Updated: Oct 8, 2020
According to Section 4 of the Partnership Act 1932, “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all”. A minor is someone who has not attained the age of majority, i.e., 18 years with respect to the laws prevalent in India. Since, minors are not competent to contract with a third party; therefore, the Act has its own set of legal rules when it comes to determining the rights (including but not limited to, various protections) and liabilities of a minor in a firm.
POSITION OF A MINOR PARTNER IN THE FIRM
Section 30 of the Chapter IV of the Indian Partnership Act deals with the position of a minor partner in a partnership firm. Since, a partnership is founded on a contract and the Partnership Act derives its basis from the Contract Act, therefore, Sub Section (1) of Sec. 30 of the Indian Partnership Act clearly prohibits the joining of a minor in a partnership firm. However, the same sub-section permits a minor to be admitted to the benefits of partnership.
RIGHTS AND LIABILITIES OF A MINOR DURING MINORITY
- A minor is entitled to shares of the property and profits of the firm.
- He has the right to access, inspect and take copies of the book of accounts of the firm. However, he has no right of access to those other books of the firm which do not contain matters of account.
- A minor is not personally liable to the third parties for the debts of the firm, but his liability is limited only up to his shares in the partnership assets and profits.
- A minor cannot bring any suit against the partners for an account or payment of his share of the property or profits of the firm unless he first severs his connection with the firm. When there is such a suit by the minor (through his guardian), all the other partners of the firm together or any partner entitled to dissolve the firm, may elect to dissolve the firm by providing a notice to other partners.
- Additionally, the firm cannot file a suit against the minor partner in any case as a minor cannot be sued.
THE ELECTION AFTER ATTAINING MAJORITY
- Within 6 months of his attaining majority or on his knowledge that he had been admitted to the benefits of partnership, the minor partner has to decide whether he wants to remain a partner in the firm or leave the firm.
- -He needs to provide a public notice declaring his choice. If a minor fails to give such notice, he shall ipso facto become a partner in the firm on the expiry of the said six months.
- Further, he needs to provide the proof regarding the absence of knowledge of his admittance to the partnership until after a date of the required 6 months.
IF THE MINOR CHOOSES TO BECOME A PARTNER
No matter the minor becomes a partner by his own choice or by failure to give within the specified time,
- His rights and liabilities as a minor stop on the date when he becomes a partner, and after that, he acquires the same position as that of other partners.
- He is personally liable for all the debts of the firm to the third party retrospectively from the date on which he was admitted to the benefits of partnership.
- His share in the property and the profits of the firm is the same as it was when he was a minor.
IF THE MINOR CHOOSES NOT TO BECOME A PARTNER
Where such person elects not be to become a partner and a public notice served to that effect,
- His rights and liabilities continue as minor till the date of giving public notice.
- His share will not be liable for any acts of the firm done after the date of the notice.
- He can sue the other partners for his share of the property and profits.
IF THE MINOR ‘HOLDS OUT’
If after attaining the age of majority but before choosing to become a partner, the minor represents and knowingly permits himself to be represented as a partner in the firm, and a third party grants credit to the firm based on such representation, then he will be personally on the ground of ‘holding out’.
From the above discussion, we can say that a partnership firm cannot be formed with a minor as the only other member and the minor enjoys special rights under the Partnership Act if entitled to the benefits of partnership.
- LEGAL HUMMING
KHUSHI AGARWAL (CO-AUTHOR)