Extent and applicability

• Came into force on 1st October 1932 and extends to the whole of
India.

• Partnership comes into existence between the parties by a contract.

• The provisions of the Indian Contract Act, except when they are
inconsistent with the express provisions of the partnership act,
continue to apply to partnership firms.
 Essential elements

There are five elements-(None should be absent)

• There must be a contract.
• Between two or more persons.
• Who agree to carry on a business.

• With the object of sharing profits.

• The business must be carried on by all or any one of them
acting for all(i.e mutual agency)
 Essential elements
• Carrying out of business must be there, charitable work is not
included.
• Sharing of profits – No philanthropic activity, only one person
should not be entitled to profits, although profits may be
divided in any ratio they like.
• Sharing of losses?

• Every partners is both an agent and principal for himself and

others.
• Test of partnership?
 Partners, firm and firm name

• Firm names must not be too identical or similar.

• Usage of certain words are prohibited.

• Position of minor in a firm?

• Goodwill of a firm?

• HUF and Partnership?

 Partnership Vs Joint Hindu family business

• Regulating law
• Assessment for IT.
• Mode of creation.
• Admission of new members.
• The position of females.
• Number of members
• Authority of members.
• Effect of death of a member.
 Partnership deed

• Should be signed by all the partners.

• Must be stamped in accordance to Indian Stamp Act.
• Each partner must have the copy of the deed.
• A copy should be filed with the registrar of the firms. Why??

• What all does the deed cover?

• Register of firms?
 Kinds of Partners
• Active/Actual/Ostensible Partners

• Sleeping /Dormant partners/Silent partners

• Partner in profits only- Voice in management??

• Sub –Partner- Rights? Liabilities?

• Partners by estopple /Holding out/Nominal partners

 Effect of non registration of firms

• The firm cannot file legal proceedings against any third party
for any situation. For example, if the client has not paid the
dues to the firm, the firm cannot sue if it is unregistered.
• An unregistered firm cannot file a case against a partner for
any reason (like mismanagement, theft etc)
• A partner of an unregistered firm cannot file a suit against one
of the other partners either.
 Duties of partners

 Absolute duties

 Qualified duties
 Qualified duties

• Duty to use firm’s property exclusively for the firm.

• Duty to account for personal profits derived.

• Duty not to compete with the business of the firm.

 Liabilities of partners

• Restrictions imposed on a retiring partner?

• Right of a retiring partner in certain cases to share subsequent

profits?
• Method of retirement?
• Expulsion of a partner (Sec 33)

• Rights and liabilities of an expelled partner.

• Insolvency of a partner(Sec 34)
 Dissolution of partnership firm

• The act distinguishes between:

 Dissolution of firm.

 Dissolution of partnership.
 Consequences of dissolution

• Continuing liability of partners after dissolution (Sec 45)

• Continuing authority of partners for the purposes of winding

up.(Sec 47)

• Liability to share personal profits. (Sec 50)

• Return of premium (Sec 51)

 Question

A is the sole proprietor of the firm .He admits B as a partner on

the following terms:
 B is not to bring any capital

 B is not to be responsible for any loss

 B is to receive Rs 3 lakhs p.a in lieu of profits
 B is not to enter any legal contracts on behalf of the firm.
Discuss the legal position of B.
 Question

A introduces B to C as his partner, when in fact he is not so ,and

B keeps silent .On the faith of the representation C gives credit
to A. A becomes insolvent.

 Can C make B liable?

 Question

• A,B and C started a cloth business on 1st Jan’2003 for a period

of five years. The business resulted in a loss of Rs 10,000 in
the first year, Rs 15,000 in the second year and 18,000 in the
third year .
• B and C wish to dissolve the firm while A wants to continue
the business .
Advice B and C.
Limited Liability Partnership,2008
 Limited Liability Partnership,2008

• Came into force on April1,2009.

• Mainly used by law firms and audit firms.

• At least 2 partners of which one must be a resident of India.

• Any firm, private company or an unlisted public company can

be converted into a LLP.

 Characteristics of LLP

• Compulsory registration required with ROC.

• Name to end with LLP.

• Is a separate legal entity.

• Liability is limited to the extent of contribution to LLP.

• Maximum number of partners not specified.

• Foreign national can be partners whereas in case of partnership

foreign nationals are not allowed

 Characteristics of LLP

• Meetings are not required ( AGM,EGM)

• Annual returns have to be filed with ROC whereas in case

of partnership it is not required.
• Audit is required only when if annual turnover is above
45lakhs (Compulsory audit in case of partnership)
• Perception regarding Creditworthiness of a LLP is more
than that of a partnership but less than that of a company .
 Characteristics of LLP
• Dissolution is less procedural as compared to a company but
more procedural as compared to partnership .
• Dissolution can be voluntary or by the order of NCLAT.
• Protection provided for whistle blowing which is not so in
case of partnership. (Companies have vigil mechanism in form
of audit committees)
 Process to start LLP

1.Application for Digital signature Certificate and Designated Partner Identification

Number

2.Reservation of name of the LLP

3.Registration of LLP

4.Certificate of Incorporation

5.Limited Liability Partnership Agreement

 Process to start LLP

Acquire Register Check

DSC Download LLP
DPIN,DSC name
Acquire Form
with LLP availability
DPIN

File
Receive
Track Status Electronically
Certificate

LLP ready to function

• DSC – Digital Signature certificate
• DPIN- Designated Partner Indentification
Number