Partnership Act 1964 (2020)

The Partnership Act of 1964 (2020) regulates partnership firms in Nepal. As a small or medium-sized firm, understanding the aspects of partnership is crucial for successful collaboration and growth.

How to form a partnership?

 Agreement/Kabuliyat: A kabuliyat is an agreement between persons who have agreed to share the profits of a business carried on by them in a single name. The persons are called “partners’ ‘ and the business is called the ‘firm “.

Registration: Once the partners enter into an agreement, it must be registered within 6 months. Any business carried on without registration shall not be legally valid.

Capital: Partners are obligated to invest only a specified amount of capital, as agreed upon. To increase the capital, partners might voluntarily agree.

Who can form a partnership?

Minimum members: A partnership could be established by a minimum of two individuals through an agreement known as a Kabuliat, a partnership deed.

Restrictions on joint family partnership: Individuals who reside in the same household or operate a joint family business where the inheritance rights are equally shared, are not eligible to establish their business as a partnership.

Removal of Partner: No partner can be replaced within the firm without the unanimous consent of all other partners.

What are the features of a partnership?

Separate Identity: A partnership firm is a separate legal entity and can own property, enter contracts, have a unique identity, and more.

Rights of Partnership: Any property, rights, and interests obtained using the firm’s funds will be considered as the partnership firm’s property. Partners are not allowed to utilize or direct this property for any purpose other than the activities of the partnership business.

 Binding Decision: Partners have the authority to act as representatives of the firm. Any actions or decisions made by a partner in the course of conducting business will be legally binding on the partnership firm.

 Liability: Each partner bears joint liability, along with individual liability, for the activities and obligations of the partnership that occurred during their tenure as a partner. The liability of the partners also depends on the amount/ratio of capital invested by each of them.

 Understanding the aspects of partnership is vital for small and medium-sized firms in Nepal. By following the steps to establish a partnership, adhering to legal requirements, and leveraging the rights and features of a partnership, businesses can foster effective collaboration and navigate their path to success.