Legal Capacity of a Minor in Indian Partnership Firm

This article examines the legal provisions governing the inclusion of a minor as a partner under the Indian Partnership Act, outlining rights and limitations

Introduction

The Indian Partnership Act, 1932 (hereinafter referred to as the “IPA”) is legislation that delineates the framework for partnerships in India. According to the Indian Partnership Act partners in a partnership agreement agree to share profits of the business. As per the Indian Contract Act (hereinafter referred to as “ICA”) a minor cannot enter into a contract. Under Section 3 of the Indian Majority Act, a minor is someone who is below 18 years of age.

Both laws make it clear that a minor can only share in the benefits of a partnership if at least two adults agree to let the minor be a part of it. A minor, on the other hand, cannot become a partner through a parent or guardian.

According to Section 30(5) of the Indian Partnership Act, 1932:

Within six months of reaching the majority or becoming aware of their admission to partnership benefits, whichever is later, the individual may issue a public notice indicating their decision to become or not become a partner in the firm. This notice will then define their status concerning the firm.

Essential Components of a Partnership

Partnership involves several partners joining together with an agreement with the motive to run a business jointly. The essential ingredients for a valid partnership agreement are as follows:

• There must be an association of two or more partners.
• There must be an intention to form an agreement between partners.
• There must be a lawful commercial activity.
• The motive of the partners is to earn and share profits from the business.
• There must be a creation of mutual agency which is the formation of an agreement involving that the business should be carried out jointly or anyone is acting on behalf of all.

Legal Position of Minor in India

According to Section 30 of Indian Partnership Act:

A person who is a minor according to the law to which he is subject may not be a partner in a firm, but with the consent of all the partners for the time being, he may be admitted to the benefits of partnership.

Minors' contracts have been considered void ab initio by various judicial decisions like Mohori Bibee v. Dharmodas Ghose (1903) 30 I.A. 114

Rights of Minor Partners

• A Minor can share profits from a partner with the same rights as a full partner.
• Minor is entitled to receive their agreed-upon portions of the profits of the firm.
• Minors are not personally responsible to third parties for the firm's debts. Instead, they are only responsible for what they owe out of their share of the partnership's assets and income.
  
• Minor's personal property cannot be used to pay off the debts if the joint property is not enough to cover the debts.
• A minor can only pursue legal action against partners for their share of property or profits when ending their association with the firm. In such circumstances, the valuation of their share follows the rules outlined in Section 48.

Case Law

Dwarkadas Khetan & Co. v. Commissioner of Income-Tax, AIR1956 BOM 321

In this case, the Supreme Court said,

"the Rules which have been framed under s. 26A quite clearly show that a minor who is admitted to the benefits of partnership need not sign the application for registration."

The law requires all partners to sign the application, and if the definition were to be carried to the extreme, even a minor who is admitted to the benefits of partnership would be competent to sign such an application. The definition is designed to confer equal benefits upon the minor by treating him as a partner, but it does not render a minor a competent and full partner. For that purpose, the law of Partnership must be considered, apart from the definition in the Income Tax Act.

Section 30 of the Indian Partnership Act clearly lays down that a minor cannot become a partner, though with the consent of the adult partners, he may be admitted to the benefits of partnership.

Conclusion

Although minors can be granted the benefits of partnership under the Indian Partnership Act, their participation is restricted, necessitating careful attention to safeguard their interests.

References

[1] Indian Partnership Act, 1932, Available Here

[2] Position of Minor as a Partner, Available Here