Introduction:
Partnership is the relationship, it is not as such as organization in its own right with a separate legal personality. Unlike a company, therefore, a partnership cannot of itself make contracts, employ people, commit crimes, or even be sued ,any more than a marriage can. Where we talk of partnership( or frequently of a firm) we simply mean the partners who comprise the partnership. Rather like marriage, a partnership is a relation, or perhaps, as the law commission recently suggested , an association, which if established governs the right and duties between the parties and their relationships vis-à-vis the rest of the society.
Section 4 of the Indian contract act 1872, also mentions partnership as the relationship between some persons. But all individuals cannot be partners. Therefore it becomes important to make a reconnoiter that what are the essential features of a partnership. Going through section 4 of the Indian partnership act, 1932, there are four essential features that one can draw out:
(1) There must be an agreement to constitute partnership.
(2) Partnership must be organized to constitute a business.
(3) There must be an agreement to share the profit of the business between the partners
(4) The business must be carried on by all or any of them acting for all
Even if all these essentials are met with, then also there are some categories of individuals who are not competent to enter into the partnership agreement. Minors are such category of individuals who are not competent to enter into the partnership deed even though all the requirements of section 4 are met with. It is important to find out why this exception has been made and what was the intention of the legislature while making such an act? Is minor really incompetent to enter into the partnership deed? What is the nature of law relating to minors in other countries? What are the conditions when a minor can enjoy the benefits of the partnership without being a partner to the partnership firm? These are some of the questions that my research paper deals with in the subsequent paragraphs.
English law:
An individual under the age of 18 years cannot contract business debts or face bankruptcy on them. He can become a partner with a right to profits and the power to bind the firm , but can disaffirm the partnership relationship when he attains his majority. he cannot be liable for his proposed contribution to capital or for firms debt incurred during his minority. His adults partners are alone liable for them , even if it was he that bound the firm by them; they cannot evade liability merely because he is a minor. But he is liable for his own wrongs, though not for the fraud for misrepresenting that he is an adult; such misrepresentation will not be implied merely from his carrying on the trade. Nor will the claim against him in the tort will succeed if it is essentially of the contractual nature . he cannot take a share in the profits and assets whilst rejecting the liability; so the adult partner can insist that the partnership assets are applied in discharging the partnership liabilities before anything is paid to the minor.
On attaining his majority the minor must elect to affirm or disaffirm the partnership, but if he disaffirms he can only recover a premium that has been paid for his entry into the partnership firm if there has been a total failure of consideration. If he fails to disaffirm he will be liable for the partnership debts and obligations not incurred during the minority but incurred thereafter.
In Goode vs. Harrison (1821) 5 B&A.147, there was an infant who was known to be a member of the firm. On attaining majority, he did not expressly either affirm or disaffirm the partnership. However he was held liable for the debts incurred by his co-partners subsequently; when he attained majority. according to the court’s view an infant when he becomes major must take care to notify that he had ceased to be partner if he desires to avoid liability.
Position of law relating to the minor as a beneficiary to the partnership under Indian law –
Under Indian partnership act, 1932, section 30 provides for the law relating to the minor as the partner. All the efforts are made while making the law to take into consideration the interest of the minor when he is admitted to the benefits of the partnership and that of the firm.
The immunity against the personal liability conferred on a minor admitted to benefits of partnership sub-s(3) is taken away on his becoming a partner under sub section (5) and his personal liability to third parties relate back to the date when he has admitted to the benefits of partnership as provided in sub section(7).in the undermentioned case, the court held that subsection (7) indicates that the rights and liabilities of such person becoming a partner under sub section 5 would relate back to the date when he was admitted to the benefits of partnership and name of such person should appear in the register of the firms with the names of all other persons who were partners at the time when cause of action arouse to avoid the bar of section 69(2). Before a creditor can take advantage of sub-section (5), it must be proved that the minor has been admitted to the benefits of the partnership. If a minor becomes a partner under sub section (5), there is no break in the continuity of the partnership.
It is perhaps not a very apt use of language, but it is well established, to speak of partner’s share as being liable when what is meant is that his claim on the firm’s funds are subject to prior claims, and that in certain events that may be result, be no share at all. A partner’s share like that of a shareholder in a company, is not a piece of tangible property or a specific fund. It is a personal right to claim a certain proportion of capital, at the proper times, if and whenever it is found that there is any profit to divide and any surplus assets to distribute.
On attaining majority he has to decide within six months whether he shall remain in the firms or leave it. These six months run from the date of majority or from the date when he first comes to know that he has been admitted into the firm. within this period he should give public notice that he has elected to become or that he has elected not to become a partner on the expiry of six months.
If he becomes a partner his rights and liabilities will be similar to those of a full-fledged partner. He will be personally liable for all the acts of the firm done since he was first admitted to the benefits of the firm. His share in the property and profits remains the same as was before unless altered by the agreement.
If he elects to become a partner-
(a) His rights and liabilities shall continue to be those of a minor up to the date of the public notice.
(b) His share shall be liable for any acts of the firm done after the date of the notice,
(c) He shall be entitled to sue the partners for his share of the property and profits.
A minor admitted to the benefits of partnership has the option to become a member within a period of six months of his attaining authority. If he elects to become a partner, he becomes personally liable for all the acts of the firm to which he has admitted to the benefits of the partnership.
Incapacity of a minor for being full-fledged partner-
The very basis for the partnership is that the partners must be competent to enter into the contract. Section 11 of the Indian contract act,1872 clearly lays down that the following persons are incompetent to contract-
(1) Minors
(2) Persons of unsound mind, and
(3) Persons disqualified by law to which they are subject
A minor is incompetent to contract and therefore a contract of partnership cannot be entered into with the minor. The only concession that section 30 gives is that the minor can be admitted to the benefits of the existing firm. This can be done only with the consent of all the partners. A partnership deed that attempts to make a minor a full-fledged partner is invalid to that extent.
In I.T.Comm. vs. Dwaarkadas & Co. (AIR 1967 SC 680) it was held that section 30 did not render a minor a full partner and any document which made a minor a full partner and goes beyond section 30 is not valid. Similarly in The Addl. Comm. I.T. vs. Uttam Kumar(AIR 1978All 397) it was held that the minor cannot be a full partner liable to share loss. He can only be admitted to the benefits of the partnership.
Minor Admitted to the benefits of partnership:-
If the minor is not the full-fledged partner than what are the rights and liabilities of the partners in the firm, is the first question that comes in the mind.
Minor has the right to receive his agreed share of the property and of the profits of the firm. For the purpose of finding out his share, and even otherwise, he may have access to and inspect and copy any of the accounts of the firm. But as long as he remains in the firm he does not have the right to sue the partners for an account or payment of his share of the property or profits( referred from sub section 3).
If the minor wants to sue the firm than he has to sever his connection with the firm. When he gives notice to the partners of his intention to leave the firm, any partner or all of them who have the right to dissolve the firm may elect in such a suit to dissolve the firm. The court then shall proceed with the suit as one for dissolution. In either case the share of the minor is to be ascertained in accordance with the rules in section 48 of the Indian contract act.
The legal position of a minor, not being a partner in the firm, has its impact on the right to file the suit for a dissolution, as envisaged under section 44 of the Indian partnership act 1932. A suit filed by the minor for dissolution of the firm would be incompetent. This suggests that the minor is incapable to dissolve the firm in case of the seven grounds mentioned under section 44. Minor can only be admitted to the benefits of the partnership and he only acquires the character of the full-fledged partner when he himself elects to become the partner as elucidated under section30 clause (5).
The minors share in the property and the profits is liable for the acts of the firm. He is entitles to only what would fall to his share after paying off the liabilities of the firm. But he is not personally liable for the act of the firm.
The scope of the words ‘benefits of partnership’ was explained in the decisions as including non-profit sharing , but in the event of dissolution, sharing the assets of the firm.
Adult members of the firm cannot be prevented from offering the benefits of partnership to the minor , but they cannot entitle him to sue them for an account or otherwise as on a contract. Still less can a minor’s guardian enter into a partnership on his behalf and bind his share. Sub-section (5) contemplates that the guardian may have accepted the benefits of the partnership on behalf of the minor without his knowledge. The guardian has the power to scrutinize the terms and accept the conditions and do all that is necessary to effectuate the conferment receipt of the benefit. The important point, however, is that his share in the firm’s property is subject to the firm’s debt.
Conclusion:
The intent of the legislature while drafting this law seems to provide the benefit to the minor that the partner enjoys. But not all the benefits, he only enjoys a few. Otherwise he would be termed as the minor as the partner under section 30 of the partnership firm. But the words used are- minor as the beneficiary to the partnership. Thus in certain conditions, minor is open to enjoy the privileges of the partner but not all the privileges. He can only fit into the shoes of the full-fledged partner when he attains majority and he himself elects to be the partner of the firm. The very basic pre requisite of partnership deed, that the contract/agreement should be formed between the partners is the criteria that the minor cannot fulfill. He is incompetent to form the contract. Thus he cannot be a full-fledged partner to the partnership firm until and unless he attains the age of majority. Thus it is fully justified to term the minor under section 30 of the Indian partnership act as the beneficiary to the partnership and not as the partner to the partnership firm.
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