UNIVERSITY OF MUMBAI LAW ACADEMY,

MUMBAI

TOPIC-

PARTNERSHIP AND LIMITED LIABLITY PARTNESHIP

FY BBA LLB Sem. II

Prof. Akhtar-Ul-Islam Kazi

SUBMITTED BY: Ayush Tiwari

ROLL NO.: 12
CONTACT NO.: 8948294793
GMAIL: ayushtiwariorai@gmail.com

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 INDEX

Contents
UNIVERSITY OF MUMBAI LAW ACADEMY, MUMBAI ............................................... 1

GLOSSARY ......................................................................................................................... 3

PARTNERSHIP .................................................................................................................... 4

NATURE OF PARTNERSHIP ............................................................................................. 4

MEANING AND DEFINATION OF PARTNERSHIP ......................................................... 4

ESSENTIALS OF PARTNERSHIP ...................................................................................... 5

DURATION OF PARTNERSHIP ......................................................................................... 7

Partnership at Will (Section 7] ........................................................................................... 7

Particular Partnership [Section 8]....................................................................................... 7

MUTUAL RIGHTS AND DUTIES PARTNER .................................................................... 8

Mandatory Duties of Partners [Sections 9 and 10]. ............................................................. 8

General Duties of Partners ................................................................................................. 8

RIGHTS OF PARTNRS ....................................................................................................... 9

LIMITED LIABLITY PATRNERSHIP .............................................................................. 11

NATURE OF LLP .............................................................................................................. 12

INCORPORATION OF LLP .............................................................................................. 13

Steps of Incorporation of LLP.......................................................................................... 13

ADVANTAGES OF LLP.................................................................................................... 13

DISADVANTAGES OF LLP ............................................................................................. 14

CONCLUSION ................................................................................................................... 14

REFRENCES ...................................................................................................................... 15

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Partner
Partnership
Partnership Agreement
Minimum Number of Partners
Partnership Property
Partnership Tax
Limited Partnership
Limited Liability Partnership
LLP Agreement
Limited Liability Company
GLOSSARY
Is an agent, meaning he or she is a legal representative of the
partnership and of his or her co-partners, in its business
activities.
Partnership occurs whenever two or more people go into
business together with a view to making a profit.
This is the foundation document which sets forth in writing
the partners’ rights and obligations.
A partnership must have at least two partners. Similarly, an
LLP must have at least two members.
Consists of all things of value contributed at the time of
partnership organization or subsequently acquired in the
business of the partnership or paid for by partnership funds.
Partners and members are taxed as individuals on their
share of profit in the partnership or LLP. They are taxed on
their share of the profit not on their drawings.
A limited Partnership is formed under the Limited
Partnership Act and has general member(s) and limited
member(s). The limited member(s) have no liability so long
as they do not take part in the management of the limited
partnership. These are rare and should not be confused with
limited liability partnerships.
A partnership formed under the Limited Liability
Partnership Act 2008.
An LLP agreement is the agreement that regulates the
relationship between an LLP and its members. It is different
to a partnership agreement (between partners) as it includes
the LLP.
Limited liability company is governed by Limited Liability
Partnership Act 2018 and, like a partnership or LLP, is a
separate legal entity. It is owned by its members and
managed by its managing members, members or officers.
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 PARTNERSHIP
Partnerships in India are governed by the Indian Partnership 1932. Partnership is formed as
result of an agreement between two or more persons who have agreed to share the profits of a
business carried by all or any of them acting for all. Partnership is one of the specific
contracts which were a part of the Indian Contract Act 1872.1 In 1930, however, the
provisions relating to partnership contract were repealed and a separate Act called the Indian
Partnership Act, 1932 was passed which is in force till today. The Act mainly contains the
provisions relating to the formation of partnership the rights, duties and liabilities of partners
and the procedure for its and various types of partners including the position of a minor
partner the procedure for its dissolution etc.2

NATURE OF PARTNERSHIP
Partnership is a form of business organization, where two or more person join together for
jointly carrying on some business. It is an improvement over the sole trade business where a
single individual with his own resources, skill and effort carries on his own business.

MEANING AND DEFINATION OF PARTNERSHIP

According to section 4 of the Indian Partnership Act 1932 defines partnership as

“A relationship between persons who have agreed to share the profits of a business carried on
by all or any of them acting for all.”3

Section 239 of the Indian contract act defines partnership as “The relationship which
subsists between persons who have agreed to combine their property, labor, or skill in some
business and share the profits thereof between them.” 4

According to pollock “Partnership is the relation which subsists between persons who have
agreed to share the profits of a business carried on by all or any of the on behalf of all of
them.”

Partnership is the relation between persons who have agreed to share the profits of a business
carried on by all or any one of them acting for all (Section 4). It, therefore, follows that a
partnership consists of three essential elements:
1
https://www.mca.gov.in/Ministry/actsbills/pdf/Partnership_Act_1932.pdf
2
https://www.lawnotes.in/Indian_Partnership_Act,_1932
3
Sec. 4 Definition of "Partnership", The Partnership Act, 1932
4
Sec. 239 of the Indian Contract Act, 1872

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 (i) It must be a result of an agreement between two or more persons.
(ii) The agreement must be to share the profits of the business.
(iii) The business must be carried on by all or any of them acting for all. All these
essentials must coexist before a partnership can come into existence.

ESSENTIALS OF PARTNERSHIP
1. Two or more Persons: There must be at least two persons to form a partnership and all
such persons must be competent to contract. According to Section 11 of the Indian Contract
Act, 1872, every person except the following, is competent to contract:

(a). Minor
(b). Persons of unsound mind (e.g. lunatics, idiots), and
(c). Persons disqualified by law (e.g., alien enemies, insolvents)

Shivaram v. Gauri Shankar in this case court held that There must be at least two persons
and such persons must be competent to contract But after the formation of partnership, a
minor can be admitted to the benefits of partnership with the consent of all other partners of
the firm as per the provisions of Section 30 of the Act.

The partnership can be formed between Companies but firms cant form partnership because
act makes it clear that by way of an agreement between competent person partnership can be
established company being artificial person can be a party to the partnership deed but unlike
company firm is not legal person and therefore, firm is not capable of entering in to
partnership deed. (Dulichand v. Comissioner of income tax, Nagpur).

2. Agreement: Partnership must be the result of an agreement between two or more persons.
An agreement from which relationship of Partnership arises may be express. It may also be
implied from the act done by partners and from a consistent course of conduct being
followed, showing mutual understanding between them. It may be oral or in writing. This
essential element is further clarified under Section 5.

Section 5 provides that the relation of partnership arises from contract and not from status. 5
That is why; a Hindu undivided family carrying on a family business is not considered a
partnership. The reason is that the coparceners of a Hindu undivided family acquire interest

5
Sec. 5 Partnership not created by status, The Partnership Act, 1932.

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in the business because of their status (i.e., birth) in the family and not because of any
agreement between them. Thus, partnership is voluntary and contractual in nature.

3. Business: There must exist a business. According to Section 2(b), the term ‘Business’
includes every trade, occupation and profession. 6 For example, when two or more persons
agrees to share the income of it joint property (e.g.. rent from a building). It does not amount
to a partnership because there does not exist any business. Similarly, an association created
for charitable, religious or social purpose cannot be regarded as partnership because there
does not exist any business. It may also be noted that an agreement to carry on business at a
future time does not result in partnership unless that time arrives and the business is started.
[R.R. Sorna, v. Reuben].

When goods purchased for self Consumption not for the re-sale then it is not considered as
business transaction, accordingly there will be no Partnership. (Coope v. Eyre) Business
should be carried on and business should be of lawful business as per section 23 of the
contract act 1872.

4. Sharing of Profits: There must be sharing of profits. Unless otherwise agreed, sharing of
profits implies sharing of losses too. It may also be noted that sharing of profits is a prima
facie evidence and not a conclusive evidence of partnership.7 Because of that everyone who
shares the profits of business need not necessarily be a partner. For example, a manager who
receives a particular share in the profits of a business as part of his remuneration is simply an
employee and not a partner.

5. Mutual Agency: There must existence of a mutual agency relationship among the
partners. 'Mutual Agency' relationship means that each partner is both an agent and a
principal. Each partner is an agent in the sense that he has the capacity to bind other partners
by his acts done. Each partner is a principal in the sense that he is bound by the acts of other
partners.8

The mutual relationship of agency is emphasised in Section 18 of the Indian Partnership Act,
which reads as under: "Subject to the provision of this Act, a partner is the agent of the firm

6
Sec. 2 Definitions, The Partnership Act, 1932.
7
Sec. 4 Definition of "Partnership", "Partner”, The Partnership Act, 1932.
8
Sec. 18 Partner to be agent of the firm, The Partnership Act, 1932.

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for the business of the firm."Moreover, the use of the words ‘carried as by all or by any of
them acting for all, in Section 4 of the Act clearly emphasises agency relationship.

Because of the existence of mutual agency relationship amongst the partners, the law of
partnership is also regarded as an extension of the general law of agency. It may be noted that
the mutual agency relationship distinguishes a partnership from co-ownership and simple
agreement for sharing profits.

In cox v. Hickman it has been held that although the trustees were managing the business of
smith and son but they did not become partners. Because trustees were acting as agents but
they were not the principals. 9

DURATION OF PARTNERSHIP
On the basis of duration, the partnership can be classified in to two types namely 10

1. Partnership at will
2. Particular Partnership.

Partnership at Will (Section 7]

When there is no provision in partnership agreement for duration of the partnership, the
partnership is called 'Partnership at Will'. A partnership at will may be dissolved by any
partner by giving a notice in writing to all other partners of his intention to dissolve the
firm. 11

Particular Partnership [Section 8]

When a partnership is formed for a specific venture or for a particular period, the partnership
is called a ‘Particular Partnership’. Such partnership comes to an end on the completion of the
venture or on the expiry of the period. If such partnership is continued after the expiry of term
or completion of the venture, it is deemed to be a partnership at will. A particular partnership
may be dissolved before the expiry of the term or completion of the venture only by the
mutual consent of all the partners. 12

9
http://www.legalservicesindia.com/article/158/Indian-Partnership-Act,1932.html
10
Sec. 6 Mode of determining the existence of partnership, The Partnership Act, 1932.
11
Sec.7 Partnership-At-Will, The Partnership Act, 1932.
12
Sec. 8 Particular Partnership, The Partnership Act, 1932.

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MUTUAL RIGHTS AND DUTIES PARTNER
The mutual rights and duties of partners are governed by

A. The Partnership Agreement and

B. The Partnership Act.

The various provisions of the Partnership Act governing the mutual rights and duties of
partners as follows:

Mandatory Duties of Partners [Sections 9 and 10].

These provisions cannot be changed by an agreement amongst the partners.

The mandatory duties are:

(a). To carry on the business of the firm to the greatest common advantage,

(b). To be just and faithful to each other, i.e. every partner should act in good faith. Good
faith requires that a partner should not deceive the other partner by concealment of
material facts.

(c). To render true accounts and full information of all things affecting the firm to any
partner or his legal representative.

(d). To indemnify (i.e., to make good or to compensate) the firm for loss caused to it by
his fraud in the conduct of the business of the firm.

General Duties of Partners

The general duties of partners as provided in the Act are subject to the clauses inserted in
agreement by partners. They can be changed by an agreement amongst the partners. Unless
otherwise agreed by the partners, every partner has the following duties

(a). To attend diligently [Section 12(b)]: Every partner is bound to attend carefully to his
duties in the conduct of his business.

(b). Not to claim remuneration for taking part [Section 13(a)]: A partner is not entitled to
receive remuneration for taking part in the conduct of the business.

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(c). To contribute equally to the losses [Section 13(b)]: A partner must contribute equally
to the losses sustained by the firm.

(d). To indemnify the firm [Section 13(f)]: A partner must indemnify (i.e., compensate) the
firm for any loss suffered by the firm due to his wilful neglect in the conduct of the
business of the firm. The term 'wilful neglect', is something more than a mere
'negligence' and has been described as 'culpable negligence'.

(e). To hold and use firm's property for business purpose [Section 15]. The partners must
hold and use the firm's property for the purposes of the business.

(f). To account for and pay the personal profits from transactions firm etc. [Section 16(a)]:
Every partner must account for and pay to the firm the profits earned by him from any
transaction of the firm or from the use of firm's property, business connection or name
in Bentlay v. Crawen. If a partner is entrusted with the job of buying sugar for the firm
and he supplies sugar to the firm at a higher price from personal supplies held by him,
he is liable to account for profits made.

(g). To account for and pay the personal profits from a competing business [Section 16(b)]:
Every partner must account for and pay all profits earned by him in the competing
business. It may be noted that Section 11(2) permits the partners to enter an agreement
restraining a partner from carrying on any business other than the business of the firm
so long as he is a partner.

RIGHTS OF PARTNERS
The rights of partners as provided in the Act are subject to the agreement between the
partners. They can be changed by an agreement amongst the partners. Unless otherwise
agreed by the partners, every partner has the following rights:13

(a). Right to take part in the conduct of the business [Section 12 (a)]: Every partner
has a right to take part in the conduct of the business.

13
Sec. 12 & 13 The Partnership Act, 1932.

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(b). Right to express opinion [Section 12(c)]: Every partner has the right to express his
opinion before the matter is decided. All matters except the change in the nature of the
business, may he decided by a majority of the partners. The change in the nature of
the business may be made only with the unanimous consent of all the partners.
Example: admission of new partner to the firm, change in the nature of firms business.
Power of majority opinion has to be exercised in good faith. For instance if the
majority of the partners decided to expel one of the partner without justifiable reason
such expulsion would be set aside.

(c). Right to have access to books of the firm [Section 12(d)]: Every partner has a right
to have access to and to inspect and copy any of the books of the firm. A partner may
exercise this right personally or by engaging his agent.

(d). Rights to share profits [Section 13(b)]: Generally a partner is entitled to share the
profits of the business of the firm equally. Partners are entitled to share equally in the
profits earned and so contribute equally to the losses sustained by the firm. The
amount of a partner’s share must be ascertained by enquiring whether there is any
agreement in that behalf between the partners. If there is no agreement then you
should make a presumption of equality and the burden of proving that the shares are
unequal, will lie on the party alleging the same.

(e). Right to be indemnified [Section 13(e)]: A partner has a right to recover from the
firm the payments made and liabilities incurred by him: (i) in the ordinary and proper
conduct of the business, and (ii) in doing act in emergency for the purpose of
protecting the firm from loss if he has acted in a manner as a person of ordinary
prudence would have acted in similar circumstances in his own case.

(f). Right to prevent the introduction of a new partner [Section 31]: Every partner has
the right to prevent the introduction of a new partner without the consent of all the
existing partners.

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(g). Right to retire [Section 32]: Every partner has the right to retire with the consent of
all other partners and in the case of a partnership at will, by giving notice to that effect
in writing to all the other partners.

(h). Right not to be expelled [Section 33]: Every partner has the right not to be expelled
from the firm by any majority of partners unless such power is conferred by
partnership agreement and is exercised in good faith. Thus expulsion may be
exercised subject to the following conditions.

(i). Right to share subsequent profits [Section 37]: Every outgoing partner or the estate
of any partner who ceased to be a partner has the right to claim either a share in the
subsequent profits of the firm or interest @ 6% p.a. on his share in the firm's property
till the accounts are finally settled.

LIMITED LIABLITY PATRNERSHIP

There are many types of business forms in business world. Choosing the form of business
organization is an important decision because it can be critical to the success or the failure of
the business. Each form of business organization has its advantages and disadvantages form
of business organization are directly related to the ownership of business. Ownership is a
legal concept that decides the rights and liabilities of owner. 14

An LLP is a hybrid form of organization having feature of a partnership firm under the Indian
partnership act 1932 and a company under the companies act 2013, however the Indian
partnership act will not be applicable to LLPs and the LLPs are administered by the registrar
of companies. An LLP is a newer form of business partnership where all of the owners have
limited personal liability for the financial obligations of the business. 15

14
Limited Liability Partnership,
https://www.researchgate.net/publication/228119362_Limited_Liability_Partnership_in_India_An_Overview
15
https://www.drishtiias.com/loksabha-rajyasabha-discussions/the-big-picture-limited-liability-partnership-
amendment-bill-2021

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INTRODUCTION

A limited Liability partnership is a body corporate form and incorporated under the limited
liability partnership act 2008 Act was commenced on 1 April 2009 with 81 Sections 14
chapters and 41 schedules.

For a long time a need has been felt to provide for a business format that would combine the
flexibility of partnership firm and the advantages of limited liability of a private limited
company a law compliance cost. The limitation of partnership firm and the rigidity of the
companies have led to the birth of what we call it as LLP. LLP is an alternative corporate
business vehicle that provides the benefit of limited liability of a company but allows its
members the flexibility of organization their internal management on the basis of mutually
arrived agreement as is the case in partnership firm. This format would be useful for small
and medium enterprises.16

NATURE OF LLP
(a). LLP to be body corporate: A LLP is a body corporate formed and incorporated
under this LLP Act 2008.

(b). Non Applicability of Indian partnership Act 1932: The Provisions of Indian
partnership Act 1932 shall not apply to an LLP.  Partners – Any individual or body
corporate may be partner in LLP. A person who has been found unsound mind
insolvent shall not be capable becoming a partner of LLP.

(c). Number of Partners: Every LLP shall have at least two partners and there is no limit
of maximum number of partners.

(d). Separate legal entity every: LLP has separate legal entity. And relation between firm
and partners are not to be like agent and employer.

(e). Designated partners: Every LLP shall have at least two designated partners who are
individual and at least one of them shall be a resident in India.

16
Nature of LLP, https://www.mca.gov.in/MinistryV2/natureoflimitedliabilityparterneshipllp.html

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(f). Use of word LLP: Every LLP shall strictly use the word LLP after their firms name.

INCORPORATION OF LLP
For an LLP to be incorporated two or more person associated for carrying an a lawful
business with a view to profit shall be subscribe their names to an incorporation document
shall be like in such manner and with such feel as may be prescribed with the registrar of the
sate in which the registered office of LLP situated Incorporation document shall be in a form
as may be prescribed name address of LLP and partner details. 17

Steps of Incorporation of LLP

(a). Name reservation: The first step of incorporation of LLP is reservation of name of
LLP .Applicant has to file e form 1 for ascertaining availability and reservation of
name of LLP.

(b). Incorporate LLP: After reserving a name user has to file e-form-2 for incorporation
a new LLP e-form 2 contains the details of LLP proposed to be incorporated,
designated partners details and consent of designated partners to act as partners.

(c). LLP Agreement: Execution of LLP agreement is mandatory as per section 23 of the
act. LLP agreement is required to be liked with the registrar in e-form-3 within 30
days of incorporation of LLP.

ADVANTAGES OF LLP
(a). There is no minimum capital requirement in LLP An LLP can be formed with the
least possible capital.

(b). An LLP requires minimum two partners while there is no limitation for maximum
number of partners.

17
Incorporation of LLP, https://www.mca.gov.in/MinistryV2/incorporation.html

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(c). There is no requirement of compulsory audit An LLP is required to get a tax audit
done only in case of the contribution of LLP exceeds, Rs 25 lacs or the annual
turnover of the LLP exceeds Rs 40 lacs.

(d). The cost of registering LLP is low as compared to the cost of incorporating a
company.

(e). LLP protects the member personal assets frame the liability of business.

(f). LLP is more flexible as compare to company to organize internal structure.

DISADVANTAGES OF LLP
(a). An LLP can be structured in such a way that and partner has more rights than another.

(b). An LLPs compliances are minimal but if you don’t complete them you could end up
Paying more in fines than you would with a private limited company.

(c). LLP cannot raise money from the public.

(d). Venture capital firm generally prefer not to invest in LLP.

CONCLUSION
Above study shows that there are various types of business organization. Choosing the best
form is a very important for success of business LLP is helpful for small and middle
organization and also for all type of business for initial years LLP is easy to form and flexible
as compared to other forms of organization.LLP is recognition of the changing needs for the
business in today’s time.

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REFRENCES

 THE INDIAN CONTRACT ACT, 1872 [Bare Act]

 THE PARTNERSHIP ACT, 1932 [Bare Act]

 LIMITED LIABILITY ACT, 2008 [Bare Act]

 An Overview of The Indian Partnership Act, 1932 https://blog.ipleaders.in/the-indian-

partnership-act-1932/

 Partnership contract research paper, www.studocu.com

 Indian Partnership Act, 1932

 (https://www.advocatekhoj.com/library/bareacts/partnership/index.php?Title=Indian

%20Partnership%20Act,%201932)

 Indian Partnership Act, 1932 http://www.legalservicesindia.com/article/158/Indian-

Partnership-Act,1932.html

 Limited Liability Partnership in India: An Overview, www.researchgate.net

 Limited Liability Partnership (LLP): The Basics, www.investopedia.com

 The Limited Liability Partnership (Amendment) Bill, 2021, prsindia.org

 Ministry Of Corporate Affairs - Incorporation, www.mca.gov.in

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