By Sukhmani Kaur
Section 30 of the Indian partnership act, 1932 contains legal provisions about a minor in a partnership. Now we know the Indian contact act,1857 clearly states that no person less than the age of 18, ie a minor can be a party to a contract. And a partnership is a contract between the partners. Hence a minor cannot be a partner in a partnership firm.
However, according to the partnership act, a minor may be admitted to the benefits of a partnership. So while the minor will not be a partner he will enjoy all the benefits of partnership all of the partners of the firm must be in an agreement.
Rights of a minor partner
Once the minor is given the benefits in a partnership certain rights enjoy. Let us take a look at the rights of minor partner :
1. A minor partner will obliviously have the right to his share of the profits of the firm. But the minor partner is not liable for any losses beyond his interests in the firm. So a minor partner’s assets cannot be liquidated to pay the firms liabilities.
2. He can also like any other partner inspect the books of accounts of the firm. He can demand a copy of the books as well.
3. If necessary he can sue any or all of the other partners for his share of the profits or benefits.
4. A minor partner on attaining majority has the right to become a partner of the firm. He has six months from attaining the majority to decide if he will execute this right. Whether he decides to become a partner or not he must give public notice about the same.
Liabilities of a minor partner
1. A minor cannot be held personally liable for the losses of the firm. And of the firm declares insolvency the minor’s share it kept with the official receiver.
2. After turning 18 the minor partner can choose to become a partner of the firm. But he may choose to not become a partner. In this case, the minor partner has to give public notice about this decision. And the notice has to be given within 6 months of gaining a majority. If such notice is not given even after 6 months of gaining a majority. If such a notice is not given even after 6 months then the minor partner will become liable for all the acts done by the other partners till the date of such notice.
3. Should the minor partner choose to become a partner he will be liable to all the third parties for the acts done by all partners since he was admitted to the benefits of the partnership.
4. If he becomes a full–time partner he will be treated as a normal partner and have all the liabilities of one. His share in the profits and property of the firm will remain the same as it was when he was a minor partner.
Relation of partners with one another
All the partners are free to form their terms and conditions concerning functioning in their partnership deed. The Indian partnership act, 1932 has also prescribed provisions to govern their relationship inter se (amongst them ) and these provisions are applicable if no such deed exists. Let us look at the duties and the rights of partners.
Right to determine the relationship
Partners can determine their mutual rights and duties by a contract called partnership deed, which determines an aspect of general administration, such as which partner will do what work, what will be their share in profits, etc. It may be varied by express or implied consent of all the partners. Such a deed can be expressly made or implied by a course of dealing. For example, if one partner checks accounts of the firm daily and others do not object, his conduct will be presumed to be a right of all partners in the absence of a written partnership deed between them. So they can themselves determine the rights of partners.
Agreement in restraint of trade is valid
Section 27 of the Indian contracts act, 1872 declares contracts in the restraining exercise of a lawful profession, trade or business are invalid.
Section 11 of the partnership act, however, states partners can validity levy such restraint on each other, but such restraint must be provided for under the partnership deed. Partners can use this agreement to prohibit each other from carrying on any business other than that of the firm.
Rights of partners inter se
Partners can exercise the following rights under the act unless the partnership deed states otherwise:
1. Right to participate in business: Each partner has an equal right to take part in the conduct of their business. Partners can curtail this right to allow only some of them to contribute to the functioning of the business of the partnership deed states so.
2. Right to express opinions: Another one of the rights partners is their right to freely express their opinion. Partners, by a majority, can determine differences concerning ordinary matters connected with the business. Each partner can express his opinion to decide such matters.
3. Right to access books and accounts: Each partner can inspect and copy books of accounts of the business. This right applies equally to active and dormant partners.
4. Right to share profits: partners generally describe in their deed the proportion in which they will share profits of the firm. However, they have to share all the profits of the firm equally if they have not agreed on a fixed profit sharing ratio.
5. Right to be indemnified: partners can make some payments and incur liabilities through their decisions in the course of their business. They can claim indemnity from each other for these decisions. Such decisions must be taken in a situation of emergency and should be of such nature that an ordinarily prudent person would resort to them under similar conditions.
6. Right to interest on capital and advances: partners generally do not get an interest in the capital they contribute. In case they decide to take an interest, such payment must be made only out of profits. They can, however, receive interest of 6% p.a for other advances made subsequently towards the business.
Case laws :
1. Commissioner of income tax, Mysore. Bangalore, v.M/s shah Mohandas Sadhuram, Mysore AIR 1966.
2. Shivagauda Ravji Patil v. Chandrakanta Neelkanth Sadalge , AIR 1965 .
3. Commissioner of income tax, Bombay v. M/s Dwarkadas Khetan and co. AIR 1961.
What happens when a minor attains the age of majority?
Within six months of his or her attaining the age of majority, he or she has to give notice regarding below :
1. Whether he or she wishes to continue as a partner in the partnership firm.
2. In case he or she does not announce gaining the age of majority, he or she will be treated as a full-fledged partner.
3. Additionally, when he or she chooses to become a partner or is deemed to be a partner, his or her liability becomes unlimited with effect from the date of his or her announcement. In the case where announcement has not been done, after the expiry of the 6 months.
The minor as a partner can enjoy all the benefits of the partnership by fulfilling all the requirements of an agreement. The minor enjoys the various rights and also fulfils the duty as a partner. According to the partnership act, 1932 the firm can’t be built with a minor as the only partner of the partnership firm.
Author- Sukhmani Kaur
BA. LLB(H), (2nd year)
Asian Law College, Noida