Minors right of election

1. Minors right of election —

By the term minor’s right of election is meant the right of minor to choose either to remain or not to remain a partner in a firm, within a prescribed period.

The rule —

At any time within six months of his attaining majority, or of his obtaining knowledge that he had been admitted to the benefits of a partnership, whichever date is later, such person may give public notice that he has elected to become or that he has elected not to become a partner in the firm and such notice and determine his position as regards the firm.

If he fails to give such notice, he shall become a partner in the firm on the expiry of the said six-months. [Section 30(5), Indian partnership act]

Where such person elects not to become a partner :

(a). His rights and liabilities shall continue to be those of a minor under this section up to the date on which he gives public notice;

(b). His share shall not be liable for any act of the firm done after the date of the notice; and

(c). He shall be entitled to sue the partners for his share of the property and profits. [Section 30 (8) Indian partnership Act ].

2. Rights of Partner in Emergency —

A Partner has authority in an emergency, to do all such acts for the purpose of protecting the firm from laws as would be done by a person of ordinary prudence in his own case, acting under similar circumstances, and such acts bind the firm. (section 21)

Essential Requisites —

In order to bind the other partners with the action of a partner in emergent cases, the following requisites must be established :

(A). The act so done was for the purpose of protecting the firm from loss,

(B). In doing the act, the partner exercised the same amount of prudence as he would have done in his own case acting under similar circumstances, that is to say the standard of a person of any ordinary prudence to do the act is required, and if the act in question falls in that class the firm is bound by the act of the partners.

3. Effect of insolvency of partners —

Where a partner in a firm is adjudicated as insolvent he ceases to be a partner on the date on which the order of the adjudication is made.

Section 42 (d) of Indian partnership act lays down subject to contract between the partners, a firm is dissolved by the adjudication of a partner as an insolvent.

Thus, the partner may make contract to the effect that the firm will not be dissolved on the adjudication of insolvency of a partner. But as enacted in section 34 (1) of the act, whether the firm is dissolved or not on adjudication of insolvency of a partner, the insolvent person ceases to be a partner of the firm.

Section 34 (2) of the act provides that where under a contract between the partners the firm is not dissolved by the adjudication of insolvency of a partner, the estate of a partner so adjudication is not liable for any act of the firm and the firm is not liable for any act of the insolvent done after the date on which the order of adjudication is made.

4. Mode of settlement

Section 48 of the Act lays down the mode of settlement of accounts to be observed provided there is no agreement to the contrary. The mode of settlement is therefore subject to agreement between the partners and not independent of it.

(A). Losses —

Losses including deficiencies of capital are to be met first, out of profits and next out of the capital and lastly by the partners themselves pro rata i.e., proportionately.

(B). Assets —

out of the assets, first The debts of the firm due to third parties are to be paid and next the advice made by the partners pro rata i.e., (proportionately)

Thereafter the capital contributed to by the partners pro rata and lastly, if the residue is left it salary paid to partners rateably according to their respective shares in profits. These rules were applied in Garner v. Murray.

After the dissolution in this case the loss was there. The assets were not sufficient to pay back the capital contributed by partners. Two of them contributed but the third was not in a position to pay towards the deficiency.

It was held —

(a). Every partner was bound to contribute equally the deficiency.

(b). If a partner failed to contribute the others were under no obligation to contribute.

Also Read —

Rights of partners on the dissolution of a firm

Doctrine of holding out Exception

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