M3 Partnership LLP

BUSINESS
LAW - II
SYBFM
by
Mandar Choudhari
SYLLABUS
SYLLABUS
DETAILED
SYLLABUS
MODULE 3
PROPRIETORSHIP PARTNERSHIP LLP COMPANY
Member 1 only 2 to 50 2 to unlimited 1 to unlimited

Liability Unlimited Unlimited Limited Limited
Compliances Very less less moderate High
Capital Own Only partners Only partners Shareholders
Outside NO NO NO Yes
Equity
Law No dedicated law Partnership Act, LLP Act, 2008 Companies Act
1932
MODULE 1
PARTNERSHIP ACT
Partnership → previously part of ‘Indian
Contracts Act 1872’
PARTNERSHIP
PARTNERSHIP ACT
PARTNERSHIP DEFINITION
Partnership (sec. 4)
1. Relationship between persons
2. Who have agreed to share profits of business
3. Carried on by all or any of them
4. Acting for all
PARTNERSHIP ACT
• Relationship between persons
– Legal relationship
– Contract
– Joint Assets and liability
– Swim together and sink together
– Merely purchasing goods is NOT enough
PARTNERSHIP ACT
PARTNERSHIP ≠ CO-OWNERSHIP
PARTNERSHIP ACT
PARTNERSHIP CO-OWNERSHIP
Partnership deed + mutual agency Joint ownership of buss / property
Partnership Agreement is MUST May or may NOT
Profit and loss sharing May be
Partner is agent of one another NOT
Shared liability of all partners NOT
PARTNERSHIP ACT
4. Acting for all
PARTNERSHIP ACT
– Profit = surplus after expanses
– Profits from the partnership firm
– Profits ratio mentioned in agreement
– If ratio NOT mentioned → assumed to be equal
PARTNERSHIP ACT CASE
COX VS HICKMAN CASE LAW, 1860 LAW
• Smith and sons → Buss merchants (Iron)

– Taken loan from creditor
• Creditor appointed Trustee → Cox
• Creditors sharing profits
• Hickman → Goods suppliers
– Default by smith and sons
– Asked Trustees (Cox) to pay
PARTNERSHIP ACT CASE
COX VS HICKMAN CASE LAW, 1860 LAW
• Creditors sharing profits
• Sharing of profit is ESSENTIAL but NOT sufficient

condition for Partnership
PARTNERSHIP ACT
• Profit making →
necessary but NOT
sufficient condition
PARTNERSHIP ACT
– Sharing profits but NOT partners
• Servant or agent, Manager-employee,
• Profit making → necessary but NOT sufficient condition
PARTNERSHIP ACT
– BUSINESS
• Partnership ONLY for business
• Lawful activity ONLY
PARTNERSHIP ACT
2. Who have agreed to share profits of
business
BUSINESS
Partnership ONLY for business
Lawful activity only
PARTNERSHIP ACT
PARTNERSHIP DEFINITION ?
PARTNERSHIP ACT
4. Acting for all
PARTNERSHIP ACT
– NOT necessary – every partner to actively manage
business
PARTNERSHIP ACT
4. Acting for all
PARTNERSHIP ACT
4. Acting for all
– Partnership as MUTUAL AGENCY
– Agent – Principal relation for ALL partners
– Every partner is responsible / liable for action of ANY
– Sink together and swim together
PARTNERSHIP ACT
4. Acting for all
PARTNERSHIP ACT
• Who have agreed to share profits of business
• Carried on by all or any of them
• Acting for all
PARTNERSHIP ACT
PARTNERSHIP (sec. 4)
• Who have agreed to share profits of business
• Carried on by all or any of them
• Acting for all
PARTNERSHIP ACT
WHO CAN NOT BE A PARTNER
CAN NOT BE A PARTNER
• Minor
• Unsound mind
• Alien enemy
PARTNERSHIP ACT
PARTNERSHIP ESSENTIALS
Essentials of Partnership
• Partnership Agreement
• Min 2 , max 50
• Profit / Loss sharing
• For Business
• Mutual Agency
• Contract requisites
PARTNERSHIP ACT
PARTNERSHIP AGREEMENT / DEED
• Establishment of partnership
• Min 2 , max 50
• Name of the partnership firm and date
• Name of partners
• Profit sharing ratio
• Capital ratio
• Duration
• Other provisions (interest, salary, commission, valuations)
PARTNERSHIP ACT
REGISTRATION OF PARTNERSHIP FIRM
• Registration → NOT COMPULSORY under act
• Partnership Agreement
• Registration application to Registrar of Firms
• Registration form
– Name of firm
– Nature of business
– Place of business
– Name and address of partners
– Date when partners joined
– Duration of firm
PARTNERSHIP ACT
PARTNERSHIP ACT
PARTNERSHIP ACT
PARTNERSHIP ACT
Documents required
• Certified copy of partnership deed
• Blank stamp paper in the name of Partner or Firm
• Covering letter with court fee stamp
• Authority letter signed by all partners if
documents are submitted by CA or advocate
• DD - ROF
PARTNERSHIP ACT
IF NOT REGISTERED
• Still Valid partnership, but
• Partners can NOT file suit against firm
• Firm can NOT file suit against third party (3
rd party can)
• NO counterclaim
PARTNERSHIP ACT
IF NOT REGISTERED
• Still VALID PARTNERSHIP, but
rd party can)
• NO counterclaim
PARTNERSHIP ACT
LEGAL DISPUTE
• IF PARTNERSHIP FIRM NOT REGISTERED
– Still Valid partnership, but
rd party can)
• NO counterclaim
PARTNERSHIP ACT
TYPES OF PARTNERSHIP
1. Partnership at will → indefinite period

2. Partnership for FIXED period → defined tenure
3. Particular partnership → for project
PARTNERSHIP ACT
FIRM’S PROPERTY
• Which was bought by firms capital
• EXCLUSIVELY for business of firm
• NOT for individual partner’s profit
PARTNERSHIP ACT
JOINT OWNERSHIP OF PARTNERS

• Partnership firm’s asset (property)
• Any acquisition after estd for partnership
• Goodwill of business
PARTNERSHIP ACT
RIGHTS AND
LIABILITITIES
OF PARTNERS
PARTNERSHIP ACT
RIGHTS OF PARTNERS
• Right to take part in business
• Right to access books / Accounts
• Right to share profits
• Right to interest on capital
• Right to be consulted
• Right to dissolve
• Right to retire
• Right to be consulted at time of admission of new
partner
• Right of an outgoing partner → competing buss
PARTNERSHIP ACT
RIGHTS OF PARTNERS
PARTNERSHIP ACT
RIGHTS OF PARTNERS
– Business → for profit + lawful
– In case of dispute
• Solved by majority
– Bound to attend diligently to his duties
– NO CHANGE in nature of buss without CONSENT of
all partners
PARTNERSHIP ACT
RIGHTS OF PARTNERS
PARTNERSHIP ACT
RIGHTS OF PARTNERS
• RIGHT TO ACCESS BOOKS / ACCOUNT
– To ANY and EVERY partner
– inspect and copy any of the books of the firm
– In case of death
• Legal heirs can inspect books
PARTNERSHIP ACT
RIGHTS OF PARTNERS
PARTNERSHIP ACT
RIGHTS OF PARTNERS
• RIGHT TO SHARE PROFITS
– As per partnership agreement / deed
– If NOT → shared equally
– In case of losses → also shared
PARTNERSHIP ACT
RIGHTS OF PARTNERS
– On advance to firm
– Which is outside capital
PARTNERSHIP ACT
RIGHTS OF PARTNERS
• RIGHT TO INTEREST ON CAPITAL
– On advance to firm
– Which is outside capital
PARTNERSHIP ACT
RIGHTS OF PARTNERS
PARTNERSHIP ACT
RIGHTS OF PARTNERS
PARTNERSHIP ACT
RIGHTS OF PARTNERS
• Right to retire
PARTNERSHIP ACT
RIGHTS OF PARTNERS
• Right to be consulted at time of admission of
new partner
PARTNERSHIP ACT
RIGHTS OF PARTNERS
Right of an outgoing partner → competing buss
PARTNERSHIP ACT
RIGHTS OF PARTNERS
Right of an outgoing partner → competing
buss
1. An outgoing partner may carry on a business competing with
that of the firm and
2. he may advertise such business,
3. but subject, to contract to the contrary,
4. he may not
1. use the firm-name,
2. represent himself as carrying on the business of the firm, or
3. Solicit custom of persons who were dealing with the firm before he ceased
to be a partner.
VOID CONTRACT
(as per Indian Contracts Act)
When it ceases to be enforceable by law
• Both parties under mistake of the fact (Sec 20)
• Consideration and object is unlawful (Sec 24)
• Agreement without consideration
• Restrain of trade (sec 27)
• Restrain legal proceeding (Sec 28)
• Wager
PARTNERSHIP ACT
RIGHTS OF PARTNERS
Right of an outgoing partner → competing
buss
1. AGREEMENT IN RESTRAINT OF TRADE. A partner may
make an agreement with his partners that on ceasing to
be a partner
2. he will not carry on any business similar to that of the

firm within a specified period or within specified local
limits; and,
3. notwithstanding anything contained in section 27 of the

Indian Contract Act, 1872, such agreement shall be valid
if the restrictions imposed are reasonable
PARTNERSHIP ACT
RIGHTS OF PARTNERS
• Right to retire
• Right to be consulted at time of admission of new
partner
• Right of an outgoing partner → competing buss
PARTNERSHIP ACT
MUTUAL DUTIES
OF PARTNERS
PARTNERSHIP ACT
MUTUAL DUTIES OF PARTNERS

• To carry business for common benefit
• To render true accounts and full info
• To attend diligently
• To share losses
• To account for private profits
• To account for profits in competing business →
pay to firm
PARTNERSHIP ACT

PROFITS ≠ SALARY
PARTNERSHIP ACT

PROFITS ≠ SALARY
• Partners can take profits but NOT
salary
PARTNERSHIP ACT

PARTNERSHIP ACT

Case Study : SATYAM SCAM BSA
PARTNERSHIP ACT

PARTNERSHIP ACT

PARTNERSHIP ACT

• To share losses
PARTNERSHIP ACT

• To account for PRIVATE profits
PRIVATE PROFIT
(OUTSIDE FIRM)
PARTNERSHIP FIRM
PARTNERSHIP ACT

• To account for PRIVATE profits
– Transacting for firm
– Use of firm’s property
– Using firm’s business connection
PRIVATE PROFIT
– Using firm’s name
(OUTSIDE FIRM)
(Partners can have alternate business)

PARTNERSHIP ACT

• To account for profits in COMPETING business →
PAY TO FIRM
PARTNERSHIP ACT

• To share losses
• To account for private profits
• To account for profits in competing business →
pay to firm
PARTNERSHIP ACT
LIABILITIES OF PARTNERS
Section 25
• EVERY partner
• is liable JOINTLY with ALL other
partners
• and also SEVERALLY,
• for ALL ACTS of the firm done
• WHILE he is a partner
PARTNERSHIP ACT
• Liability for acts of the firm
• Retiring partner → only for acts before retirement
• Nominal partner → also liable
PARTNERSHIP ACT
LIABILITY FOR ACTS OF THE FIRM
Section 25
• Liability of Partner = Liability of Firm
PARTNERSHIP ACT
LIABILITY FOR ACTS OF THE FIRM
Section 25
• EVERY partner
• is liable JOINTLY with ALL other partners
• and also SEVERALLY,
• for ALL ACTS of the firm done
• WHILE he is a partner
PARTNERSHIP ACT
Section 26
• Where, by the WRONGFUL ACT of a partner
• acting
– in the ordinary course of the business of a firm or
– with the authority of his partners,
• LOSS or injury is caused to any third party, or
– any penalty is incurred,
• the FIRM is liable therefor
• to the SAME EXTENT as the partner
PARTNERSHIP ACT
LIABILITY OF FIRM FOR
MISAPPLICATION BY PARTNERS
Section 27
• (a) partner acting within his apparent authority
receives money or property from a third party and
misapplies it, or
PARTNERSHIP ACT
LIABILITY OF FIRM FOR
MISAPPLICATION BY PARTNERS
Section 27
• (b) a firm in the course of its business receives
money from a third party,
• and the money is misapplied by any of the partners
while it is in the custody of the firm,
• the firm is liable to make good the loss.
PARTNERSHIP ACT
PARTNERSHIP ACT
PARTNERSHIP ACT
RETIRING PARTNER
• Section 32
• retiring partner → discharged from any
liability to any third party
– For acts of firm before retirement
– By AGREEMENT – with third party
• NOT LIABLE after retirement
– For act of firm done AFTER his /her retirement
PARTNERSHIP ACT
RETIRING PARTNER
BUT
• CAN be HELD LIABILE
– If NO PUBLIC NOTICE
– (people perceive you to be partner)
PARTNERSHIP ACT
PARTNERSHIP ACT
PARTNERSHIP ACT
– Inactive partner
– No active participation in business
– (NOT defined specifically in ACT)
Case Study : BSA
Case Study : BSA
Case Study : BSA
PARTNERSHIP ACT
PARTNERSHIP ACT
AUTHORITY OF PARTNER
Act of a Partner = Act of Partnership Firm
PARTNERSHIP ACT
• Every partner → Principal as well as Agent
• Authority → can be Expressed or Implied
• ACT of a partner → which is done to carry on

business of the kind carried on by the firm, binds
the firm.
PARTNERSHIP ACT
IMPLIED AUTHORITY conditions
1. Act by partner in firm’s name
2. Act in usual way
3. Act relate to normal buss of firm
Act of a Partner = Act of Partnership Firm

PARTNERSHIP ACT
1. Act by partner in firm’s name
PARTNERSHIP ACT
2. Act in usual way
PARTNERSHIP ACT
3. Act relate to normal buss of firm
PARTNERSHIP ACT
• Buy / sell goods
• Loans
• Employ servants
• Sign, endorse, transfer, negotiate
• Present
PARTNERSHIP ACT
OUTSIDE AUTHORITY OF PARTNER

• Statutory restriction
• Restriction by partnership deed
PARTNERSHIP ACT

Statutory restriction
• Submit dispute of firm to arbitration
• Open bank account on behalf of firm in own name
• Relinquish any claim of firm
• Withdraw suit against firm
• Transfer immovable property of firm
• Enter into partnership on behalf of firm
• Admit any liability on behalf of firm
BSA
Judiciary vs Alternate Dispute Resolution Mechanism
BSA
Judiciary vs Alternate Dispute Resolution Mechanism BSA
• One party against other • By BOTH party

• SC, HC, District Court, • Choose Arbitrator
Small Causes • Amicable
• Win-Lose • Binding decision
• No appeal to court
PARTNERSHIP ACT

Statutory restriction
• Submit dispute of firm to arbitration
• Open bank account on behalf of firm in own name
• Relinquish any claim of firm
• Withdraw suit against firm
• Transfer immovable property of firm
• Enter into partnership on behalf of firm
• Admit any liability on behalf of firm
PARTNERSHIP ACT

– Non competence clause, etc.
PARTNERSHIP ACT

• Statutory restriction
PARTNERSHIP ACT
PARTNER'S AUTHORITY IN AN EMERGENCY.
(sec 21)
PARTNERSHIP ACT
PARTNER'S AUTHORITY IN AN EMERGENCY. (sec 21)
• A partner has authority
• in an emergency,
• to do all such acts
• for the purpose of protecting the firm from loss
• as would be done by a person of ordinary
prudence, in his own case,
• acting under similar circumstances,
• such acts bind the firm.
PARTNERSHIP ACT
NOTICE TO PARTNER
Notice to 1 partner = Notice to the Firm
EXCEPT (section 24)

FRAUD committed by particular partner
PARTNERSHIP ACT
NEW PARTNER
PARTNERSHIP ACT
NEW PARTNER
• Can be added
with CONSENT from ALL partners

(NOT merely majority)
coz profit ratios will change
PARTNERSHIP ACT
NEW PARTNER
• NOT liable for previous acts of firm
• But liable afterwards

PARTNERSHIP ACT
EFFECT OF ADMISSION BY A PARTNER
• An admission or representation made by a
partner concerning the affairs of the firm is
evidence against the firm, it is made in the
ordinary course of business.
PARTNERSHIP ACT
EXPULSION OF PARTNER
Expelled Partner
Partnership firm
PARTNERSHIP ACT
• Any partner can be EXPELLED (removed) from
partnership
• By MAJORITY (NOT unanimity)
PARTNERSHIP ACT
EXPELLED Partner
• NOT liable → for act of firm after expulsion
• Liable → for Acts during partnership
• Liable → if no public notice
• Can NOT use firm’s name, property,
representation
PARTNERSHIP ACT
DISSOLUTION
PARTNERSHIP ACT
DISSOLUTION OF PARTNERSHIP FIRM
The dissolution of a partnership
between all the partners of a
firm is called the "dissolution of
the firm“
Section 39
RBG Partnership Firm
Partners
1. Raju
2. Babu
3. Ghanshyam

Nature of
Business

Dissolution of Firm ≠ Dissolution of Partnership
PARTNERSHIP ACT
OPERATION OF INTERVENTION
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
1. Voluntary dissolution
2. Dissolution by operation of law
3. Dissolution by intervention by court
PARTNERSHIP ACT
INTERVENTION OF
VOLUNTARY OPERATION OF LAW
COURT
Consent Compulsory Contingency Insanity
Agreement Unlawful Term over Incapacity
Project
Notice Insolvency Misconduct
complete
Agreement
Death
breach
Insolvent Loss
Interest
transfer
PARTNERSHIP ACT
VOLUNTARY DISSOLUTION
1. By consent
2. By agreement
3. By notice
PARTNERSHIP ACT
1. By consent
2. By agreement
3. By notice
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
1. By consent
• ALL partners
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
1. By consent
2. By agreement
3. By notice
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
2. By agreement
• When partnership ends by contract
• FIXED period partnership
NOT for Partnership by will (indefinite) and particular(project)
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
1. By consent
2. By agreement
3. By notice
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
3. By notice
• ANY partner can give notice
• When ‘partnership at will’ (indefinite period)
• Date of dissolution / date of communication
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
1. By consent
2. By agreement
3. By notice
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
INTERVENTION OF
COURT
Project
complete
Agreement
Death
breach
Insolvent Loss
Interest
transfer
PARTNERSHIP ACT
1. Voluntary dissolution
3. Dissolution by intervention by court
PARTNERSHIP ACT
PARTNERSHIP ACT
BY OPERATION OF LAW
1. Compulsory dissolution
2. Happening of certain contingency
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
BY OPERATION OF LAW
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
BY OPERATION OF LAW
1. By insolvency
2. Some event - Making partnership UNLAWFUL
3. Some event – making business UNLAWFUL
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
BY OPERATION OF LAW
1. By insolvency
• Of all partners or
all partners but one
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
BSA
Insolvency Vs bankruptcy
BSA
Insolvency
• Not able to pay
• But might be having money in bank
• Eg: Vijay Mallya
• Can be person or Company too
bankruptcy
• Legal recognition by court or authority
• Will NOT be able to pay losses in future
• Insolvency and bankruptcy code
○ By Vishwanathan committee
BSA
BSA
ISSUES BSA
• More delay = less return

– India – 5 yrs recovery cost → 0.2
– OCED → 1.7 yrs recovery cost → 0.8
– UK → less than yr
• Difficult exit mechanism
• Legal impediments – delays
• Promoter based Indian industry
• NPA
BSA
IBC BSA
• 180 days + 90dyas → pay default

• NCLT set up
• DRT
• Regulator → Insolvency & Regulatory Authority
• Operational Creditor
• Govt at last
BSA
ADVANTAGES BSA
• Streamlined laws
• Dedicated regulatory mechanism
• Reduces NPA
• Fast adjudication
• Ease of doing business
PARTNERSHIP ACT
BY OPERATION OF LAW
1. By insolvency
2. Some event - Making partnership UNLAWFUL
3. Some event – making business UNLAWFUL
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
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.
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
OPERATION OF LAW
HAPPENING OF CERTAIN CONTINGENCY
(a)by the expiry of term (fixed term);
(b)by death of a partner;
(c)by adjudication of partner as an insolvent.
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
INTERVENTION OF
COURT
Project
complete
Agreement
Death
breach
Insolvent Loss
Interest
transfer
PARTNERSHIP ACT
BY OPERATION OF LAW
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
INTERVENTION OF
COURT
Project
complete
Agreement
Death
breach
Insolvent Loss
Interest
transfer
PARTNERSHIP ACT
BY INTERVENTION OF COURTS
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
BY INTERVENTION OF COURT
1. Unsound mind
2. Permanently incapable of performing his
duties
3. Guilty of conduct
4. Breach of agreement
5. Transferred interest in firm to a third party
6. Continuous / perpetual losses
7. Just and equitable reasons
PARTNERSHIP ACT
1. Unsound mind
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
duties
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
3. Guilty of conduct which is likely to
affect business
– Can be of any type
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
– Embezzlement
– Holding more cash than allowed
– Refuse to show accounts
– Keeping erroneous accounts
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
5. Transferred interest in the firm to a
third party
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
7. Just and equitable that the firm
should be dissolved.
– Deadlock
– not in locking term
– Gambling
– Loss of substratum
DISSOLUTION OF
PARTNERSHIP FIRM
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
1. Unsound mind
duties
3. Guilty of conduct
5. Transferred interest in firm to a third party
7. Just and equitable reasons
PARTNERSHIP ACT
INTERVENTION OF
COURT
Project
complete
Agreement
Death
breach
Insolvent Loss
Interest
transfer
PARTNERSHIP ACT
VOLUNTARY
LAW OF COURT
PARTNERSHIP ACT
INTERVENTION OF
COURT
Project
complete
Agreement
Death
breach
Insolvent Loss
ANY DOUBT ?
Interest
transfer
PARTNERSHIP ACT
CONSEQUENCES OF
DISSOLUTION
PARTNERSHIP FIRM
PARTNERSHIP ACT
CONSEQUENCES OF DISSOLUTION
PARTNERSHIP FIRM
• Right to have business wound up
• Right to repayment of premium on premature
dissolution
• Right to restrain use of firm’s name or property
• If buys goodwill → right to earn profit on firm’s name
• Right of partner in case of dissolution on account of
fraud and misrepresentation
PARTNERSHIP ACT
CONSEQUENCES OF DISSOLUTION
LIABILITIES
• Partners continue to be liable – for third parties
• Liable for acts during winding up – unfinished
transactions
• Liable to share profits
THE INDIAN PARTNERSHIP ACT, 1932
SUMMARY
• Partnership definition
• Registration and impact
• Concepts → holding out, transferee, minor
• Rights and Duties
• Liabilities
• Admission and Expulsion
• Authority
• Dissolution
MODULE 3
LIMITED
LIABILITY
PARTNESHIP
LIMITED LIABILITY PARTNESHIP ACT, 2008
Why introduced ?
• Midway between Company and Partnership
• Reducing liability in partnership firm
• Reducing risk in partnership firm
• Common concept in developed countries
• Can get extra funding from sleeping partners
• Easy to start (compared to company)
Advantages of LLP over Partnership
• Limited liability
• Unlimited partners (in Partnership – max 50)
• Perpetual succession
• Independent legal entity
• Investment attraction
• Multidisciplinary LLP
• Flexibility in management
LLP and PARTNERSHIP
DIFFERENCE
v
CASE STUDY:
LEGAL ENTITY BSA
CASE STUDY:
LEGAL ENTITY BSA
• Copyright case
• Any ANIMAL is NOT a LEGAL ENTITY
• Can NOT be given Copyright
INDEPENDENT LEGAL ENTITY
Partnership PARTNERS
Firm
NOT legal entity

RIL Mukesh Ambani

Different legal entity Different legal entity
LLP PARTNERS
In LLP
Different legal entity Different legal entity

• Different entity from the partners
• Common seal
• LLP as firm → collectively liable
• Can SUE third party
• Can be SUED by third party
• Called as ‘body corporate’
LLP Vs PARTNERSHIP
PERPETUAL SUCCESSION
NOT IN PARTNERSHIP

LLP Vs PARTNERSHIP
PERPETUAL SUCCESSION
• IN LLP (also in company)
LLP Vs PARTNERSHIP
LIABILITY
• LLP → LIMITED
• Partnership Firm → Unlimited

LLP Vs PARTNERSHIP
MUTUAL AGENCY
• LLP → NO
• Partnership Firm → YES

LLP Vs PARTNERSHIP
REGISTRATION
• LLP → Registration is COMPULSORY
• Partnership Firm → NOT compulsory

LLP Vs PARTNERSHIP
REGISTRATION
LLP Partnership
Registrar of Company Registrar of Firm

LLP Vs PARTNERSHIP
MEMBERS
• Partnership → min 2 and MAX 50
• LLP → Min 2 and NO LIMIT

LLP Vs PARTNERSHIP
PARTNERS
• Partnership → NO FIRM
• LLP → other LLP can become partner

LLP Vs PARTNERSHIP
COMPLIANCES
• Partnership → Very less
• LLP → Moderate
LLP Vs PARTNERSHIP
ACTS APPLICABLE
• NON APPLICABILITY of Partnership
Act to LLP
LLP Vs PARTNERSHIP
Foreign LLP
• The Central Government may make rules for
provisions in relation to establishment of place of
business by foreign limited liability partnerships
within India and carrying on their business
therein by applying or incorporating, the
provisions of the Companies Act, 2013.
• BUT NO PROVISION OF FOREIGN PARTNERSHIP

LLP Vs PARTNERSHIP
e filing
• E filing
v
LLP and PARTNERSHIP
SIMILARITY
LLP and PARTNERSHIP
SIMILARITY
• Partners coming together
• Common Capital
• Estd by Partnership Agreement
• 2 or more members
• Mostly similar rights and authority of
partners
• Same taxation
LIMITED LIABILITY PARTNERSHIP (LLP)
WHO CAN NOT BE A PARTNER
• unsound mind
• Insolvent
• he has applied to be adjudicated as an
insolvent and his application is pending
WHO CAN BE A PARTNER
• Sound mind
• Solvent
• Another LLP
NUMBER OF PARTNERS
• Minimum 2
• Maximum – NO limit
DESIGNATED PARTNERS
• At least 2 partners
• At least 1 from India
LLP AGREEMENT
Similar as Partnership Agreement
LLP AGREEMENT
Includes
• Name of LLP
• Names of all the partners
• Nature of Business
• Commencement
• Duration
• Details of designated partners
• Partners → Powers, rights, capital, profit ratio
INCORPORATION OF LLP
NAME
First name should be approved by ROC.
FOLLOWING NAMES ARE NOT

ALLOWED→
1. which represents Central Govt / state
govt
(eg: Central LLP, National LLP, Maharashtra
Govt LLP)
2. Offensive (eg: &#@# LLP)
3. Already existing (eg: Tata LLP)
4. Generic (eg: best LLP)
NAME
First name should be approved by ROC.
MUST have the

• “Limited Liability Partnership” or
• LLP
Example :
RBG LLP or
RBG Limited Liability Partnership
NAME
• ROC will approve the name if it follows the criteria
• Reservation of name
• After application
• Till 3 months
DESIGNATED PARTNER
• Every LLP must
• Atleast 2 designated partners
• One → resident indian
NRI ? BSA
NRI Vs OCI Vs Citizen
BSA
NRI Vs OCI Vs Citizen

CITIZENSHIP – news BSA
OCI (Overseas Citizen of India)
≠
• OCI (Overseas Citizen of India) BSA
– Like Lifelong VISA → multi-entry + multipurpose
– NO police verification
– 5 yrs after registration
– Exception
• No political rights
• NO agri / plantation
• Restriction → Research + mountaineering
Incorporation document
For a limited liability partnership to be incorporated
• two or more persons
• carrying on a lawful business
• with a view to profit
• MUST BE FOR BUSINESS
• MUST BE PROFIT MAKING
• UNLAWFUL ACTIVITIES → NOT ALLOWED
Incorporation document.—
For a limited liability partnership to be incorporated,—
• two or more persons
• carrying on a lawful business
• with a view to profit
Incorporation document.—
• filed in such manner
• with such fees (may change with states)
• Statement in the prescribed form
• made by either
– an advocate, or
– Company Secretary or
– Chartered Accountant or
– Cost Accountant,
• that all the requirements of this Act and the rules made
thereunder have been complied with,
INCORPORATION DOCUMENT
(a) form as may be prescribed
(b name of the limited liability partnership
(c) proposed business of LLP
(d) Address of registered office of LLP
(e) Name and address of each of the persons who are to
be partners
(f) Name and address of the persons who are to be
designated partners
(g) Other information concerning the proposed LLP
ANY FALSE STATEMENT / INFORMATION
PUNISHMENT → IMPRISONMENT upto TWO years

• Certification of Registration
• By Registrar of ROC
• Within 14 days
LIMITED LIABILITY PARTNERSHIP
EXTENT OF
LIABILITY
EXTENT OF LIABILITY
• Contractual liability
• Only restricted to the assets of LLP
– Coz separate entity / body corporate
• Holding out (same as Partnership)
EXTENT OF LIABILITY
• Every partner is agent of LLP
• But NOT of the other partners (section 26)
EXTENT OF LIABILITY
• Every partner is agent of LLP
• But NOT of the other partners (section 26)
– NO Mutual agency (but in Partnership)
– NOT liable for acts of co-partners
– But LIABLE for acts of LLP
• NO PERSONAL liability
EXTENT OF LIABILITY
WHEN LLP IS NOT LIABLE
• Partner has NO authority to act
LIABLE if
• Wrongful act or omission
• As a result of due course of business
EXTENT OF LIABILITY
In case of FRAUD
– Knowingly
• Punishable → upto two years

EXTENT OF LIABILITY
UNLIMITED LIABILITY IN CASE OF FRAUD
• (1) with intent to defraud creditors of LLP or any other person, or for any fraudulent
purpose, the → liability of the LLP and partners who acted with intent to defraud
creditors or for any fraudulent purpose shall be unlimited for all or any of the debts
or other liabilities of the limited liability partnership:
• Provided that in case any such act is carried out by a partner, the limited liability
partnership is liable to the same extent as the partner unless it is established by the
limited liability partnership that such act was without the knowledge or the
authority of the limited liability partnership.
• (2) Where any business is carried on with such intent or for such purpose as
mentioned in sub-section (1), every person who was knowingly a party to the
carrying on of the business in the manner aforesaid shall be punishable with
imprisonment for a term which may extend to 1[five years] and with fine which
shall not be less than fifty thousand rupees but which may extend to five lakh
rupees.
EXTENT OF LIABILITY
UNLIMITED LIABILITY IN CASE OF FRAUD
• (3) Where a limited liability partnership or any partner or designated partner or
employee of such limited liability partnership has conducted the affairs of the
limited liability partnership in a fraudulent 15
• manner, then without prejudice to any criminal proceedings which may arise under
any law for the time being in force, the limited liability partnership and any such
partner or designated partner or employee shall be liable to pay compensation to
any person who has suffered any loss or damage by reason of such conduct:
• Provided that such limited liability partnership shall not be liable if any such partner
or designated partner or employee has acted fraudulently without knowledge of
the limited liability partnership.
EXTENT OF LIABILITY
Continue to be liable if
• Even after becoming insolvent
• Former partner (liability during partnership)
BSA
WHISTLE BLOWING BSA
BSA
EXTENT OF LIABILITY
WHISTLE BLOWING
• (1) The Court or Tribunal may reduce or waive any penalty
leviable against any partner or employee of a limited liability
partnership, if it is satisfied that—
• (a) such partner or employee of a limited liability partnership
has provided useful information during investigation of such
limited liability partnership; or
• (b) when any information given by any partner or employee
(whether or not during investigation) leads to limited liability
partnership or any partner or employee of such limited
liability partnership being convicted under this Act or any
other Act.
EXTENT OF LIABILITY
WHISTLE BLOWING
• (2) No partner or employee of any limited liability partnership
may be discharged, demoted, suspended, threatened,
harassed or in any other manner discriminated against the
terms and conditions of his limited liability partnership or
employment merely because of his providing information or
causing information to be provided pursuant to sub-section
LIABILITIES OF DESIGNATED PARTNER
• (a) responsible for the doing of all acts, matters and things as are
required to be done by the LLP in respect of compliance of the
provisions of this Act including filing of any document, return,
statement and the like report pursuant to the provisions of this
Act and as may be specified in the limited liability partnership
agreement;
• (b) liable to all penalties imposed on the limited liability
partnership for any contravention of those provisions.
EXTENT OF LIABILITY
SUMMARY
1. Limited liability
2. Contractual Liability → only restricted to the conditions of
the contract
3. LLP is NOT a mutual agency
4. Partners are NOT liable for act of co-partners
5. Partners are LIABLE for act of LLP
6. LLP is NOT liable if partners have NO AUTHORITY to act
7. Liability continues → even after retirement
8. In case of fraud → unlimited liability
9. Similar liability in case of holding out
10. Less or no liability in case of whistleblowing
Schedule I Mutual rights and duties of partners
Schedule II Conversion from firm into LLP
Schedule III Conversion from private company into LLP
Schedule IV Conversion from unlisted public company into LLP

CONVERSION OF COMPANY INTO LLP
Benefits of Conversion
• LLP will have more flexibility as compared to a
company.
• LLP will have lesser compliance requirements as
compared to a company.
• LLP does not have to have its accounts audited if the
annual turnover of the LLP is less than Rs. 40 lakhs
and the capital contribution is less than Rs. 25 lakhs.
• A dividend received from Company is taxable in the
hands of shareholders as per their applicable slab
rate. While taxation structure for LLP is simpler.
• LLP is subjected only to Income tax. Dividend
Distribution is not applicable on LLP.
• Once profit is declared and tax is paid by LLP, the distributed
income is tax free in the hands of the partners.
• A paying back the capital i.e Buy back is very complex and
costly exercise in case of company. However, in LLP, partners
can withdraw his/her capital at any point of time by writing a
simple letter.
• There is no tax implications on withdrawal of capital from LLP.
• There is no stamp duty on all movable and immovable
properties of the company;
• such properties automatically vest in the LLP. No instrument
required to be executed and hence no stamp duty is required
to be paid.
• No Capital gain tax shall be charged on transfer of property
from the company to LLP
• On conversion of Company into LLP, assets
of the Company will be converted into LLP.
There is no requirement of instrument
transfer. Hence, no stamp duty implication is
required for such transfer.
• After conversion, no limit will be implied on
partners.
• After conversion into LLP, no requirement on
holding a minimum number of meeting and
maintaining statutory records is required.
What is the Eligibility Criteria for Conversion?
• NO collateral on any of its assets of Company

• NO pending E- Forms of a company;
• NO open charges for or against the Company;
• Company’s shareholder will become partners
of the LLP;
• at least ONE balance sheet & annual returns.
What is the Eligibility Criteria for Conversion?
• Every member of the company must agree with the decision of

conversion.
• All the members become the partners of an LLP and no one else.
• Not just the members, all the creditors of the company must also agree
with the conversion.
• Under Companies Act, no prosecution should have been initiated
procedure to be followed.
• All the pending forms and returns are required to be filled up to date with
the RoC.
• No open (unsatisfied) charges should be pending against the company.
• At least one balance sheet and annual return should have been filed by
the company after its incorporation.
• The company should be having share capital
Director Identification Number

• There must be at least two designated partners in
LLP, and one must be an Indian Citizen. While the
incorporation of the LLP, partners are required to
have their own DIN. DIN may also be allotted to a
new person who is added as director/designated
partner in LLP. Further, the very first step of
converting the Company into LLP is the addition of
a new designated partner to the Company, after this
member can obtain it’s DIN. Besides this, a member
can apply for the DSC, which is required during the
process of DIN application.
Director Identification Number

• While incorporation of LLP, partners are required to
have their own DIN.
• DIN may also be allotted to a new person who is
added as designated partner in LLP.
• Further, the very first step of converting the Company
into LLP is the addition of a new designated partner
to the Company, after this member can obtain it’s
DIN.
• member can apply for the DSC,
– which is required during the process of DIN application.
Meeting of the Board of Directors
• Boards of Directors of the Company are required to
call for a meeting. In this meeting, a board of
resolution shall be passed, allowing the conversion
of the Company into LLP. Board of a resolution shall
be passed with the majority and hence filed with the
MCA along with the necessary forms and
application.
• Application for Name
• In the next step, the Company must apply for a
name reservation, and get a certificate of name
approval from the Registrar of Companies.
Application for Name

• In the next step, the Company must apply
for a name reservation, and get a certificate
of name approval from the Registrar of
Companies.
Incorporation Form
• Once the Company reserves its name, LLP must file
its incorporation along with the below-mentioned
documents;
• Proof of LLP Office address
• Sheets of subscription
• Partner’s consent Letter
• Partners Identity proof
• Resident proofs partners ;
• Details furnishing information of other companies in
which the LLP’s partners work as partners.
Effect of Conversion
• Some of the effects of conversion of Company into LLP
is;
• The private Company gets dissolved after conversion.
• Registrar of Company will remove the name of the
private limited Company from the register.
• Conversion does not affect employment, present
liability, obligation, agreements and contracts.
• Company must inform all the concerned authorities
about the conversion. In addition to this, shall make
necessary changes in all the registrations and
licenses.
Schedule I Mutual rights and duties of partners
Schedule II Conversion from firm into LLP
Schedule III Conversion from private company into LLP
Schedule IV Conversion from unlisted public company into LLP
CONVERSION OF
PARTNERSHIP FIRM
INTO LLP
Why LLP over Partnership ?
• Limited Liability
• NO transfer of co-partner’s liability
– NO mutual agency
• Flexibility in management
• Perpetual succession
• Independent legal entity
• Investment attraction
• Multidisciplinary LLP
CONVERSION OF
PARTNERSHIP FIRM INTO LLP
Step I – Name Approval and DSC
a. Name Approval
b. Digital Signature Certificates
Step II – Filing of the Forms with the RoC
a. Form 17 (Application and Statement for
conversion of a firm into LLP)
Form FiLLiP (Form for incorporation of LLP)
Step III – Issue of Registration Certificate
Step IV – LLP Agreement
Step V – Intimation to the Registrar of Firms
CONVERSION OF
• Obtain Digital Signature for all the partners.
• Generally partners in a Partnership Firm would not have a
digital signature as the same is not necessary for the
registration of a partnership firm.
• Partners in LLP require a DPIN/DIN. Therefore obtain DPIN/DIN

for all partners.
• A DIN is a unique number for each person who is an LLP
Partner or Director.
• Make an application in RUN-LLP Form for name reservation on

MCA website.
• Before applying for reservation of name, applicant must check
the rules for selection of LLP name.
CONVERSION OF
• File Form for Application and Statement for the Conversion of
Partnership Firm into LLP.
• The documents required for LLP registration and for Form.
• Once the process of incorporation is complete by filing Form, the next

step is to register the LLP Agreement with MCA.
• File LLP Form 3 for LLP Agreement registration which contains details of
LLP agreement along with partners resolution with MCA.
• On successful conversion into LLP ROC shall issue Certificate of

Incorporation of LLP.
• Further when the LLP is incorporated and the Partnership Firm is
converted the Partnership Firm would be deemed to be dissolved.
• Conversion of Private Limited Company into LLP
• Conversion of Partnership Firm into LLP
WINDING UP OF LLP ≠ DISSOLUTION OF PARTNERSHIP

WINDING UP
• Voluntary winding up
• By tribunal (NCLT)
WINDING UP – but WHY ?
WINDING UP
VOLUNTARY WINDING UP
• Partner → 3/4th
WINDING UP
VOLUNTARY WINDING UP
• Partner → 3/4th
• NOC
• Resolution passed
• Approval by creditor
• Submission to ROC
WINDING UP
BY TRIBUNAL
COURT vs TRIBUNAL
WINDING UP
BY TRIBUNAL
Section 64 of LLP Act, 2008
1. LESS than 2 Partners
2. LLP acted against interests of the India
3. Default in filing acc statements with the Registrar
4. Opinion of tribunal
WINDING UP
BY TRIBUNAL
LESS than 2 Partners → more than six months
• One partner can NOT do business
• Given 6 months grace period
– Individual is personally liable in this case
– Can admit other partners
– If NOT → winding up
WINDING UP
BY TRIBUNAL
LESS than 2 Partners → more than six months
• One partner can NOT do business
• Given 6 months grace period
– Individual is personally liable in this case
– Can admit other partners
– If NOT → winding up
WINDING UP
BY TRIBUNAL
LLP acted against interests of the
– sovereignty and integrity of India,
– the security of the State or public order;
WINDING UP
BY TRIBUNAL
• Default in filing with the Registrar
– Statement of Account and Solvency or
– annual return for any FIVE consecutive financial years;
WINDING UP
BY TRIBUNAL
OPINION OF TRIBUNAL
• just and equitable
मेरी मर्जी
WINDING UP
BY TRIBUNAL
Section 64 of LLP Act, 2008
1. LESS than 2 Partners
2. LLP acted against interests of the India
3. Default in filing acc statements with the Registrar
4. Opinion of tribunal
WINDING UP
IMPACT
• Cease to conduct business
• No independent legal entity
• Removal of LLP name from ROC
• All assets will be liquidated and set off against
the liability
– Remaining is shared with partners
• LLP and partners can NOT do business in its
name
COMPLETED

M3 Partnership LLP

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BUSINESS

Member 1 only 2 to 50 2 to unlimited 1 to unlimited

• Smith and sons → Buss merchants (Iron)

• Creditors sharing profits

• Sharing of profit is ESSENTIAL but NOT sufficient

1. Partnership at will → indefinite period

JOINT OWNERSHIP OF PARTNERS

2. he will not carry on any business similar to that of the

3. notwithstanding anything contained in section 27 of the

MUTUAL DUTIES OF PARTNERS

MUTUAL DUTIES OF PARTNERS

MUTUAL DUTIES OF PARTNERS

MUTUAL DUTIES OF PARTNERS

MUTUAL DUTIES OF PARTNERS

MUTUAL DUTIES OF PARTNERS

MUTUAL DUTIES OF PARTNERS

MUTUAL DUTIES OF PARTNERS

MUTUAL DUTIES OF PARTNERS

MUTUAL DUTIES OF PARTNERS

(Partners can have alternate business)

MUTUAL DUTIES OF PARTNERS

MUTUAL DUTIES OF PARTNERS

• ACT of a partner → which is done to carry on

Act of a Partner = Act of Partnership Firm

OUTSIDE AUTHORITY OF PARTNER

OUTSIDE AUTHORITY OF PARTNER

• One party against other • By BOTH party

OUTSIDE AUTHORITY OF PARTNER

OUTSIDE AUTHORITY OF PARTNER

OUTSIDE AUTHORITY OF PARTNER

EXCEPT (section 24)

with CONSENT from ALL partners

• But liable afterwards

RBG Partnership Firm

RBG Partnership Firm

DISSOLUTION OF PARTNERSHIP FIRM

Consent Compulsory Contingency Insanity

Agreement Unlawful Term over Incapacity

DISSOLUTION OF PARTNERSHIP FIRM

Consent Compulsory Contingency Insanity

Agreement Unlawful Term over Incapacity

• More delay = less return

• 180 days + 90dyas → pay default

DISSOLUTION OF PARTNERSHIP FIRM

Consent Compulsory Contingency Insanity

Agreement Unlawful Term over Incapacity

Consent Compulsory Contingency Insanity

Agreement Unlawful Term over Incapacity

Consent Compulsory Contingency Insanity

Agreement Unlawful Term over Incapacity

DISSOLUTION OF PARTNERSHIP FIRM

Consent Compulsory Contingency Insanity

Agreement Unlawful Term over Incapacity

NOT legal entity

RIL Mukesh Ambani

Different legal entity Different legal entity

RBG Partnership Firm

• Partnership Firm → Unlimited

• Partnership Firm → YES

• Partnership Firm → NOT compulsory

Registrar of Company Registrar of Firm

• LLP → Min 2 and NO LIMIT

• LLP → other LLP can become partner