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Minor Partner

Courtesy/By: Niharika Shukla | 2020-01-17 19:32

Minor Partner:

A minor partner is a partner who is not major (not completed 18 years). A minor cannot enter into a contract according to Section 20 of Partnership Act. A contract with minor is void. Since partnership is a relation resulting from contact, therefore a minor cannot be a partner in a firm. A minor can be admitted to the benefits of a partnership with the consent of all other partners for the time being. This can be done in a firm which already exists. He cannot be a full fledged partner.

A minor cannot become a partner in the firm:-

1.
 But he can admit to the benefit of partnership business with the consent of all other partners. This can be performed by an agreement executed by his guardian on his behalf with the existing partners of the firm.

2. A minor will be entitled to his agreed share of the property and of the profits of the firm.

3. He is not personally liable for the obligations of the firm but his share in profit and property may be liable for the debts of the firm.

4. He can file a suit for accounts and for his agreed share of property or profit when he severs his connection with the firm.

5. He has a right to inspect and copy books of accounts of the firm.

Position of a minor after attaining maturity:-
Within six months of his attaining maturity, a minor has to decide whether he wants to become full-fledged partner or not. He may give public notice of his consent to become partner.

A. In case of becoming partner:-
After attaining maturity and option to become a partner, his position will be as follows:

1.
 He will be personally liable for all obligations of the firm incurred since he was admitted to the benefits of the partnership.

2. The right and liability of the minor after attaining maturity continue to be those of a minor.

3. His interest into his business i.e. shares in profit and property of the firm shall be the same which he has got as a minor.

4. He can perform the role of an agent and can bind the other persons by his act.

5. He is entitled to conduct the management of the business.

B. In case of not becoming partner:-
If minor doesn't want to become full-fledged partner after attaining maturity, his position will be as under-

1. He will not be liable for all the debts or obligations of the firm after the date of notice.

2. He has right to sue the partners for his share of the profits in property.

Rights of a Minor in a Firm:

  1. A minor has a right to have access and inspect and copy any of the accounts of the firm.
  2. The minors share is liable for the acts of the firm but his personal property is not liable for the debts of the firm.
  3. The minor on severance can sue the partners for account.

Liability of a Minor in a Firm:

  1. The share of a minor in the firm is liable for the acts of the firm.
  2. The personal property of the minor is not liable for the debts of the firm.

 In the landmark case of Commissioner of Income Tax v. D Khetan and Co., the Apex Court made the legal stand clear on this issue by stating that where a minor is made a full-fledged partner in the firm, the firm could not be registered by the Income Tax Department. In case the Income Tax Department does register such a partnership firm, a new contract is to be made where the minor is admitted only to the benefits of the firm, and the original contract will be rendered invalid by registration of the new contract. Therefore, the proposition of the law is very clear. The partnership deed has to make it specifically clear that the minor is admitted only to the benefits of the firm and is not personally liable for the losses.

Courtesy/By: Niharika Shukla | 2020-01-17 19:32