PARTNERSHIP ACT,1932

 Indian Partnership Act is one of very old mercantile law. Partnership is one of the special
types of contract. Initially, this was part of Indian Contract Act itself, but later converted into
separate Act in 1932.

 Partnership, partner, firm and firm name: ‘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.

Persons who have entered into partnership with one another are called individually ‘partners’
and collectively ‘a firm’, and the name under which their business is carried on is called the ‘firm
name’.

Partnership can be formed only with intention to share profits of business. People coming
together for some social or philanthropic or religious purpose do not constitute ‘Partnership’.

 Sleeping and nominal partners not taking active part in business are equally liable for
acts of the firm: Though all partners are entitled to take active part in the business of firm, it is
not compulsory for them to do so. Partner who is not active in business is often termed as
‘dormant partner’ or ‘sleeping partner’ in common language, though there is no such term in
Partnership act. However, even a dormant partner or nominal partner is equally liable for acts of
the firm.

 Partnership firm is not a legal entity: it may be surprising but true that a Partnership
Firm is not legal entity. It has limited identity for purpose of tax law like Income Tax, GST etc.

 Essential of Partnership are-

a) It is a relationship between two or more persons

b) There should be agreement
c) Agreement should be to share profits of business
d) Business can be carried by all or any of them acting for all

 Partnership is not a legal entity but a mere AOP (Association of Person) to carry
on business and is only a collective name carrying on business of partnership held in
Sham Sunder v. State of Haryana (SC)(1982).

 A partnership firm can be sued even if not registered but can sue only if it is
registered.

 Oral or written agreement to constitute partnership: As per normal provision of

contract, a ‘partnership’ agreement can be either oral or written. Agreement in writing is
necessary to get the firm registered. Similarly, written agreement is required, if the firm
wants to assessed as ‘partnership firm’ under Income Tax Act.

 Number of partners: since partnership is ‘agreement’ there must be minimum

two partners. The Partnership Act does not put any restrictions on maximum number of
partners. However, section 464 of the 2013 Act- read with Rule 10 of Companies
 (Miscellaneous) Rules, 2014 section 11(1) of Companies Act prohibits partnership
consisting of more than 50 members, unless it is registered as a company under
Companies Act or formed in pursuance of some other law.

 If the number exceeds 50, it is an ‘illegal association’. However, this is so only if

they come together ‘for purpose of carrying on business for gain’.

 Partnership at will As per the Section 7 of the Act, partnership at will is a partnership
when:

1. No fixed period has been agreed upon for the duration of the partnership; and

2. There is no provision made as to the determination of the partnership.

These two conditions must be satisfied before a partnership can be regarded as partnership at
will. But, where there is an agreement between the partners either for the duration of the
partnership or for the determination of the partnership, the partnership is not partnership at
will.

Where a partnership entered into for fixed term is continued after the expiry of such term, it is
to be treated as having become partnership at will.

A partnership at will may be dissolved by any person by giving notice in writing to all the other
partners of his intention to dissolve the same.

 Partnership not created by status: Section 5 of Partnership Act states that the relation
of partnership arises from contract and not from status. In particular, the members of Hindu
Undivided Family carrying on a family business as such are not partners in such business.

Section 4 of Partnership Act also clearly indicates that partnership is ‘agreement’.

Fundamental principle of partnership is that the relationship arises out of contract and not out
of status- held in CIT v. Seth Govindram Sugar Mills (1966)(SC).

 TRUE TEST OF PARTNERSHIP:

Sharing of profit is necessary condition for partnership firm, but it is not conclusive test.
Section 6 makes it clear that-

a) Mere sharing of profits or gross returns does not make the persons partners

b) Mere fact that a person shares profit of firm does not mean that he is a ‘partner’

 Since firm is responsible for acts of a partner, acts of one partner binds all other
partners. Any partner can bind firm (and hence automatically other partners). Thus, they
are ‘mutual agents’.

 The real test of ‘partnership firm’ is ‘mutual agency’, i.e. whether a partner can
bind the firm (and hence indirectly other partners) by his act and whether other
partners can bind him by their acts.
  Partners can bind others by signing Bill of Exchange – Section 34 of Negotiable
Instruments Act provides that where there are several drawees of a bill of exchange who
are partners, any partner can accept on behalf of all the partners.

 DUTIES AND RIGHTS OF PARTNERS:

 The mutual rights and duties of the partners of a firm can be determined by contract
between the partners. Partners are free to determine the mutual rights and duties by
contract. Such contract or variation may be in writing or it may be implied by their actions.

 Variation in written agreement by oral/implied consent- The action makes it clear that
even if partnership deed is written, its variation may be presumed by course of dealings.
Thus variation in partnership agreement may be by oral or even implied.

 Partner can be prohibited from carrying on other business – Section 27 of Contract Act
provides that agreement in restraint of trade are void. Any agreement in restraint of lawful
profession, trade or business is void. However, section 11(2) of Partnership Act is a specific
exception, which specifically provides that notwithstanding anything contained in section 27
of Indian Contract Act, partnership contract may provide that a partner shall not carry on
any business other than that of the firm while he is a partner.

 Reasonable restrictions even after retirement – Partnership deed can provide that a
partner shall not carry on any other business. In fact, rsonable restrictions can be can be
permitted. Whether the restrictions are ‘reasonable’ is question of fact to be decided by
Court.

 DUTIES OF PARTNERS:

 A partner has duty to-

a) Act in good faith

b) Carry on business to greatest common advantage
c) To be just and faithful to other partners
d) Attend duties diligently
e) To render true accounts
f) Not to make secret profits at the cost of firm
g) Not to carry on similar business

There is fiduciary relationship among partners. Mutual confidence is really most vital
aspect of a successful partnership firm. It is contract of ‘uberrimae fidai’ .

 Duty to work without remuneration – partner should work without

remuneration, unless agreed otherwise [Section 13(a) of Partnership Act]

 Duty to share losses equally – Partner have duty to shares losses of firm equally,
unless agreed otherwise [Section 13(b) of Partnership Act]

 Every partner has right to take part in business – Subject to contract between
partners (to the contrary), every partner has right to take part in the conduct of the
business. [Section 12(a) of Partnership Act]
  Right to be consulted and decision by majority – if there is any difference
among partners as to ordinary matters connected with the business, decisions will be
taken by majority of the partners. Every partner shall have the right to express his
opinion before the matter is decided. However, no change may be made in the nature of
the business without the consent of all the partners. [Section 12(c) of Partnership Act]

 Unanimous decision by partners in certain cases – In following cases

unanimous decision by all partners is required, unless there is contract to contrary-

a) Varying terms of partnership agreement [section 11(1)]

b) Change in nature of business, subject to contract to contrary [section 12(c)]
c) Admission of minor to benefit of partnership [section 30]
d) Admission of a new partner in firm [section 31] (contract can provide otherwise)
e) Retirement of partner, when partnership is not ‘at will’ [section 32(1)]
f) Dissolution of firm by agreement [section 40]

 Interest on advances received from partner – A partner has to contribute to

capital agreed by him. In addition, he may agree to make further payment to firm by way
of loan of advance, for purpose of business of firm. In such case, the partner is entitled
to interest at the rate 6% per annum [section 13(d) of Partnership Act]. This is subject to
contract between partners to contrary.

 Property of the firm and its application: Since partnership is not legal entity, property of
the firm (eg. Land, share etc.) has to be held in joint name of partners, for benefit of the
partnership firm. Partner can decide which will be treated as property of firm and which will be
individual property of a partner.

 When there is no contract to contrary, property of the firm includes all property
and rights and interest in property-

a) Originally brought into the stock of the firm

b) Acquired, by purchase or otherwise, by or for the firm, i.e. from money

of the firm

c) Acquired for the purposes and in the course of the business of the firm,
i.e. from money of the firm and

d) It includes also the goodwill of the business

Since definition of ‘property’ in section 14 is ‘inclusive’, it will also cover stock of goods,
debts receivable by the firm and moveable property of the firm.

 Property acquired with money of firm belongs to firm – Unless the contrary
intention appears, property and rights and interests in property acquired with money
 belonging to the firm are deemed to have been acquired for the firm. This is subject to
contract to contrary.

 Application of the property of the firm only for purposes of firm – subject to
contract between the partners, the property of the firm shall be held and used by the
partners exclusively for the purposes of the purposes of the business. [section 15 of
Partnership Act]

 Rights and duties of a partner after a change in the constitution of the firm –
Change in the firm may take place in any of the following ways:

a) change in constitution of firm by admitting new partner or retirement,

death or insolvency of a partner, but firm continues

b) firm constituted for a fixed term continues even after fixed term is over.

c) Existing firm undertakes additional undertakings or adventures.

Rights and duties of partners remain same, even after change in firm, subject to contract
to contrary – section 17 of Partnership Act.

 AUTHORITY OF PARTNERS: Partners have authority to deal with outsiders on behalf of

the firm.

 Partners to be agent of the firm: Subject to the provisions of this Act, a partner is
the agent of the firm for the purposes of the business of the firm. [Section 18 ]

 Implied authority of partner as agent of the firm (Section 19):

(1) Subject to the provisions of section 22, 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.
The authority of a partner to bind the firm conferred by this section is called his
"implied authority".
(2) In the absence of any usage or custom of trade to the contrary, the implied authority
of a partner does not empower him to -
a) submit a dispute relating to the business of the firm to arbitration,
b) open a banking account on behalf of the firm in his own name,
c) compromise or relinquish any claim or portion of a claim by the firm,
d) withdraw a suit or proceeding filed on behalf of the firm,
e) admit any liability in a suit or proceeding against the firm,
f) acquire immovable property on behalf of the firm,
g) transfer immovable property belonging to the firm, or
h) enter into partnership on behalf of the firm.

 Extension and restriction of partner’s implied authority (Section 20): The

partners in a firm may, by contract between the partners, extend or restrict the implied
authority of any partner.
 Notwithstanding any such restriction, any act done by a partner on behalf of the firm
which falls within his implied authority binds the firm, unless the person with whom he
is dealing knows of the restriction or does not know or believe that partner to be a
partner.

 Notice to acting partner is notice to firm: As per section 24 of Partnership Act,

notice to a partner who habitually acts in the business of the firm of any matter relating
to the affairs of the firm operates as notice to the firm.

The exception is that in the case of a fraud on the firm committed by or with the consent
of that partner, notice to partner will not amount as notice to firm. The obvious reason is
that a partner cannot be permitted to take benefit of his own fraud or fraud committed
with his consent.

 Liabilities of firm and partner: As per section 25 of Partnership Act, every partner is
liable, jointly with all the other partners and also severally, for acts of the firm done while he is a
partner. ‘Joint and severally’ means each partner is liable for all acts. Thus, if amount due cannot
be recovered from other partners, any one partner will be liable for payment of entire dues of
the firm.

 Liability of the firm for wrongful acts of a partner: Firm is liable not only for
lawful acts but also wrongful acts of partner, if done in ordinary course of business of
the firm.

Section 26 of Partnership Act states that firm is liable to the same extent as partner is
liable, if-

a) If loss or injury caused to any third party, or any penalty is incurred,

b) The loss or injury is cause or penalty is incurred by the wrongful act or

omission of a partner,

c) The partner was acting in the ordinary course of the business of a firm,
or with the authority of his partners.

 Liability of firm for misapplication by partners: The firm is liable for

misappropriation of partners in following cases –

a) A partner acting within his apparent authority receives money or

property from a third party and misapplies it, or

b) A firm is in course of its business receives money or property from a

third party, and the money or property is misapplied by any of the partners
while it is in the custody of the firm [Section 27 of Partnership Act]. ‘Firm is
liable’ itself means all partners are jointly and severally liable.

 Sub-partner: A partner may agree to share part of his profits of partnership firm with
outsider. He may even agree to pay 100% of his share of profit of the firm to an outsider. Such
outsider is termed as ‘sub-partner’. It is partnership within partnership. However, the outsider
does not become partner of the main firm.

 How interest can be transferred: A partner can transfer his interest in the firm-
a) Absolutely i.e. by sale or
b) By mortgage or
c) By the creation by him of a charge on such interest.
Transferee i.e. person to whom interest is transferred is usually termed as sub-
partner. The transfer may be complete or partial.

 Reconstitution of a Partnership firm: In absence of specific provision in partnership

deed, death or insolvency of a partner means dissolution of the firm. However, partnership can
provide that the firm will not dissolve in such case.

 Admission of a partner: A firm can admit new partners. As per section 31(1) of
Partnership Act, no person shall be introduced as a partner into a firm without the
consent of all the existing partners. This is subject to (a) contract between the partners
and (b) to the provisions of section 30 of Partnership Act.

 Consent not required to admit minor as partner: One exception is in respect of

a minor becoming a partner by virtue of Section 30 of Partnership Act. When a minor is
admitted to benefit of partnership, consent of all partners is necessary. However, when
he becomes major and elects to become a partner, further consent of all partners is not
required. This is because, consent was already given by all partners when minor was
admitted to benefits of partnership.

 Incoming partner not liable for acts of firm before he became partner: Section
31(2) of Partnership Act makes it clear that the new partner is not liable for acts of firm
before he became a partner. Thus, he is not liable for old debts of firm, unless he
specifically agrees. The exception is that in case of minor, if he becomes partner after
attaining majority, section 30(7) provides that he is liable for all acts of the firm since
date he was admitted to benefit of partnership.

 Retirement of a partner:
 A partner may retire -
a) With the consent of all other partners,
b) In accordance with an express agreement by the partners, or
c) Where the partnership is at will, by giving notice in writing to all other
partners of his intention to retire [Section 32(1) of Partnership Act].

If partnership is at will, a person can retire by giving notice. Otherwise, he can

retire only with consent/agreement of other partners. In absence of any of this,
the only option to him is to apply for dissolution of firm.

 Retired partner liable for acts of firm done after retirement if public notice not
given: a retire partner is liable to debts of firm incurred up to date of his retirement but
not debts incurred after he retires. A public notice is required to be given about
retirement of a partner. If such public notice is not given, the retiring partner and other
 partners will be liable as partners to third parties even in respect of liabilities of firm
incurred after his retirement. However, a retired partner will not liable to any third party
who deals with the firm without knowing that he was a partner. [Section 32(3) of
Partnership Act].

 Expulsion of a partner: A partner can be expelled only if-

a) Majority of partners decide to expel a partner
b) There is a specific provision in partnership deed and
c) The expulsion is bona fide, in interest of partnership firm. [Section 33(1) of
Partnership Act]

 Effect of expulsion same as that of retirement – if a partner is expelled,

provision regarding advertisement, public notice, liability till expulsion etc., as contained
in section 32(2), 32(3), and 32(4) as applicable in respect of retiring partner apply to
expelled partner also [Section 33(2) of Partnership Act].

 Insolvency of partner: Where a partner in a firm is adjudicated an 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 [Section 34(1)].

Where under a contract between the partners the firm is not dissolved by the adjudication of a
partner as an insolvent, the estate of a partner so adjudicated is not liable for any act of the firm
and the firm is not liable for any act of the insolvent, done after the date on which the order of
adjudication is made. [Section 34(2)]

 Death of a partner: A firm is dissolved with death of partner, unless partnership

agreement provides otherwise. In absence of contract to contrary, death of deceased partner
means dissolution of firm.

Where under a contract between the partners, the firm is not dissolved by the death of a
partner, the estate of deceased partner is not liable for any act of the firm done after his death
[Section 35 of Partnership Act].

 Rights and restrictions on outgoing partner: An outgoing partner may carry on a

business competing with that of the firm and he may advertise such business, but subject, to
contract to the contrary, he may not –

a) use the firm-name,

b) represent himself as carrying on the business of the firm, or
c) solicit the custom of persons who were dealing with the firm before he ceased
to be a partner. [Section 36(1) of Partnership Act]

 Agreement In Restraint Of Trade: A partner may make an agreement with his

partners that on ceasing to be a partner he will not carry on any business similar to that
of the firm within a specified period or within specified local limits; and, notwithstanding
anything contained in section 27 of the Indian Contract Act, 1872, such agreement shall
be valid if the restrictions imposed are reasonable.[Section 36(2) of Partnership Act].
  Revocation of continuing guarantee by change in constitution of firm: As per
section 38 of Indian Partnership Act provides that continuing guarantee given to a firm
or to third party in respect of transactions of firm revoked in respect of future
transactions from date of change in the constitution of firm. There can be contract to
contrary, i.e. contract of guarantee may contain a term that continuing guarantee shall
not be stand revoked even if there is change in constitution of firm.

 DISSOLUTION OF A FIRM: The dissolution of partnership between all the partners of a

firm is called the dissolution of the firm [Section 39]. After such dissolution, the firm no more
exists. Dissolution of firm is discontinuation of relationship between all partners.
Mode of dissolution of firm: There are five modes by which firm can be dissolved –

 Dissolution by agreement: A firm may be dissolved with the consent of all the
partners or in accordance with a contract between the partners [Section 40].

 Dissolution if all but one partner adjudicated insolvent: Firm gets compulsorily
dissolved by operation of law if all the partners or all the partners except one are
adjudicated as insolvent [section 41(a)]. A partnership will require at least two solvent
partners.

 Dissolution on the happening on certain contingencies: 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 adventures or undertakings, by
the completion thereof;
c) by the death of a partner; and
d) by the adjudication of a partner as an insolvent. [Section 42]

 Dissolution by notice of partnership at will: Where the partnership is at will, the

firm may be dissolved by any partner giving notice in writing to all the other partners of
his intention to dissolve the firm [Section 43(1)]. The firm is dissolved as from the date
mentioned in the notice as the date of dissolution or, if no date is so mentioned, as from
the date of the communication of the notice [Section 43(2)].

 Dissolution of a partnership firm by the intervention of the court: A firm can be

dissolved with Court order, if any one partner files a suit. The Court can order dissolution
in following cases –
a) A partner has become of unsound mind,
b) Partner has become permanently incapable
c) Partner is guilty of misconduct
d) Willful or persistent breach of agreement or otherwise continuation is
not possible
e) Transfer of interest by a partner
f) Continuous losses
g) Any other just and equitable ground.

 Consequences of dissolution of firm: After firm is dissolved, business is wound up and

proceeds are distributed among partners.
  Liability for acts of partners done after dissolution: Notwithstanding the
dissolution of a firm, the partners continue to be liable as such to third parties for any
act done by any of them which would have been an act of the firm, if done before the
dissolution, until public notice is given of the dissolution [Section 45(1)]. Notice under
sub-section (1) may be given by any partner [Section 45(2)].
 Rights of partners to have business wound up after dissolution: On the
dissolution of a firm every partner or his representative is entitled, as against all the
other partners or their representatives, to have the property of the firm applied in
payment of the debts and liabilities of the firm, and to have the surplus distributed
among the partners or which representatives according to their rights [Section 46].
 Continuing authority of partners for purposes of winding up: After dissolution
(either voluntary or compulsory), the affairs of the firm can continue only to the extent
necessary to wind up the company. All that is necessary to wind up business can be done
by the partners after dissolution, but unfinished transactions can be completed. Firm is
liable for such acts.
 Right to use goodwill purchased: If a partner or his representative has
purchased goodwill of the firm after dissolution of firm, he can continue to use the
goodwill and earn profit. He is not required to account for personal profits earned by
him by use of the firm name, after he has purchased the goodwill [Proviso to section 50
of Partnership Act].

 Mode of settlement of accounts between partners: In settling the accounts of a firm

after dissolution, the following rules shall, subject to agreement by the partners, be observed :
a) Losses, including deficiencies of capital, shall be paid first out of profits, next out
of capital, and, lastly, if necessary, by the partners individually in the proportions in
which they were entitled to share profits;
b) the assets of the firm, including any sums contributed by the partners to make
up deficiencies of capital, shall be applied in the following manner and order :
i. in paying the debts of the firm to third parties;
ii. in paying to each partner rateably what is due to him from the firm for
advances as distinguished from capital;
iii. in paying to each partner rateably what is due to him on account of
capital; and
iv. the residue, if any, shall be divided among the partners in the
proportions in which they were entitled to share profits. [Section 48 of
Partnership Act]

 Payment of firm debt and of separate debts: Where there are joint debts due from the
firm, and also separate debts due from any partner, the property of the firm shall be applied in
the first instance in payment of the debts of the firm, and, if there is any surplus, then the share
of each partner shall be applied in payment of his separate debts or paid to him. The separate
property of any partner shall he applied first in the payment of his separate debts, and the
surplus (if any) in payment of the debts of the firm [Section 49].

 Registration of Partnership Firm: Registration of firms is not compulsory, though usually

done as registration brings many advantages to the firm. Since ‘partnership contract’ is a
‘concurrent subject’ as per the Constitution of India, registration of firms and related work is
handled by State Government in each State.

 Appointment of registrars: The State Government may appoint a Registrar of

Firms for the purposes of this Act, and may define the areas within which they shall
exercise their powers and perform their duties [section 57(1)].
Every registrar shall be deemed to be a public servant within the meaning of section 21
of the Indian Penal Code, 1860. [section 57(2)]

 Application for registration of firm: Registration is required to be done with the

Registrar of Firms appointed by the State Government. The registration of a firm may be
effected at any time.

A statement is to be submitted either by post or in person to the Registrar of the area in

which any place of business of the firm is situated or proposed to be situated. The
statement should be in the prescribed fee, starting-

a) The firm name,

b) The place or principal place of business of the firm,
c) The names of any other places where the firm carries on business,
d) The date when each partner joined the firm,
e) The names in full and permanent address of the partners and
f) The duration of the firm.

 Restrictions on name of the firm: A firm shall not have any of the names or emblems
specified in the Schedule to the Emblems and Names (Prevention of Improper Use) Act, 1950, or
any colourable imitation thereof, unless permitted so to do under that Act, or any name which is
likely to be associated by the public with the name of any other firm on account of similarity, or
any name which, in the opinion of the Registrar, for reasons to be recorded in writing, is
undesirable :

Provided that nothing in this sub-section shall apply to any firm registered under any such name
before the date of the commencement of the Indian Partnership (Maharashtra Amendment) Act,
1984.

 Notice of changes if firm registered: Changes are required to be filed with

Registrar of Firms. Fees as prescribed by State Government will have to be paid.
Information should be submitted in form prescribed by State Government, if such form
has been prescribed. Broadly, any change in name of firm place of business, branches
where firm is carrying on business, name and permanent address of partner, withdrawal
of minor from firm, dissolution of firm etc. is required to be filed with the Registrar.

 Records with registrar: Registrar of firms maintains records relating to registration and
changes in the firm in the registers maintained by him.

 Public Notice: The Partnership Act envisages giving public notice in following situations-
  Minor becoming major electing or not electing to become member [Section
30(5)]
 Partner retiring or expelled [Section 32(3)]
 Dissolution of firm [Section 45(1)].

A public notice under the Act is given by notice to the Registrar of Firms under Section 63 of
Partnership Act, and by publication in the Official Gazette and in at least one vernacular
newspaper circulating in the district where the firm, to which it relates has its place or principal
place of business.

In case of unregistered firm, publication in Gazette and newspaper is necessary, but notice to
Registrar is not required [Section 72(a) of Partnership Act].

 Effect of non-registration of firm: Though registration of firm is not mandatory, non-

registration has some very serious consequences. Even if firm is registered but name of changed
partners are not intimated to the Registrar of Firms, such partners also suffer from same
disability as the firm suffers.

 Partner cannot sue firm or other partner if firm is unregistered: If a firm is not
registered, any partner cannot file any suit against the firm or any other partner
(present, past or alleged to be partner), to enforce a right arising from a contract or a
right conferred by Partnership Act. The suit can be filed only if name of partner who is
filing a suit is shown in the Registrar of firms as a partner [Section 69(1)].

Thus, even if firm is registered, a partner whose name does not appear in the record or
Registrar of Firms cannot file a suit against firm or another past, present or alleged
partner.

 Unregistered firm cannot sue third party: If a firm is not registered, the firm
cannot file any suit against third party to enforce a right arising from a contract. The suit
against third party to enforce a right arising from a contract. The suit has to be filed by a
partner on behalf of firm. The suit is maintainable only if name of partner who is filling a
suit is shown in the Registrar of firms as a partner [Section 69(2)].
 THE LIMITED LIABILITY PARTNERSHIP ACT, 2008

 Introduction: A Limited Liability Partnership, popularly known as LLP, combines the

advantages of both the Company and Partnership into a single form of organization. It is a
renowned and accepted business form of worldwide. This business structure is already popular
in countries like USA, UK, Singapore, Australia, etc. the Limited Liability Partnership Act, 2008
was enacted by the Parliament of India to introduce and legally sanction the concept of LLP in
India. The Limited Liability Partnership (LLP) Bill, 2008 received the approval of the Cabinet on 1 st
May 2008. The President of India has assented the Bill on 7 th January,2009 and called as the
Limited Liability of Partnership Act,2008 and many of its sections got enforced from 31 st March
2009.

 LIMITED LIABILITY PARTNERSHIP – MEANING AND CONCEPT :

 Meaning: A LLP is a new form of legal business entity with limited liability. It is
an alternative corporate business vehicle that not only gives the benefits of limited
liability at low compliance cost but allows its partners the flexibility of organising their
internal structure as a traditional partnership. The LLP is a separate legal entity and,
while the LLP itself will be liable for the full extent of its assets, the liability of the
partners will be limited.

 Characteristics/Salient features of LLP:

1) LLP is a body corporate: Section 3 of LLP Act provides that a LLP is a

body corporate formed and incorporated under this Act and is a legal entity
separate from that of its partners.

2) Perpetual Succession: The LLP can continue its existence irrespective of

changes in partners. Death, insanity, retirement or insolvency of partners has no
impact on the existence of LLP. It is capable of entering into contracts and
holding property in its own name.

3) Separate Legal Entity: The LLP is a separate legal entity, is liable to the
full extent of its assets but liability of the partners is limited to their agreed
contribution in the LLP. In other words, creditors of LLP shall be the creditors of
LLP alone.

4) Mutual Agency: Further, no partner is liable on account of the

independent or un-authorized actions of other partners, thus individual partners
are shielded from joint liability created by another partner’s wrongful business
decisions or misconduct. In other words, all partners will be the agents of the
LLP alone. No one partner can bind the other partner by his acts.
5) LLP Agreement: Mutual rights and duties of the partners within a LLP
are governed by an agreement between the partners. The LLP Act, 2008
provides flexibility to partner to devise the agreement as per their choice. In the
absence of any such agreement, the mutual rights and duties shall be governed
by the provisions of the LLP Act, 2008.

6) Artificial Legal Person: A LLP is an artificial legal person because it is

created by a legal process and is clothed with all rights of an individual. It can do
everything which any natural person can do, except of course that, it cannot be
sent to jail, cannot take an oath, cannot marry or get divorce nor can it practice
a learned profession like CA or Medicine. A LLP is invisible, intangible, immortal
(it can be dissolved by law alone) but not fictitious because it really exists.

7) Common Seal: A LLP being an artificial person can act through its
partners and designated partners. LLP may have a common seal, if it decides to
have one [Section 14(c)]. Thus, it is not mandatory for a LLP to have a common
seal. It shall remain under the custody of some responsible official and it shall be
affixed in the presence of at least 2 designated partners of the LLP.

8) Limited Liability: Every partner of a LLP is, for the purpose of the
business of LLP, the agent of the LLP, but not of other partners (Section 26). The
liability of the partners will be limited to their agreed contribution in the LLP.

9) Management of Business: The partners in the LLP are entitled to

manage the business of LLP. But only the designated partners are responsible for
legal compliances.

10) Minimum and Maximum number of Partners: Every LLP shall have least
two partners and shall also have at least 2 individuals as designated partners, of
whom at least one shall be resident in India. There is no maximum limit on the
partners in LLP.

11) Business for Profit Only: The essential requirement for forming LLP is
carrying on a lawful business with a view to earn profit. Thus LLP cannot be
formed for charitable or non-economic purpose.

12) Investigation: The Central Government shall have powers to investigate

the a-airs of an LLP by appointment of competence authority for the purpose.

13) Compromise or Arrangement: Any compromise or arrangement

including merger and amalgamation of LLPs shall be in accordance with the
provisions of the LLP Act, 2008.

14) Conversion into LLP: A firm, private company or an unlisted public

company would be allowed to be converted into LLP in accordance with the
provisions of LLP Act, 2008.

15) E-Filling of Documents: Every form or application of document required

to be filed or delivered under the act and rules made thereunder, shall be led in
 computer readable electronic form on its website www.mca.gov.in and
authenticated by a partner or designated partner of LLP by the use of electronic
or digital signature.

16) Foreign LLPs: Section 2(1)(m) defines foreign limited liability partnership
“as a limited liability partnership formed, incorporated, or registered outside
India which established a place of business within India”. Foreign LLP can
become a partner in an Indian LLP.

 Distinction between Partnership, company and LLP:

Basis of Difference Partnership Company LLP

Applicable Law The Partnership Act, The Companies Act, The Limited Liability
1932 2013 Partnership Act, 2008
Distinct Entity Not a separate legal Separate legal entity Separate legal entity
entity
Name of Entity Any name as per Name to contain ‘Limited Liability
choice ‘Limited’ in case of Partnership’ or ‘LLP’
Public Company or as suffix
‘Private Company’ in
case of Private
Company or ‘OPC’ in
case of One-Person
Company as suffix
Perpetual Succession No Yes Yes
Legal Proceedings Only registered Can sue and be sued Can sue and be sued
partnership can sue
third party
Number of Members Minimum : 2 and 2 to 100 members in Minimum 2 partners
Maximum : 20 case of Private and there is no
Company/ Minimum limitation of
7 members in case of maximum number of
Public Company/ partners
minimum 1 Member
in case of OPC
Liability of Partners/Members Unlimited Generally limited to Limited except in case
the amount required of fraud or wrongful
to be paid up on each act by the partner
share
 INCORPORATION OF LLP:

 To complete and submit incorporation document in the form prescribed with

the Registrar electronically;

 To have at least two partners for incorporation of LLP [Individual or body

corporate];

 To have registered office in India to which all communications will be made and
received;

 To appoint minimum two individuals as designated partners who will be

responsible for number of duties including doing of all acts, matters and things as are
required to be done by the LLP. At least one of them should be resident in India.

 A person or nominee of body corporate intending to be appointed as designated

partner of LLP should hold a Designated Partner Identification Number (DPIN) allotted by
MCA.

 To execute a partnership agreement between the partners inter se or between

the LLP and its partners. In the absence of any agreement the provisions as set out in
First Schedule of LLP Act, 2008 will be applied.

 LLP Name.

 DESIGNATED PARTNERS – STATUS AND LIABILITIES:

 Every LLP have at least two designated partners who are individuals and at least
one of them shall be a resident of India.

 In case of a LLP in which all the partners are body corporate or in which one or
more partners are individuals who are partners of such LLP or nominees of such bodies
corporate shall act as designated partners.

 Incorporation document of an LLP shall specify who are to be designated

partners, such partners shall be designated partners on incorporation or the
incorporation document shall state that each of the partners from time to time of LLP is
to be designated partner, every partner shall be a designated partner.

 Liabilities of Designated Partners:

Designated partners shall be -

a) Responsible for the doing all acts, matters and things are required to be
done by the limited liability partnership in respect of compliance to the
 provisions of this Act including filling of any document, return statement and the
like report pursuant to the provisions of this Act and as may be specified in the
LLP agreement; and

b) Liable to all penalties imposed on the limited liability partnership for any
contravention of those provisions.

 Changes in Designated Partners: A LLP may appoint a designated partner within

thirty days of a vacancy arising for any reason and provisions of Section 7 shall apply in
respect of such new designated partner.

Provided that if no designated partner is appointed, or if at any time there is only one
designated partner, each partner shall be deemed to be a designated partner.

 Registration of LLP (Section 12):

 When the requirements imposed by the Section 11 have been complied with,
the Registrar shall retain the incorporation document and, unless the requirement
imposed by clause (a) of that sub-section has not been complied with, he shall, within a
period of 14 days-

a) Register the incorporation document; and

b) Give a certificate that the limited liability partnership is incorporated by

the name specified therein.

 The registrar may accept the statement as sufficient evidence that the
requirement imposed by clause (a) of that sub-section has been complied with.

 The certificate issued shall be signed by the Registrar and the authenticated by
his official seal.

 The certificate shall be conclusive evidence that the limited liability partnership
is incorporated by the name specified therein.

 Registered office (Section 13): Every limited liability partnership shall have a registered
office to which all communication and notices may be addressed and where they shall be
received. LLP may change the place of its registered office and the file the notice of such change
with the Registrar in the prescribed manner.

 PROVISIONS RELATING TO NAME OF LLP:

 Name (Section 15):

1) Every limited liability partnership shall have either the words “limited
liability partnership” or the acronym “LLP” as the last words of its name.

2) No limited liability partnership shall be registered by a name which, in

the opinion of the Central Government is –

a) Undesirable; or
 b) Identical to or too nearly resembles that of any other
partnership firm or limited liability partnership or body corporate or a
registered trademark, or a trademark which is subject of an application
for registration, of any other person under the Trade Mark Act, 1999

 Reservation of Name (Section 16): A person may apply in the prescribed form
and with the prescribed fee to the Registrar for reservation of name. Upon satisfaction,
the Registrar may, subject to the rules prescribed by the Central Government in the
matter, reserve the name for a period of three months from the date of intimation by
the Registrar.

 Change of Name (Section 17): Notwithstanding anything contained in Section 15

and 16, where the Central Government is satisfied that a limited liability partnership has
been registered (whether through inadvertence or otherwise and whether originally or
by a change of name) under a name which –

a) is name referred to in sub-section (2) of Section 15; or

b) is identical with or too nearly resembles the name of any other limited
liability partnership or body corporate or other name as to be likely to be
mistaken for it.

the Central Government may direct such limited liability partnership to change its name,
and the limited liability partnership shall comply with the said direction within three
months after the date of the direction or such longer period as the Central Government
may allow.

 WINDING UP (SECTION 51):

 LLP winding up can be initiated voluntarily or by Tribunal.

 If a LLP is to initiate winding up voluntarily, then the LLP must pass a resolution
to wind up the LLP with approval of at least three-fourth of the total number of partners.
If the LLP has lenders, secured or unsecured, then the approval of lenders would also be
required for winding up of the LLP.

 Winding up of the LLP can be initiated by a Tribunal for the following reasons:

 The LLP decides that it would be wound up by the Tribunal.

 There are less than two partners in the LLP for a period of more than six
months.

 The LLP is not in a position to pay its debts.

 The LLP has acted against the interest of the sovereignty and integrity of
India.

 The LLP has not filed with the Registrar Statement of Accounts and
Solvency or LLP Annual Returns for any five consecutive financial years.
 The Tribunal is of the opinion that it is just and equitable that the LLP
should be wound up.