Law Legal Studies · Commerce Accountancy

Partnership and Business Law

1,019 Questions

Test your knowledge of partnership regulations and business law with these practice questions. The topics include the rights of minor partners, firm dissolution, retirement rules, and public notices. This material is crucial for law exams and legal studies.

Rights of minor partnersPublic notice requirementsFirm dissolution rulesPartner retirementHolding out partner principlePartnership deed provisions

Partnership and Business Law Questions

Multiple choice

Articles of association is a concept of

  1. Partnership Act

  2. Negotiable Instruments Act

  3. Companies Act

  4. Indian Penal Code
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Articles of association is a concept of the Companies Act. 

Multiple choice

Which of the following is correct?

  1. The liability of partners of a firm is unlimited

  2. Generally the liability of a member of a company is limited but it can be unlimited

  3. The liability of partner of firm is same as a member of any company

  4. All of these
Reveal answer Fill a bubble to check yourself
C Correct answer
Multiple choice

Implied authority of the partner does not empower him to

  1. open a bank account on behalf of the firm in his own name

  2. compromise or relinquish any claim or portion of a claim by the firm against an outsider

  3. both of the above

  4. none of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Implied authority of a partner allows routine business acts but not extraordinary decisions. Opening a bank account in one's own name or compromising claims without specific authority exceed implied powers. Both options A and B correctly list acts outside implied authority.

Multiple choice

Compulsory Dissolution includes

  1. dissolution by the adjudication of all the partners or of all the partners but one as insolvent

  2. dissolution by the business of the firm becoming unlawful

  3. both (1) and (2)

  4. none of the above
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Compulsory dissolution occurs by operation of law, not partner choice. When all partners or all but one are adjudicated insolvent, or the business becomes unlawful, dissolution is mandatory. Option C correctly lists both compulsory grounds.

Multiple choice

The rights of a minor when admitted to the benefits of the partnership include

  1. right to share of the property and profits of the firm as may be agreed upon

  2. right to have access to and inspect and copy of the account of the firm

  3. right to cast his vote on the question of appointment of the managing partner

  4. (1) & (2) but not (3)
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

A minor admitted to partnership benefits can share profits/property and access/inspect firm accounts, but cannot vote on management decisions like appointing managing partners. Option D correctly combines these two rights while excluding the voting right.

Multiple choice

Which of the following is correct

  1. liability of a partner in a partnership firm is unlimited

  2. liability of a member of a HUF is unlimited

  3. both (1) and (2)

  4. none of these
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Partners have unlimited liability for firm debts, meaning personal assets can be used to pay firm obligations. HUF members have limited liability restricted to their share in the family property. Option A correctly states unlimited partner liability. Option B incorrectly suggests HUF members have unlimited liability.

Multiple choice

Agreement to share profits ______________.

  1. implies an agreement to share losses

  2. does not necessarily mean an agreement to share losses

  3. must be coupled with an agreement to share losses

  4. is same as agreement to share losses
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

An agreement to share profits does not automatically imply an agreement to share losses. Partners can structure their arrangements such that profit-sharing is independent of loss-bearing. This is a recognized principle in partnership law where the terms of the agreement determine the rights and obligations of the parties, not automatic implications from profit-sharing alone.

Multiple choice

Goodwill of the partnership business can be regarded as

  1. the property of the firm

  2. the property of the firm, subject to a contract between the partners to this effect

  3. the property of the firm, irrespective of a contract between the partners to this effect

  4. the property of the firm, subject to order of the High Court to this effect
Reveal answer Fill a bubble to check yourself
B Correct answer
Explanation

Goodwill is an intangible asset representing the reputation and customer connection of a business. In partnership law, goodwill belongs to the firm but the rights to it depend on what partners have agreed upon in their partnership deed. If the deed specifies how goodwill is treated on retirement/dissolution, that contract prevails. Option B correctly states goodwill is firm property subject to contract between partners. Option A incorrectly omits the contractual aspect, C wrongly states it's independent of contract, and D incorrectly involves High Court orders.

Multiple choice

A minor when admitted to the benefits of the partnership

  1. is liable for all the liabilities of the firm in person

  2. is liable for all the liabilities of the firm through his properties

  3. is never liable for any of the liabilities of the firm

  4. is liable in accordance with the provisions of sub-section (3) of section 30 of the Indian partnership act, 1932
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

Under Section 30(3) of the Indian Partnership Act, 1932, a minor admitted to partnership benefits is only liable to the extent of their share in the firm's property and profits - not personally liable for all firm debts. Option D correctly references this statutory provision. Options A and B incorrectly state full personal or property liability, C incorrectly states complete immunity from liability. The minor's liability is specifically limited by statute.

Multiple choice

A & B are partners in a partnership firm. A introduced C, a former partner, as his partner to D. C remained silent at that moment, but later on informed D that he is actually a former partner of the firm. C had not issued any public notice in the year of his retirement from the partnership firm. D, a trader knowing well that only A & B are the partners of the firm, supplied 500 refrigerators to the firm on credit. The credit period expired and D did not get the price of his supplies. D filed a suit against A & C for the recovery of price. In light of the above circumstances answer which of the following is correct

  1. C is liable for the price to D, only if the element of fraudulent intention is present

  2. C is liable for the price to D, irrespective of the fact, whether the element of fraudulent intention is present or not

  3. C is not liable for the price to D

  4. C is liable to D because he had not issued any public notice of his retirement from the partnership firm
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

Under Partnership Act, a retiring partner remains liable for firm debts incurred after retirement unless a public notice of retirement is given. However, liability extends only to contracts where the third party believed the retired person was still a partner. Here, D knew C was a former partner before supplying goods. C correctly informed D of his retirement status. Option C is correct - C is not liable because D had actual knowledge of retirement. Fraudulent intent (A) is irrelevant. Option B incorrectly makes C liable regardless, D incorrectly imposes liability for lack of public notice when actual knowledge negates the need for notice.

Multiple choice

The heir of the deceased partner

  1. has a right to become a partner in the firm of the deceased partner

  2. does not have a right to become a partner in the firm of the deceased partner

  3. can become a partner in the firm of the deceased partner only if the surviving partners give their consent in this regard

  4. both (1) and (3)
Reveal answer Fill a bubble to check yourself
D Correct answer
Multiple choice

State which of the following is correct?

  1. There is not much difference in the nature of a partnership from the nature of a HUF.

  2. There is considerable difference in the nature of a partnership from the nature of a HUF.

  3. There is difference in the nature of a partnership from the nature of a HUF because unlike the nature of a HUF, the nature of a partnership is voluntary and contractual.

  4. There is not much difference in the nature of a partnership from the nature of a HUF because both involve a certain interest of a particular individual.
Reveal answer Fill a bubble to check yourself
C Correct answer
Explanation

A partnership is fundamentally a voluntary, contractual relationship between parties who agree to carry on business together. In contrast, a Hindu Undivided Family (HUF) arises by operation of Hindu law - it's automatic, hereditary, and not based on any agreement. This core difference in origin makes C the correct answer.

Multiple choice

The cardinal principle of partnership law implies that

  1. the business must be carried on by all the partners or by anyone or more of the partners acting for all

  2. the business may be carried on by all the partners acting for all

  3. the business may be carried on by anyone or more of the partners acting for all

  4. the business must be carried on in accordance with the decided profit (loss) sharing ratio
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

The cardinal principle of partnership is mutual agency - every partner is both a principal and an agent for the firm. This means the business must be carried on by ALL partners OR ANY ONE partner acting for ALL (which is exactly what option A states). This fundamental principle distinguishes partnership from other business associations.