Indian Partnership Act
Partnership at Will: Section 7
Most firms are formed without saying how long they will last. Section 7 gives that arrangement a name and a consequence. Where the contract makes no provision for the duration of the partnership, and none for its determination, the firm is a partnership at will, and any partner may bring it to an end by a notice in writing under Section 43. Both conditions must be absent: a single clause on either takes the firm out of Section 7. This note explains the essentials, the notice, and the contrast with a firm for a fixed term.
The two questions that decide whether a firm is at will, dissolution by notice under Section 43, and the comparison with a fixed-term firm
1. The Provision
§ Section 7 Where no provision is made by contract between the partners for the duration of their partnership, or for the determination of their partnership, the partnership is 'partnership at will'. Two conditions, both negative. There must be no provision for duration, and no provision for determination. Either one is enough to exclude it. A term of five years fixes the duration; a clause that the firm shall stand dissolved when a licence expires provides for determination. Either takes the firm outside Section 7. |
2. The Essentials
§ What must be shown • A valid partnership exists between the parties. • No fixed duration: the contract does not say for how long the firm is to continue, and does not tie its life to a term, a venture or an event. • No provision for determination: the contract does not provide a method or an event by which the partnership is to come to an end. • Read the whole contract. The provision need not use the words 'duration' or 'determination'; it may be implied. A clause that the firm shall continue notwithstanding the death of a partner has been treated as bearing on this question, so read every clause before concluding. |
3. Dissolution by Notice: Section 43
Requirement | The position |
|---|---|
Who may give notice | Any partner of a partnership at will |
Form | A notice IN WRITING; an oral communication is not enough |
To whom | To all the other partners |
Content | An intention to DISSOLVE the firm, not merely to retire from it |
Effect | The firm is dissolved from the date mentioned in the notice as the date of dissolution, or, if no date is mentioned, from the date of communication of the notice |
Withdrawal | Once given and communicated, the notice cannot be withdrawn without the consent of the other partners |
Motive | The partner need not give reasons; but the conduct of the dissolution is subject to the duty of good faith in Section 9 |
4. Partnership at Will and Partnership for a Fixed Term
Basis | Partnership at will | Fixed-term or particular partnership |
|---|---|---|
Duration | Not fixed by the contract | Fixed by a term, an event or a venture |
How it ends | Notice by any partner under s. 43, or by consent, or by the court | Expiry of the term, s. 42(a); completion of the venture, s. 42(b); consent, s. 40; or the court, s. 44 |
Leaving early | A partner may dissolve at any time without breach | A partner who leaves early may be in breach, and liable in damages, subject to the deed |
Certainty | Flexible, but insecure | Secure for the term, but rigid |
If it continues after the term | Not applicable | The mutual rights and duties continue as before so far as consistent with the incidents of a partnership at will: Section 17(b) |
5. Practical Points
i. Drafting. If the partners want stability, the deed should state a term, or the events on which the firm will end; otherwise any partner can dissolve it overnight.
ii. Retirement is different. In a firm at will, a partner may retire by notice under Section 32(1)(c) without dissolving the firm; a notice of dissolution under Section 43 ends the firm for everyone.
iii. Proof. Where it is disputed whether a firm is at will, the burden lies on the party asserting a provision for duration or determination.
iv. Court's power. Even a firm at will may be dissolved by the court under Section 44, for example on a partner's misconduct, where a partner prefers a judicial dissolution.
6. Frequently Asked Questions
What is a partnership at will?
A partnership where the contract makes no provision for the duration of the partnership or for its determination, under Section 7.
How is a partnership at will dissolved?
By any partner giving notice in writing to all the other partners of his intention to dissolve the firm, under Section 43.
From when does dissolution take effect?
From the date mentioned in the notice, or, if none is mentioned, from the date of communication of the notice.
Can the notice be withdrawn?
Not unilaterally. Once communicated, it can be withdrawn only with the consent of the other partners.