LAW OF

ORGANISATIONS
For ICLS Officers (2023)
Prof. Nandimath Omprakash V
Contents of the presentation

Understanding the context of our study

Unlimited liability partnership

Partnership law in India
Limited liability partnership

Private trusts
Trust and its regulation
Public trust

Miscellaneous connected areas

Organizational options in India
organisations

Co-operative
For-profit Not for profit
Society

Sole-
HUF partnership corporation Trust Society* Religious trust
proprietorship

ULP Public Ltd., Public trust

LLP Private Ltd., Private trust*

Unlimited
Liability
Partnership
Part One
 What is ULP?

• “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” [Sec. 4 of the Indian Partnership
Act, 1932]
• “The relation of partnership arises from contract and not from
status; and in particular, the members of a Hindu undivided
family carrying of a family business as such, or a Burmese
Buddhist husband and wife carrying on business as such are not
partners in such business” [Sec. 5 of the Indian Partnership Act,
1932]
• “In determining whether a group of persons is or is not a firm,
or whether a person is or is not a parter in a firm, regard shall
be had to the real relation between the parties, as shown by all
relevant facts taken together” [sec. 6]
Who can be a
partner?
Any person competent to
contract may become the
Partner
Minor may be admitted
to the benefits of
partnership [sec. 30]
Two categories of partnership

ULP

Partnership Particular
at will partnership
s. 8 – for accomplishing a
s. 7 – by default choice specific task/project
Registration of the ULP
• The states are given an option of going for a non-registration route
[sec. 56]
• Otherwise, the State Government “may appoint Registrars of Firms
for the purpose of this Act” [sec. 57(1)]
• “A registration may be effected at any time…” [sec. 58(1)]
Re-composition of the firm
• A partner may retire
• With the consent of all other partners
• In accordance with an express agreement by the partners
• If it’s a partnership at will – by giving notice in writing to all other partners of
his intention to retire
• “… no person shall be introduced as a partner into a firm without the
consent of all the existing parterres” [Sec. 31(1)]
Duties of the Partner
• To carry on the business of the firm to the greatest common
advantage [sec. 9]
• Duty to indemnify the firm for any loss caused by his fraud, willful
neglect [s.10 and 13(f)]
• Every partner is bound to attend diligently to his duties in the conduct
of the business [sec. 12(b)]
• Not entitled to remuneration for taking part in the business subject to
contract [sec. 13(a)]
• Share profits equally, unless agreed differently [sec. 13(b)]
Rights of the partner
• Every partner has the right to take part in the conduct of the business
(subject to contract) [sec. 12(a)]
• Right to have access to and to inspect and copy any of the books of
the firm [sec. 12(d)]
• Right, to receive indemnification from the firm [sec. 13(e)]
Conduct of business
• As per the overall agreement and arrangement between the partners,
• “any difference arising as to ordinary matters connected with the
business may be decided by a majority of partners, and every partner
shall have the right to express his opinion before the matter is
decided, but no change may be made in the nature of the business
without the consent of all the partners” [sec. 12(c)]
The property of the firm
• “Subject to contract between the partners, the property of the firm
includes all property and rights and interests in a property originally
brought into the stock of the firm, or acquired, by purchase or
otherwise, by or for the firm, or for the purposes and in the course of
the business of the firm, and includes also the goodwill of the
business.

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” [sec. 14]
Partners’ relation to third parties
• “subject to the provisions of this Act, a partner is the agent of the
firm for the purposes of the business of the firm” [sec. 18]
• “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” [sec. 19]
 Limited Liability
Partnership [LLP]
New form of business introduced by Limited Liability Partnership Act, 2008
Part Two
What is LLP?
• “means a partnership formed and registered under this Act” [sec.
2(n)]
• Shall be a body incorporated and is a legal entity separate from its
partners [sec. 3]
• The provisions of the Indian Partnership Act, 1932 are not applicable
to LLP [sec. 4]
• Minimum two and no maximum restriction on the number of
partners
• At least two (natural persons) be the ‘designated partners’ [sec. 7]
Who can be partners of LLP
• “the persons who subscribed their names to the incorporation
document” shall be by default become partners
• “other person may become a partner of the LLP by and in accordance
with the LLP agreement” [Sec. 22]
Partner’s relationship
• “Save as otherwise provided by this Act, the mutual rights and duties
of the partners of a LLP, and the mutual rights and duties of a LLP and
its partners, shall be governed by the LLP agreement between the
partners, or between the LLP and its partners” [sec. 23(1)]
• “an agreement in writing made before the incorporation of LLP
between the persons who subscribe their names to the incorporation
document may impose obligations on the LLP, provided such
agreement is ratified by all the partners after the incorporation of the
LLP” [sec. 23(3)]
Designated partners’ liability
• Responsible for doing all acts regarding the compliance of the LLP
• Liable to all penalties imposed on the LLP for any contravention of the
law [sec. 8]
• “every LLP shall have a registered office to which all communications
and notices may be addressed…” [Sec. 13(1)]
• “LLP may change the place of its registered office and file the notice
of such change with the Registrar …” [sec. 13(3)]
Extent of liability of LLP and Partners
• “every partner of a LLP is, for the purpose of the business of the LLP,
the agent of the LLP, but not other partners” [sec. 26]
• “an obligation of the LLP whether arising in contract or otherwise,
shall be solely the obligation of the LLP” [sec. 27(3)]
• “the liabilities of the LLP shall be met out of the property of the LLP”
[Sec. 27(3)]
• “a partner is not personally liable, directly or indirectly for an
obligation … solely by reason of being a partner of LLP” [sec. 28(1)]
• An LLP is not bound by anything done by a partner in dealing with a
person if
• The partner in fact has no authority to act for the LLP in doing a particular act;
and
• The person knows that he has no authority or does not know or believe him
to be a partner of LLP
Unlimited liability in case of fraud
• “in the vent of an act carried out by LLP, or any of its partners, with
the intent to defraud creditors of the LLP or any other person, or for
any fraudulent purpose, the liability of LLP and partners who have
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
LLP” [sec. 30(1)]
Administrative formalities
• Maintenance of books of accounts and other records, audit etc., [sec.
34]
• “Every LLP shall file an annual return duly authenticated with the
Registrar …” [sec. 35(2)]
Investigation
• The central government has the power to appoint an inspector for
investigation
• He has the power to carry out investigations into the affairs of related
entities [sec. 46]
• Seizure of documents by inspector [sec. 48]
• Report of the inspector [sec. 49]
Thanks very much …