or by order of the court.
Q. Who can be a partner in a firm?
A. Ordinarily, it is individuals who constitute partnerships. A lunatic can also be a partner through his guardian. Similarly, a minor can be admitted to the benefits of a partnership but he is not responsible for loss. Apart from the natural persons, a limited company can also enter into partnership not only with a natural person but also with another limited company. However, a firm cannot be a partner in another firm nor can be an Association of Persons (AOP).
Q. Is it necessary to form a company or a partnership firm to start a new business?
A. No, it is not necessary to form a company or a partnership to start new business. Business can be started as a sole proprietorship.
Q. Are partners personally liable for business debts?
A. Yes, partners are personally liable for business debts. A partner is also legally bound by business transactions made by him or by his partners and can be held personally liable for those transactions. The liabilities of partners are unlimited.
Q. What happens if the number of partners falls below two?
A. If the number of partners falls below two then partnership will be dissolved.
Q. What is maximum number of partners in a firm?
A. Number of partners in a firm shall not exceed twenty a partnership having more than twenty persons is illegal.
Q. Can I give any name to my partnership firm?
A. A partnership can have any name it likes so long as it does not impinge any trademarks or trade name and a firm name shall not contain any words namely, “Government”, “Jinnah”, “Quaid-i-Azam or words expressing or implying the sanction, approval or patronage of the Federal Government or any Provincial Government or of the Quaid-i-Azam, except when the Provincial Government signifies its consent to the use of such words as part of the firm name by order in writing. A firm name shall not contain the name of the “United Nation” or its abbreviations through the use of its initial letters or of any subsidiary body set up by that body unless it has obtained the previous authorization of the Secretary-General of the United Nations in writing. A firm name shall not contain the name of the “World Health Organization” or its abbreviations through the use of its initial letters unless it has obtained the previous authorization of the Director General in writing. A firm name shall not contain any word which may be declared by the Provincial Government, by notification in the official Gazette, to be undesirable.
Q. Can a company be a partner?
A. Yes, a company is a juristic person and therefore can become a partner in a partnership firm, if it is authorized by its memorandum and articles of association.
Q. How a partner in a firm is retired?
A. A partner may retire with the consent of all the other partners, in accordance with an express agreement by the partners and where the partnership is at will, by giving notice in writing to all the partners of his/her intention to retire.
Q. What are the general duties of partners?
A. Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representative.
Q. How partners are taxed?
A. In partnership every partner pays tax on his individual share of profit.
Q. Can a foreigner be a partner in firm?
A. There is no restriction under the law but subject to certain conditions.
Q. Is goodwill of a firm included in its assets?
A. Yes, goodwill is included in the assets of the firm.
Q. We want to sell goodwill of our firm but confused how we will share the price?
A. Where the goodwill is sold value is divisible among the partners in the same manner as they share profits and losses, unless they agreed.
Q. What is meant by Association of Persons (AOP)?
A. Section 80 of Income Tax Ordinance, 2001 defines association of persons which includes a firm, a Hindu undivided family, any artificial juridical person and any body of persons formed under a foreign law, but does not include a company.
Q. How “association of person” is different from “associated person”?
A. Association of Persons (AOP) is defined under section 2(iii) of the Federal VAT (Value Added Tax) Bill, 2010 and associated person is defined under section 3 thereof. AOP refers to a group of persons, while the concept of “associated persons” defines relationship between two persons. Adoption of this concept is a result of harmonization of inland taxes laws & administration under the income tax ordinance.
Q. How to wind up an association of persons?
A. As in the case of Partnership Act, 1932.
Q. We got registered a partnership firm do I need National Tax Number for our firm?
A. Yes, every firm is assigned a national tax number without NTN firm cannot file its returns.
Q. Who has the authority to register partnership firm?
A. District Registrar is Registrar of Firms in his District is the authority to register partnership firm.
Q. Can a firm become partner of another firm?
A. A firm cannot become partner of another firm.
Q. What to include in Partnership agreement or Partnership Deed?
A. While drafting a partnership agreement/deed there are some important points to be kept in view
• There must be at least two major contracting parties.
• Total number of partners should not exceed twenty.
• Name of the Firm under which the business is to be conducted.
• Nature of the business to be conducted by the partners.
• Location of the business where it is to be opened and branches, if any.
• List of partners, their names, addresses of the partners with Computer National Identity Card Nos. should also be placed in the agreement.
• The amount of any salary payable to the partners..
• The division of work among the partners for the management of the firm.
• The name of the dealing bank.
• Provisions regarding the preparation, audit and signing by the partners of annual accounts.
• The duration of partnership whether at will or for a fixed period or a particular venture should be stated.
• The deed should indicate the share in which profits and losses are to be divided among partners.
• The amount that each partner shall be allowed to withdraw.
• Rules regarding to retirement, debt and admission of partners.
• How the value of good will of the firm will be determined.
• A provision regarding the partner who is to manage the affairs, sign cheques may be made.
• The date on which accounts are to be closed should be specified.
• Rights and duties of each partner should be mentioned.
• Settlement of accounts at the dissolution of the firm.
• In case of dispute provision should be made.
• How partnership will be dissolved.
• If the partners intend that the firm should not stand dissolved on death or retirement of a partner, a provision must be made in the deed.
Q. My partner wants to open a bank account in his own name not in name of firm, can he?
A. Implied authority of a partner does not empower him to open a bank account in his own name.
Q. I am living in UK and invested huge amount as a sleeping partner in a firm, for some time received profit regularly but then stopped. Now the said firm is playing delaying tactics as I forced then they issued me cheques which were dishonored. Can you advise me what remedies do I have to get my money back as per Pakistan law?
A. To get your money back you can avail both civil and criminal remedies at the same time, civil remedy is you can file a suit for the recovery of money from the said firm and criminal remedy is you can get registered a FIR (First Information Report) against the firm for the dishonoring of the cheques.
Q. We are four partners in a firm one of partner did fraud with third party for his act is firm liable?
A. Yes the firm and all partners are liable for the fraud committed by one partner on behalf of the firm which causes loss to third party. Any act done by any partner in the course of the ordinary partnership business will bind the other partners also.
Q. One of our partners is going to retire, can we continue the partnership?
A. If provisions have been made in the agreement; the partnership can be carried out even after the retirement of any of the partners. Otherwise as a general rule, the retirement of a partner changes the constitution of the partnership and the remaining partners cannot carry on the business.
Q. One of our partner in a firm is going to retire do he need to give public notice?
A. Yes public notice is mandatory if the partnership is registered under Partnership Act, 1932.
Q. Without giving public notice can a partner retire from partnership/firm?
A. Only a sleeping partner can retire from the firm without giving any public notice to this effect.
Q. There is no partnership agreement how partners should share the profit?
A. According to section 13(b) of the Partnership Act, 1932 partners are entitled to share equally in the profits earned and shall contribute equally to the losses sustained by the firm subject to agreement between the parties.
Q. In our firm one of partner wants to introduce a new partner can I stop him?
A. Yes, according to Partnership Act, section 31 every partner is entitled to prevent the introduction of a new partner into the firm without their consent.
Q. Can a partner on his own submit a dispute relating to the business of the firm to arbitration?
A. No not without others partners permission.
Q. Can I register my firm’s name as trademark?
A. Yes firm name can be registered as a trademark.
Q. Is suit filed by un-registered firm is maintainable?
Q. I am entering into partnership business with my friend already there firm is working for many years I will be introduced as a new partner. My question is will I be liable for any debts which are on the firm before I entered?
A. Section 31 of the Partnership Act, 1932 provides that an incoming partner does not become liable to the creditors of the firm for anything done before he became a partner. He may, however, by an express agreement entered into at the time of admission, become liable to such debts. The operation on the account should not be stopped at the time of new admission, but a fresh mandate or partnership letter, duly signed by all the partners, should be obtained to cover the future operations on the account. In case the account has a debit balance, and the new partner has not got agreed to accept the debit balance of the old partners, the operation on the account should be stopped forthwith.
Q. Is partnership law is different from province to province in Pakistan?
A. Partnership in Pakistan is governed by Partnership Act, 1932 which extends to the whole of Pakistan.
Q. Do I need permission to conduct business in Karachi when I already registered my firm in Lahore?
A. No you can open office anywhere in Pakistan.
Q. My partner is taking too high of a salary. What can I do in accordance with law?
A. It depends on partnership agreement what does it say? Absent in agreement then partners cannot take any salary for their services, they must take profits from the partnership. Unless the agreement says otherwise, all partners are entitled to equal share in the profit.
Q. Are all partners in a partnership are personally liable?
A. Yes all the partners are personally liable for all business obligations and debts jointly and severally. Please contact AMLAW law firm for further details & professional business & legal consulting.
You may contact AMLAW if you need any legal advise related to Partnerships.
Disclaimer: The information available above is not intended to be comprehensive, and many details which may be relevant to particular circumstances have been omitted. Accordingly, it should not be regarded as being complete source of partnership law information, and web users are advised to seek independent professional advice before acting on anything contained herein. AMLAW will not take any kind of responsibility for the consequences of errors or omissions.