This article is written by Abhay Pandey, Student, K.S. Saket P.G. College, Ayodhya
According to Section 3 of the Indian Majority Act, a person who has not attained the age of majority i.e. 18 years, is known as minor.
Section 4 of the Indian Partnership Act, 1932, defines partnership and partner as follows:
‘Partnership is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into a partnership with one another are called individually “partners” and collectively a “firm”, and the name under which their business is carried on is called the “firm name”.
In simple words, a partnership is an agreement between the persons to share the profits of a business and the persons who enter into this agreement are called partners.
As we have seen in the Indian Contract Act, 1872, minors cannot be a party to an agreement. An agreement involving a minor is void-ab-initio. However, the Indian Partnership Act has its own sets of legal rules regarding minors.
Minor admitted to benefits of partnership
A partnership firm cannot be formed with a minor as the only other member. The relation of partnership arises from a contract. In Shriram sardarmal didwani v. Gourishankar, it was held that a minor is incompetent to contract and, therefore, a contract of partnership cannot be entered into with a minor.
In CIT v. Dwarkadas & Co, the Supreme Court held that a minor cannot become a full-fledged partner in an existing firm. The only concession that section 30 gives is that a minor may be admitted to the benefits of an existing firm. The Hon’ble judge then continued to observe:
“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. Any document which goes beyond this section cannot be regarded as valid for the purpose of registration.”
In S.C. Mandal v. Krishnadhan it was held that under S. 4 of the Partnership Act, a firm means a group of people who have entered into a contract of partnership among themselves and reading it with S. 11 of the Contract Act, it can be interpreted that a minor cannot be a part of the contracted partnership. A minor can only be admitted to the benefits of a partnership, and that partnership has to exist independently. Also, there cannot be a contract between two minors. In short, there should be a partnership between two major partners before a minor can be admitted to its benefits.
Rights of Minor
- A minor admitted to the benefits of a partnership has all the rights of a full partner.
- Such minor is entitled to his agreed shares of the property and of the profits of the firm.
- Such minor has the right to access and taking copies of the book of accounts of the firm. It follows that he has no right of access to those other books of the firm which do not contain matters of account.[Section 30(2)]
- Such 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.
For example, if the partnership assets fall short in distinguishing the debts of the firm the separate personal property of the minor cannot be applied for the payment of the debts.
- Such 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 serves his connection with the firm.[Section 30(4)]
- Such minor is not entitled to take part in the conducting of the business as he has no representative capacity to bind the firm.
- Where the minor becomes a partner by his own choice or by failure to give within the specified time i.e. six months after attaining the age of majority, he becomes personally liable to the third parties for all the debts of the firm retrospectively from the date of his admission to the benefits of partnership.
- Rights of the minor if he elects not to become a partner:
- His rights and liabilities shall continue to be those of a minor up to the date of giving public notice;
- His share shall not be liable for any acts of the firm done after the date of the notice;
- He shall be entitled to sue the partners for his share of the property and profits.
- If after attaining the age of majority but before choosing to become a partner the minor represent and knowingly permits himself to be represented as a partner in the firm, he will be personally liable to anyone who on the faith of such representation granted credit to the firm on the ground of ‘holding out’.
Liabilities of minor
Liability during minority [Section 30(3)]
Sub-section 3 of section 30 says that “such minor’s share is liable for the acts of the firm, but the minor is not personally liable for any such act.”
In Addepally Nageswara Rao and Bros v. CIT, the Andhra Pradesh High Court held that:
“In case he contributes capital or is entitled to get benefit in the profits of the firm, it is to that extent that the liability can be fastened on the minor. But in no case, the person of the minor or his other property which he has not brought into the assets of the partnership can be held liable. That is the purport and scope of Section 30(3) of the Indian Partnership Act.”
Liability after attaining the age of majority
Sub-section (5) to (9) of section 30 of the Indian Partnership Act deal with consequences of a minor partner attaining majority as follows
- He is given six month’s time to decide whether he should leave the firm or continue in it by becoming a full-fledged partner. This is called the minor’s choice, namely the right to opt out of the firm or stay in it. [Section 30(5)]
- Where the minor claims that he had no knowledge of his admission and, therefore, he should be allowed six months from the date of knowledge, the burden of proof lies on minor that he had no knowledge.[Section 30(6)]
- When minor becomes a partner
- He will be treated as a normal partner, but he also becomes personally liable for all the acts of the firm done since he was first admitted to the benefits of partnership.[Section 30(7)(a)]
- His share in the property and profits of the firm shall remain the same as it was during his minority.[Section 30(7)(b)]
- Where the minor elect not to become a partner
- His rights and liability will continue to be the same up to the time on which he gives public notice.[Section 30(8)(a)]
- From the date of public notice, the liability of his share ceases for any future acts of the firm.[Section 30(8)(b)]
- He becomes entitled to sue the partners of the firm to recover his share of property and profits.[Section 30(8)(c)]
- Where in spite of notice, the minor does an act which amounts to a representation that he is a partner in the firm, Section 28 i.e. holding out of this act immediately come into existence and liability would arise towards any person who gave credit to the firm putting his faith upon the representation.[Section 30(9)]
From the above discussion, we can say that a partnership firm cannot be formed with a minor as the only other member. The relation of partnership arises from a contract. According to section 11, a minor is not competent to contract. In Dwarkadas khetan case Hon’ble Supreme Court held that a minor cannot even become a full-time partner in the existing firm. In CIT v. Shah Mohandas Sadhuram, it was held that a minor may be admitted to the benefits of an existing firm.