Name-Tanisha Jhawar

Roll No.-217

The Partnership Act 1932

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. The law of partnership is
contained in the Indian Partnership Act 1932 which came into force on 1st October
1932.
➢ The characteristics of partnership are as follows:
1)Association of two or more persons: There should be at least two competent
persons to form a partnership. The maximum number of partners in a firm as per
Sec.11 of the Companies Act 1956 should not exceed ten in any banking business
and in any other business twenty.
2) Agreement: The partnership relation is one of contractual nature. It arises from
contact and not from status as agreement between the partners is the basis of this
contract. The agreement may be express or implied.
3) Business: A partnership can be formed only for the purpose of carrying on some
business. Business include every trade, occupation and profession.
4) Sharing of profits: The object of partnership must be to make profit. Profit
means net profit i.e. excess of returns over outlays, excess of what is obtained over
the cost of obtaining it. Profit must be distributed among the partners in an agreed
ratio.
5)Mutual agency: The business of partnership may be carried on by all the partners
or any of them acting for all. A partner is both an agent and the principal.
➢ Registration of Firms:
The Partnership Act does not provide for the compulsory registration of firms. But
by creating certain disabilities from which an unregistered firm suffers, the law has
made the registration of firms compulsory.
Procedure of registration:
The registration of a firm may be affected any time by filing an application in the
form of a statement giving the necessary details with the Registrar of Firms of the
area. The application for registration should be accompanied by the prescribed
registration fee. The application shall state:
1) The name of the firm.
2) The place or principal place of business of the firm.
3) The names of other places where the firm carries on business.
4) The date when each partner joined the firm.
5) The names in full and permanent addresses of the partners; the duration of
the firm.
The statement shall be signed by all the partners or by their agents specially
authorized in this behalf. When the Registrar is satisfied that the provisions
as laid down in the Act have been duly complied with, he records an entry of
the statement in the Register of firms, and files the statement. He then issues
a certificate of registration.
Effects of Non-registration:
1) A partner of an unregistered firm cannot file a suit against the firm or any
partner thereof for the purpose pf enforcing a right arising from a contract
or a right conferred by the Partnership Act.
2) No suit can be filed on behalf of an unregistered firm against any third
party for the purpose of enforcing a right arising from a contract.
3) An unregistered firm cannot claim a set-off exceeding Rs.100.

➢ Types of partners:
1. Actual or ostensible partner: The one who becomes a partner by an
agreement and is actively engaged in the conduct of the business of
partnership.
2. Sleeping partner: The one who does not take an active part in the conduct of
the business of the firm. He is however liable for the debts of the firm.
3. Nominal partner: The one who lends his name to the firm, without having
any real interest in it. He is however liable to outsiders for the debts of the
firm.
4. Partner in profits only: The one who gets a share in profits only and is not to
contribute towards losses. He is however liable to outsiders for the debts of
the firm.
5. Partner by estoppel or holding out: Anyone who by words spoken or written
or by conduct represents himself, or knowingly permits himself to be
 represented to be a partner in a firm, is liable as a partner in that firm to
anyone who has on the faith of any such representation given credit to the
firm, whether the person representing himself or represented to be a partner
does or does not know that the representation has reached the person so
giving credit.
6. Minor partner: With the consent of all the partners for the time being, a
minor may be admitted to the benefits of partnership. A minor partner has a
right to such share of a property and of the profits of the firm as may have
been agreed upon. He has also a right to have access to and to inspect and
copy any of the accounts but not the books of the firm. His liability is
however confined only to the extent of his share in the profits and property
of the firm. He may at any time within six months of his attaining majority
give public notice that he has elected to (a)become, or (b)not to become a
partner in the firm. If he fails to give a public notice, he is deemed to have
become a partner in the firm on the expiry of the said six months.

➢ Rights of a partner:
Subject to the agreement between the partners, a partner has the right-
1. To take part in the conduct of the business of the firm.
2. To be consulted.
3. Of access to accounts and books.
4. To share in the profits of the business.
5. To interest on capital only if there is an agreement.
6. To interest on advances at 6 per cent per annum.
7. To be indemnified where he incurs liability in the ordinary course of
business of the firm.
8. To have the use of partnership property for the purposes pf the business
of the firm.
9. To retire
10. Not to be expelled
Further as agent of the firm, he has the right to act in an emergency to protect
the firm from loss.
➢ Duties of a partner:
1. To observe good faith.
 2. To indemnify for fraud.
3. To attend diligently to the business of the firm.
4. Not to claim any remuneration.
5. To share losses.
6. To indemnify for willful neglect.
7. To hold and use property of the firm for the firm.
8. To account for personal profits.
9. To account for profits in competing business.
10. To act within authority.
11. To be liable jointly and severally.
12. Not to assign his rights.

➢ Relations of partners to third parties:

Every partner is the agent of the firm for the purposes of the business of the
firm(Sec.18).
Implied authority of a partner-
The authority of a partner means the capacity of a partner to bind the firm by
his act. This authority may be express or implied. Where the authority to a
partner to act is expressly conferred by an agreement, it is called express
authority. But where there is no partnership agreement or where the agreement
is silent, “the act of a partner which is done to carry on, in the usual way,
business of the kind carried on by the firm, binds the firm”[Sec.19(1)]. This
authority of a partner to bind a firm is called his implied authority. It flows from
legal relations of the partners and is founded on the principle of agency.
Acts within the implied authority of a partner: In a trading firm, the implied
authority of a partner has been held to include-
1. Purchasing goods on behalf of the firm in which the firm deals pr which
are employed in the firm’s business.
2. Selling the goods pf the firm.
3. Receiving payments of the debts due to the firm and giving receipt for
them.
4. Settling accounts with the person dealing with the firm
5. Engaging servants for the partnership business.
6. Borrowing money on the credit of the firm.
 7. Drawing, accepting, endorsing bills and other negotiable instruments in
the name of the firm.
8. Pledging any goods of the firm for the purpose of borrowing money.
9. Employing a solicitor to defend an action against the firm for goods
supplied.
No implied authority: In the absence of any usage or custom of trade to the
contrary, the implied authority of a partner does not empower him to-
1. Submit a dispute relating to the business of the firm to arbitration.
2. Open a banking account on behalf pf the firm in his own name.
3. Compromise or relinquish any claim or portion of a claim by the firm.
4. Withdraw a suit or proceeding filed on behalf of the firm.
5. Admit any liability in a suit or proceeding against the firm.
6. Acquire immovable property on behalf pf the firm.
7. Transfer immovable property belonging to the firm.
8. Enter into partnership on behalf of the firm.
A partner can do the above acts if-
1. He has specific or express authority from the partners.
2. The usage or custom of trade permits him.
Partner’s authority in an emergency (sec.21): A partner has authority in an
emergency to do certain acts provided (i)they are done to protect the firm
from loss, and (ii) the partner acts as a prudent person would act under
similar circumstances in his own case. Such acts bind the firm but do not
form part of the partner’s implied authority.
➢ Reconstitution of a firm:
1. Introduction of a new partner(Sec 31): Subject to contract between the
partners, no person can be introduced as a partner into a firm without the
consent of all the existing partners. An incoming partner is not liable for
any act of the firm done prior to his admission.
2. Retirement of a partner (Sec 32): A partner may retire from a firm with
the consent of all other partners. Where the partnership is at will, a
partner may retire by giving notice in writing to all the other partners of
his intention to retire.
 3. Expulsion of partner(Sec 38): A majority of partners can expel a partner
only if such power is conferred by contract between the partners, and the
power is exercised bona fide by the majority of partners.
4. Insolvency of a partner (Sec 34): Where a partner in a firm is adjudicated
insolvent, he ceases to be a partner on the date on which the order of
adjudication is made whether or not the firm is thereby dissolved.
5. Death of a partner (Sec 42(c)): Subject to contract between the partners, a
firm is dissolved by the death of a partner.

➢ Dissolution of Firm:
The dissolution of partnership between all the partners of a firm is called the
dissolution of the firm(Sec 39). This means there is a difference between
dissolution of partnership and dissolution of firm.
Dissolution of firm: It means complete breakdown or extinction of the
relationship of partnership between all the partners of a firm.
Dissolution of partnership: It involves only a change in the relation of the
partners. The new firm is called the reconstituted firm.
Dissolution of a firm may be voluntary or without the order of the court or it
may take place by the order of court.
Dissolution without the order of court:
This takes place in the following ways-
1. Dissolution by agreement (Sec 40): A firm may be dissolved (i) with the
consent of all the partners or (ii) in accordance with a contract between
the partners.
2. Compulsory dissolution (Sec 41): A firm is compulsorily dissolved (a)
when all the partners or all the partners but one are adjudicated insolvent.
(b) on the happening of any event which makes it unlawful for the
business of the firm to be carried on or for the partners to carry it on in
partnership.
3. Dissolution on the happening of certain contingencies (Sec 42): Subject
to contract between the partners, a firm is dissolved: (a) if constituted for
a fixed term by the expiry of that term; (b) if constituted to carry out one
or more adventure or undertakings by the completion thereof; (c) by the
death of a partner and (d) by the adjudication of a partner as an insolvent.
 4. Dissolution by notice of partnership at will (Sec 43): Where a partnership
is at will, the firm may be dissolved by a partner by giving a notice in
writing to all the other partners of his intention to dissolve the firm.
Dissolution by the court (Sec 44):
At the suit of a partner, the court may dissolve a firm on any of the following
grounds-
1. Insanity of a partner.
2. Permanent incapacity of a partner.
3. Misconduct of a partner.
4. Persistent breach of agreement by a partner.
5. Transfer of interest by a partner.
6. Business working at a loss.
7. Any other ground which the court deems just and equitable.
Rights and liabilities of partners on dissolution:
Rights- On the dissolution of a firm, a partner has the right to:
1. Have the business of the firm wound up and the debts of the firm settled out
of the property of the firm.
2. Share in the profits of the firm earned after dissolution.
3. Have the premium returned on premature dissolution.
4. Restrain the use of firm name or property by any partner for his own benefit.
In case the partnership is rescinded on the ground of fraud or misrepresentation,
the partner has the right of-
1. Lien on the surplus assets
2. Subrogation
3. Indemnification
Liabilities- If a public notice is not given of the dissolution of a firm, the partners
continue to be liable to third parties for any act done by any of them after
dissolution. After the dissolution of the firm, the partners continue to be liable for
acts done to wind up the affairs of the firm and to complete transactions begun but
unfinished at the time of the dissolution.
The Limited Liability Partnership Act, 2008
The Ministry of Law and Justice on 9th January 2007 notified the Limited Liability
Partnership Act, 2008. The Parliament passed the Limited Liability Partnership
Bill on 12th December, 2008 and the President of India has assented the Bill on 7th
January, 2009 and called as the Limited Liability Partnership Act, 2008.
Meaning- A Limited Liability Partnership Provides that while the liability of LLPs
would be limited to the extent of the assets owned by them, the liability of partners
would be limited to the extent of their contribution. Besides, no partner would be
liable on account of the independent or unauthorized actions of other partners,
allowing individual partners to be shielded from joint liability created by another
partner’s wrongful business decisions or misconduct.
➢ Salient features of Limited Liability Partnership:
1. It is a body corporate with distinct legal entity and perpetual succession.
It is a juridical person created by law having a distinct name, a common
seal, which can sue and can be sued.
2. Minimum two partners are required for its formation of whom one has to
be Indian resident and there is no limit on maximum number of partners.
This will enable LLP to grow without limitations like a company grow
and take on global competition.
3. Corporates and professionals will be allowed to form LLPs.
4. Liability of partners shall be limited except in case of fraud and
negligence. This puts LLP on different footing with a partnership firm
where the liability of partners is unlimited.
5. It shall be registered with the Registrar of Companies.
6. Every limited liability partnership shall have at least two designated
partners who are individuals and at least one of them must be resident in
India.
7. Like a partnership firm, both agreement and sharing of profit are essential
elements of a LLP. But mutual agency, which is one of the basic
ingredient of partnership is non-existent in LLP where each partner is the
agent of the LLP but not of other partners.
8. Conversion of firm, private company and unlisted public company into
LLP is allowed.
9. ROC is empowered to strike off defunct LLPs
10. Electronic filing of returns by LLPs would be allowed.
11. The Indian Partnership Act, 1932 shall not be applicable to LLPs.
➢ Incorporation Document(Section 11): The most important document needed
for registration is the incorporation document
1. For a LLP to be incorporated-
(a)two or more persons associated for carrying on a lawful business
with a view to profit shall subscribe their names to an incorporation
document;
(b)the incorporation document shall be filed in such manner and with
such fees as may be prescribed with the Registrar of the State in
which the registered office of the LLP is to be situated and
(c) statement to be filed:
• There shall be filed along with the incorporation document, a
statement in the prescribed form,
• Made by either an advocate, or a Company Secretary or a
Chartered Accountant or a Cost Accountant, who is engaged in
the formation of the LLP and
• By any one who subscribed his name to the incorporation
document.
• That all the requirements of this Act and the rules made
thereunder have been complied with,
• In respect of incorporation and matters precedent and incidental
thereto.
2. The incorporation document shall-
• Be in a form as may be prescribed
• State the name of the LLP
• State the proposed business of the LLP
• State the address of the registered office of the LLP
• State the name and address of each of the persons who are to be
partners of the LLP on incorporation
• State the name and address of the persons who are to be
designated partners of the LLP on incorporation
• Contain such other information concerning the proposed LLP
as may be prescribed
3. If a person makes a statement as discussed above which he-
(a)knows to be false
(b)Does not believe to be true, shall be punishable
➢ Incorporation by registration (Section 12):
1)The Registrar shall retain the incorporation document and he shall within a
period of 14 days-
• Register the incorporation document
• Give a certificate that the LLP is incorporated by the name specified
therein
2)The Registrar may accept the statement delivered as sufficient evidence
that the requirement has been complied with.
3)The certificate issue shall be signed by the Registrar and authenticated
by his official seal.
4)The certificate shall be conclusive evidence that the LLP is
incorporated by the name specified therein.
➢ Partners and their relations:
Eligibility to be partners (Section 22): On the incorporation of a LLP, the
persons who subscribed their names to the incorporation document shall be
its partners and any other person may become a partner of the LLP by and in
accordance with the LLP agreement.

Relationship of partners (Section 23):

1) Save as otherwise provided by this Act, the mutual rights and duties
of the partners of a LLP and the mutual rights and duties of a LLP and
its partners, shall be governed by the LLP agreement between the
partners or between the LLP and its partners.
2) The LLP agreement and any changes if any made therein shall be filed
with the Registrar in such form, manner and accompanied by such
fees as may be prescribed.
3) An agreement un writing made before the incorporation of a LLP
between the persons who subscribe their names to the incorporation
document may impose obligation on the LLP provided such
agreement is ratified by all the partners after the incorporation of the
LLP.
4) In the absence pf agreement as to any matter, the mutual rights and
duties of the partners and the mutual rights and duties of the LLP and
the partners shall be determined by the provisions relating to that
matter as are set-out in the First Schedule.
 ➢ Difference between LLP and Partnership Firm:
Basis LLP Partnership Firm
1)Regulating Act The Limited Liability The Indian Partnership
Partnership Act 2008. Act 1932.
2)Body Corporate It is a body corporate. It is not a body corporate.
3)Separate legal entity It is a legal entity It is a group of persons
separate from its with no separate legal
members. entity.
4)Creation It is created by a legal It is created by an
process called agreement between the
registration under the partners.
LLP Act,2008.
5)Registration Registration is Registration is voluntary.
mandatory. LLP can sue Only the registered
and be sued in its own partnership firm can sue
name. the third parties.

➢ Difference between LLP and Limited Liability Company:

Basis LLP Limited Liability
Partnership
1)Regulating Act The LLP Act 2008 The Companies Act 2013
2) Members/Partners The persons who The person who invest
contribute to LLP are the money in shares are
known as partners of the known as members of the
LLP. company.
3)Name Name of LLP to contain Name of public company
the word “Limited to contain the word
Liability Partnership” or “limited” and private
“LLP” as suffix. company to contain the
word “private limited” as
suffix.
4)Number of Minimum-2 members Private company:
members/partners Maximum- no such limit Minimum-2 members
on the members in the Maximum-200 members
Act. The members of the Public company:
LLP can be individuals Minimum-7 members
or body corporate
through the nominees.
5)Minimum number of Minimum 2 designated Private company-2
directors/designated partners. directors
partners Public company-3
directors.