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Mercantile Laws-I
Notes 11.1.3 Expulsion of a Partner
Sec. 33 provides that a partner may not be expelled from a firm by a majority of partners except in
exercise, in good faith, of powers conferred by the contract between the partners. Thus, a partner
may be expelled from the firm if (i) the power of expulsion is conferred by a contract between the
partners, (ii) the power is exercised by a majority of the partners and (iii) the power is exercised
in good faith. The test of good faith will be satisfied if (i) the expulsion is in the interest of the
partnership, (ii) a notice of expulsion has been served on the partner and (iii) the partner to be
expelled has been given an opportunity of being heard.
11.1.4 Insolvency of a Partner
Sec.34 provides that where a partner in a firm is adjudicated insolvent, he ceases to be a partner
on the date on which the order of adjudication is passed whether or not the firm is thereby
dissolved. It is to be noted that ordinarily but not invariably, the insolvency of a partner results
in dissolution of a firm but the partners may specifically provide that on such a contingency the
firm shall not be dissolved.
11.1.5 Death of a Partner
Sec.42(c) provides that a firm is dissolved by the death of a partner, in the absence of a contract to
the contrary. Sec.35 deals with a situation where after the death of a partner, the firm continues its
business without dissolution and provides that the estate of the deceased partner is not liable for
any act of the firm done after his death. Proviso to Sec.45 lays down an identical rule applicable
to a case where the death of a partner has caused dissolution of the firm. A public notice of the
death of a partner is not required.
11.1.6 Transfer of Partner’s Interest
A partner may transfer his interest in the firm by sale, mortgage or charge. The transfer may
be absolute or partial. But as the partnership relationship is based on mutual confi dence, the
assignee of a partner’s interest cannot enjoy the same rights and privileges as the assignor Sec.29
provides that the transferee, during the continuance of the firm, is not entitled to (i) interfere in
the conduct of business of the firm or (ii) require accounts of the firm, or (iii) inspect books of the
fi rm.
11.2 Types of Partners
There are different types of partners. A person who deals with a firm may have to ascertain,
at some time or the other (such as where the firm has made a default) as to not only who the
partners are, but also to what extent each is liable. The liability is different for different classes
of partners.
1. Actual, active or ostensible partner: Such a partner is a person who becomes a partner
by an agreement, brings capital, actively participates in the functions and management
of the business and shares its profits and losses. He binds himself and other partners, so
far as third parties are concerned, for all the acts done by him in the ordinary course of
the business and in the name of the firm. Such a partner must give a public notice of his
retirement from the firm in order to absolve himself from the liability for the acts of the
other partners done after his retirement.
2. Sleeping or dormant partner: A sleeping partner is one who does not take an active part
in the business of the firm. Sometimes he is called as a financing partner as he contributes
to the capital only but does not participate in the management of the business. Such a
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