Partnership Business Law Bangladesh – Complete Legal Guide

Under the Partnership Act 1932 (applicable in Bangladesh), a partnership is defined as 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. Three essential elements must be present:

• An agreement: A contract (oral or written) between two or more persons
• A business: The partnership must carry on a lawful business activity, not merely hold property jointly
• Sharing of profits: Profit must be shared among the partners (though loss sharing is implied)

A partnership is distinct from a company. Unlike a private limited company registered under the Companies Act 1994, a partnership does not have a separate legal personality — the firm itself cannot sue or be sued independently of its partners in Bangladesh law (though the firm name is used in practice).

The maximum number of partners allowed in a general trading partnership in Bangladesh is 20, and for banking partnerships 10. Beyond these limits, the entity must be incorporated as a company under the Companies Act 1994. For advice on choosing the right business structure, consult a company and corporate lawyer in Dhaka.

A partnership can be formed orally or through a written Partnership Deed (also called Articles of Partnership). While a written deed is not legally mandated, it is strongly recommended to avoid future disputes. A well-drafted partnership deed should include:

• Name of the firm and its principal place of business
• Names and addresses of all partners
• Nature and scope of the business
• Capital contribution of each partner
• Profit and loss sharing ratio
• Duties, rights, and powers of each partner
• Salary or commission of managing partners (if any)
• Rules for admission of new partners and retirement of existing ones
• Procedure for dissolution and accounts settlement
• Dispute resolution mechanism (arbitration or court)

Registration of the partnership in Bangladesh is optional under the Partnership Act 1932, but unregistered firms face significant disadvantages. An unregistered partnership firm cannot file a suit in a court of law to enforce rights arising out of the partnership contract. Partners of an unregistered firm also cannot sue each other for partnership rights. Registration is done with the Registrar of Firms under the Department of Registration.

To register, the partners submit the Statement of Partnership (Form I) signed by all partners, along with the partnership deed, identity documents, and prescribed fees. Upon registration, the Registrar issues a Certificate of Registration.

The Partnership Act 1932 grants partners several important rights (subject to the partnership deed):

Rights of Partners

• Right to take part in management: Every partner is entitled to participate in the conduct of the firm's business
• Right to be consulted: Ordinary business matters are decided by majority vote; extraordinary matters (e.g., changing the nature of the business) require unanimous consent
• Right to access books: Every partner may inspect and copy the firm's accounts and books at any time
• Right to share profits: Partners share profits in the agreed ratio; in the absence of agreement, equally
• Right to indemnity: A partner is entitled to be indemnified for payments made and liabilities incurred in the ordinary conduct of business
• Right to interest on capital/advances: Unless agreed otherwise, partners are entitled to 6% per annum interest on advances to the firm (but not on capital)

Duties of Partners

• Duty of good faith (uberrima fides): Partners must act with absolute good faith toward each other — this is the cornerstone of partnership law
• Duty to render true accounts: Every partner must keep proper accounts and share all information relating to the firm's business
• Duty not to compete: A partner may not carry on a competing business without the consent of all other partners
• Duty to work diligently: Active partners must devote time and effort to the partnership's business
• Duty to account for secret profits: Any profit made by a partner through use of firm property or business opportunity must be disclosed and paid to the firm

Breach of these duties can give rise to a dissolution suit or a claim for accounts in the civil court. Contact a corporate lawyer in Bangladesh if a partner is breaching fiduciary obligations.

One of the most significant legal features of a partnership — and the biggest risk — is the doctrine of unlimited joint and several liability. Every partner is personally liable, jointly with all other partners and also severally (individually), for all acts of the firm done while the partner is a partner.

This means:

• If the firm incurs a debt or faces a judgment, each partner's personal assets (home, savings, investments) can be used to satisfy the liability
• A creditor can sue any one partner for the entire amount of the firm's debt
• Even an incoming partner can become liable for pre-existing firm debts if they agree to assume them
• A retiring partner remains liable for all debts incurred before retirement, unless creditors agree to release them

For acts of a partner that are wrongful (torts, fraud, misapplication of money) committed in the ordinary course of business or with the authority of other partners, the firm and all partners are jointly liable. This unlimited liability is the primary reason why many businesses prefer to incorporate as a private limited company. Consult a company lawyer in Dhaka to understand which structure best protects you.

Not all partners have the same role in the firm. Bangladesh partnership law recognises several types of partners:

• Active (working) partner: Takes an active part in managing the firm's business. Has actual authority to bind the firm in ordinary business matters.
• Sleeping (dormant) partner: Contributes capital but does not participate in day-to-day management. Still liable to third parties for firm acts.
• Nominal partner: Lends their name to the firm without contributing capital or participating in management. Still fully liable to third parties who deal with the firm on the faith of their name.
• Partner in profits only: Shares in profits but not in losses. This arrangement is valid between partners but does not shield them from liability to third parties.
• Sub-partner: Shares in another partner's profits but has no direct relationship with the firm.
• Partner by estoppel (holding out): A person who represents themselves (or allows themselves to be represented) as a partner, even if they are not one. They become liable to third parties who deal with the firm on the faith of that representation.

Understanding the type of partnership interest you hold is critical — especially when disputes arise. Sleeping partners often believe they are insulated from liability, which is incorrect under Bangladesh law. Always have your partnership structure reviewed by a business lawyer in Bangladesh.

A partnership can be dissolved in several ways under the Partnership Act 1932:

1. Dissolution by Agreement

Partners can dissolve the firm at any time by mutual consent. This is the simplest and most amicable method. All partners sign a dissolution agreement, accounts are settled, assets are distributed, and liabilities are discharged.

2. Compulsory Dissolution

A partnership is automatically dissolved if:

• All partners (or all but one) are declared insolvent
• The business becomes unlawful (e.g., the activity is banned by law)

3. Dissolution on Happening of Contingency

Unless the deed provides otherwise, dissolution occurs on:

• Expiry of the fixed term for which the partnership was formed
• Completion of the specific venture (for a partnership formed for a single project)
• Death of a partner
• Insolvency of a partner

4. Dissolution by Notice (at Will)

In a partnership at will (no fixed term), any partner can dissolve the firm by giving written notice to all other partners.

5. Dissolution by Court Order (Section 44)

A partner can file a suit in the civil court for dissolution on any of the following grounds:

• A partner has become of unsound mind
• Permanent incapacity of a partner to perform their duties
• Willful or persistent breach of the partnership agreement
• Conduct likely to prejudicially affect the business
• Transfer/charge of a partner's share to a third party
• The business can only be carried on at a loss
• Any other just and equitable ground

After dissolution, partners must settle accounts in the following priority: (1) debts to third-party creditors, (2) advances by partners, (3) capital contributions, (4) residual profits shared in agreed ratio. If you are facing a contested dissolution, contact a Supreme Court lawyer for guidance.

Partnership disputes in Bangladesh are civil matters heard before the Civil Court having jurisdiction over the place where the partnership business is carried on. The main reliefs available include:

• Suit for accounts and dissolution: The most common partnership suit — a partner seeks a court-supervised winding up of the firm, rendering of accounts, and distribution of assets
• Injunction: To restrain a partner from misappropriating firm property, acting outside authority, or competing illegally
• Appointment of receiver: The court can appoint a receiver to manage the firm's assets during ongoing litigation
• Damages for breach of fiduciary duty: A partner who profits secretly or causes loss through bad faith can be sued for damages

It is critical to remember that only a registered partnership firm can file a suit to enforce rights arising from the partnership contract against other partners or third parties. An unregistered firm's partners cannot maintain a suit against co-partners for enforcement of partnership rights — though they can still be sued by third-party creditors.

Where the partnership deed contains an arbitration clause, disputes must first go to arbitration under the Arbitration Act 2001 of Bangladesh before proceeding to court. Arbitration is often faster and more confidential than litigation for commercial disputes. For expert legal representation in a partnership dispute, contact Advocate Md. Shah Alam, a Supreme Court lawyer with extensive experience in commercial litigation in Dhaka.

Registration is optional under the Partnership Act 1932, but highly recommended. An unregistered firm cannot file a suit in court to enforce rights arising from the partnership contract, which severely limits your legal remedies in case of a dispute.

A general trading partnership can have a maximum of 20 partners. For banking businesses the maximum is 10. If you need more members, you must form a company under the Companies Act 1994.

Yes. All partners — including sleeping (dormant) partners — are personally liable, jointly and severally, for all debts and obligations of the firm incurred while they are partners. A sleeping partner's personal assets are at risk.

If there is no partnership deed or if the deed is silent on profit sharing, profits and losses are shared equally among all partners under Section 13(b) of the Partnership Act 1932.

A partner can be expelled only if: (a) the partnership deed expressly provides for expulsion, (b) the power is exercised in good faith for the benefit of the firm, and (c) a majority of partners agree. Expulsion without these conditions is invalid and challengeable in court.

A private limited company under the Companies Act 1994 has a separate legal identity from its shareholders, limits liability to paid-up capital, and requires more formalities (Memorandum & Articles, RJSC registration). A partnership has no separate legal identity and partners have unlimited personal liability, but it is simpler to form and manage.

If your co-partner refuses to dissolve the firm, you can file a dissolution suit in the civil court under Section 44 of the Partnership Act 1932 on grounds such as willful breach of agreement, misconduct, or 'just and equitable' grounds. The court may order dissolution and appoint a receiver to wind up the firm.