UNIT IV PARTNERSHIP ACT 1932 & LLP ACT 2008

Partnership Act 1932: Registration of a Partnership firm

According to the Partnership Act 1932, the registration of a partnership firm is not
mandatory but it is advisable to do so. Registering a partnership firm has the
following advantages:

1. Legal recognition: Registered partnership firms are considered as a separate

legal entity from its partners. This means that the firm can enter into contracts,
sue and be sued in its own name.
2. Evidence of existence: The registration of a partnership firm serves as
conclusive evidence of its existence and the partnership agreement.
3. Prevention of disputes: The partnership deed, which outlines the terms and
conditions of the partnership, is registered with the Registrar of Firms. This
prevents disputes among partners and helps resolve any disputes that may
arise.
4. Access to legal remedies: Registered partnership firms have access to legal
remedies in case of any dispute or violation of rights.

To register a partnership firm, the following documents are required:

✓ Application for registration in Form No. 1
✓ Certified copy of the partnership deed
✓ Proof of ownership of the place of business or rental/lease agreement
✓ PAN card of the firm and partners
✓ Identity proof of the partners (such as Aadhar card, voter ID, passport, etc.)

The application for registration should be signed by all the partners or their
authorized agents. The registration fee varies from state to state, but it is generally
nominal. Once the application is submitted, the Registrar of Firms will verify the
documents and issue a Certificate of Registration.
Partnership deed:
A partnership deed is a legal document that outlines the terms and conditions of a
partnership between two or more individuals who have agreed to carry on a business
venture together. The partnership deed is also known as a partnership agreement or
articles of partnership, and it is an important document that helps to prevent
misunderstandings and disputes among partners.

A partnership deed typically includes the following information:

Name and address of the partnership: The legal name of the partnership and the
address where the business is conducted.

Nature of the partnership: The type of business the partnership will conduct,
including the products or services that will be offered.

Capital contribution: The amount of money or assets that each partner will
contribute to the partnership and the percentage of ownership that each partner will
have.

Profit and loss sharing: The percentage of profits and losses that each partner will
receive based on their ownership percentage.

Duties and responsibilities of partners: The roles and responsibilities of each

partner, including their areas of expertise and decision-making authority.

Management and decision-making: The process for making decisions and

managing the partnership, including how voting rights will be allocated among
partners.

Meetings and record-keeping: The frequency and format of partnership meetings

and the process for maintaining records of partnership activities.

Termination and dissolution: The circumstances under which the partnership may
be terminated or dissolved, and the process for distributing assets and liabilities in
the event of dissolution.

A partnership deed is a legally binding document, and it is important that all partners
understand and agree to its contents before signing. It is recommended that partners
consult with a legal professional when drafting a partnership deed to ensure that all
necessary provisions are included and that the document complies with applicable
laws and regulations.

TYPES OF PARTNERS:
➢ Active/General Partner: A partner who takes an active role in the day-to-
day operations of the partnership and is jointly and severally liable for all the
obligations of the firm.
➢ Sleeping/Dormant Partner: A partner who contributes capital to the
partnership but takes no active part in its management.
➢ Nominal Partner: A partner who lends their name to the firm but does not
actually contribute any capital or take any active part in its management.
➢ Partner by Estoppel: A person who is not actually a partner in the firm, but
who represents themselves as a partner, or allows others to represent them as
a partner, and thus is held liable as a partner to third parties who have dealt
with the firm in good faith.
➢ Secret Partner: A partner who does not openly declare their partnership to
the public, but who participates in the management of the firm and shares in
its profits and losses.
➢ Partner in Profits Only: A partner who shares in the profits of the firm but
does not contribute any capital or take any active part in its management.
➢ Limited Partner: A partner who contributes capital to the firm but does not
take an active role in its management and has limited liability for the firm's
debts and obligations.
➢ Incoming/Outgoing Partner: A partner who joins or leaves the partnership
during the course of its operations.

Rights of Partners:
The Indian Partnership Act, 1932 recognizes certain rights and duties of partners in
a partnership firm. The rights of partners under the Partnership Act, 1932 are as
follows:

✓ Right to take part in the conduct of the business: Every partner has the
right to take an active part in the conduct of the partnership business, unless
otherwise agreed upon.
 ✓ Right to be consulted: Every partner has the right to be consulted and to
express his opinion on matters relating to the ordinary course of business of
the firm.
✓ Right to access information: Every partner has the right to access and inspect
the books of accounts and other documents of the firm.
✓ Right to share profits: Every partner has the right to share the profits of the
firm equally, unless otherwise agreed upon.
✓ Right to receive interest on capital: Every partner has the right to receive
interest on the capital contributed by him to the firm, at the rate agreed upon.
✓ Right to indemnity(COMPENSATION): Every partner has the right to be
indemnified by the firm in respect of liabilities incurred by him in the ordinary
course of business of the firm.
✓ Right to participate in management: Every partner has the right to
participate in the management of the firm, unless otherwise agreed upon.
✓ Right to retire: Every partner has the right to retire from the partnership firm,
subject to the terms of the partnership agreement.

Duties of Partners:
The Partnership Act, 1932 defines the legal rights and duties of partners in India.
There are 8 duties of partners mentioned in the Act, which are as follows:

✓ Duty to carry on the business of the partnership: Every partner has a duty
to carry on the business of the partnership to the best of his ability.
✓ Duty to be loyal: Partners have a duty of utmost good faith towards each other
and must act with loyalty towards the partnership. They cannot use
partnership property or information for their own personal gain.
✓ Duty to share profits and losses: All partners must share the profits and
losses of the partnership equally, unless agreed otherwise in the partnership
deed.
✓ Duty to indemnify: Partners must indemnify the partnership for any loss or
damage caused to it by their willful neglect or misconduct.
✓ Duty to account: Every partner must keep accurate accounts of the
partnership's transactions and provide the other partners with access to those
accounts.
 ✓ Duty to contribute: Partners must contribute equally to the capital of the
partnership as agreed upon in the partnership deed.
✓ Duty to not compete: Partners must not compete with the partnership in any
way and must not engage in any business that is similar to the partnership's
business.
✓ Duty to act with care and skill: Partners must act with care, skill, and
diligence in the conduct of the partnership's business. They should not engage
in any activity that could harm the partnership's reputation or finances.

Liabilities of Partners
The Partnership Act of 1932 lays out the liabilities of partners in a partnership firm.
The liabilities of partners in a partnership can be classified as follows:

Joint Liability: Each partner is jointly liable with all other partners for all debts and
obligations of the firm incurred while he/she was a partner.

Several Liability: Each partner is severally liable for the obligations of the firm to
the extent of his/her share in the partnership.

Joint and Several Liability: In certain cases, partners can be held jointly and
severally liable for the debts and obligations of the firm.

Unlimited Liability: In some partnerships, partners have unlimited liability, which

means that they are personally responsible for all the debts and obligations of the
firm, even if their personal assets are required to be used to settle them.

It is important to note that the liabilities of partners in a partnership are not limited
to their initial investment in the partnership. Partners can be held liable for the full
extent of the debts and obligations of the firm, even if their investment was limited
to a certain amount. Therefore, it is important for partners to carefully consider the
risks involved before entering into a partnership.
Limited Liabbility Partnertship (LLP) Act 2008:
The Limited Liability Partnership (LLP) Act, 2008 is an Indian legislation that
provides for the formation and regulation of LLPs in the country. LLP is a hybrid
business structure that combines the advantages of a partnership firm and a limited
liability company. It allows the partners to have limited liability, like a company,
and at the same time, provides the flexibility of a partnership.

The LLP Act, 2008 allows two or more persons to form an LLP for carrying on a
lawful business with a view to profit. The partners in an LLP have limited liability
to the extent of their contribution in the LLP, and they are not personally liable for
the debts or obligations of the LLP. The LLP is a separate legal entity from its
partners, and it can own assets, enter into contracts, sue or be sued in its own name.

Scope of LLP:
The scope of the LLP Act 2008 includes the following:

✓ Formation of LLPs: The Act provides for the formation of LLPs in India and
lays down the procedures and requirements for registering an LLP.
✓ Limited Liability: One of the main features of an LLP is limited liability,
which means that the liability of partners is limited to the extent of their capital
contribution in the LLP. The Act provides for this feature and outlines the
rights and obligations of partners.
✓ Management of LLPs: The Act specifies the powers and duties of partners
and designated partners in the management of the LLP.
✓ Compliance: The Act lays down various compliance requirements that LLPs
must adhere to, such as maintaining proper books of accounts and filing
annual returns with the Registrar of LLPs.
✓ Conversion of partnership firms and companies: The Act also provides for
the conversion of existing partnership firms and private companies into LLPs.

Overall, the Limited Liability Partnership Act 2008 aims to provide a flexible and
efficient form of business organization for small and medium-sized enterprises in
India.
Formation and registration of LLP
A Limited Liability Partnership (LLP) is a type of partnership in which the partners
have limited liability for the debts and obligations of the business. It is a separate
legal entity, distinct from its partners, and is governed by the Limited Liability
Partnership Act, 2008.

Here are the steps to form and register an LLP in India:

1) Decide on the partners and the designated partners: An LLP must have at
least two partners, and at least two designated partners who are individuals,
and at least one of them must be a resident of India.
2) Obtain a Digital Signature Certificate (DSC): A DSC is a digital equivalent
of a physical signature and is required for filing the LLP registration
application. The designated partners must obtain their DSCs from a Certifying
Authority.
3) Obtain a Director Identification Number (DIN): The designated partners
must obtain a DIN from the Ministry of Corporate Affairs. This can be done
online by submitting an application with supporting documents.
4) Name reservation: The next step is to reserve a name for the LLP. The name
must be unique and should not be similar to an existing company or LLP
name. The name can be reserved by filing an application with the Registrar of
Companies (RoC).
5) Filing of LLP registration application: Once the name is reserved, the LLP
registration application must be filed with the RoC. The application must be
accompanied by the necessary documents, such as the LLP agreement, proof
of address, and identity of partners and designated partners.
6) Certificate of incorporation: If the RoC is satisfied with the application, it
will issue a certificate of incorporation, which signifies that the LLP is now a
separate legal entity.
7) Filing of LLP agreement: The LLP agreement must be filed with the RoC
within 30 days of incorporation. This agreement sets out the rights and duties
of partners and designated partners, as well as the rules governing the
operation of the LLP.
 8) Obtain PAN and TAN: The LLP must obtain a Permanent Account Number
(PAN) and Tax Deduction and Collection Account Number (TAN) from the
Income Tax Department.

Once these steps are completed, the LLP is registered and can start its operations.

Winding up and Dissolution of LLP:

Limited Liability Partnerships (LLPs) can be wound up and dissolved voluntarily or
compulsorily in accordance with the Limited Liability Partnership Act, 2008 and its
rules. Here are the steps involved in winding up and dissolution of an LLP:

Voluntary Winding Up:

1) Call a partners' meeting and pass a resolution for winding up the LLP with the
consent of at least three-fourths of the total number of partners.
2) Within 30 days of passing the resolution, file Form 1 (Declaration of
Solvency) with the Registrar of Companies (ROC).
3) Within 14 days of filing Form 1, hold another partners' meeting to pass a
resolution for winding up the LLP with the consent of at least three-fourths of
the total number of partners.
4) Within 30 days of passing the second resolution, file Form 4 (Notice of
Appointment of Liquidator) with the ROC, along with a copy of the
resolution.
5) Appoint a liquidator to wind up the affairs of the LLP and distribute its assets
to the partners.

Compulsory Winding Up:

An LLP can be compulsorily wound up by the Tribunal on various grounds such as:

✓ The LLP has not commenced business within one year of its incorporation.
✓ The LLP is unable to pay its debts.
✓ The number of partners in the LLP has reduced below the statutory minimum.
✓ The LLP has acted against the interests of sovereignty and integrity of India,
the security of the State, public order, decency or morality.
✓ The LLP has been carrying on its business for unlawful purposes.

The steps involved in compulsory winding up are as follows:

 1) File a petition with the Tribunal for winding up the LLP.
2) If the Tribunal is satisfied that the grounds for winding up exist, it may pass
an order for winding up the LLP and appoint a liquidator.
3) The liquidator will take charge of the affairs of the LLP, collect its assets,
settle its debts and distribute the surplus assets among the partners.

Once the winding up is complete, the LLP can apply for dissolution by filing Form
3 (Application for Striking Off the Name of LLP) with the ROC. After scrutinizing
the application and verifying the necessary documents, the ROC will strike off the
name of the LLP from its records and issue a certificate of dissolution

Comparison of LLP with Partnership firm