Indian Partnership & LLP Act

Prof Farheen Ansari S.Y.
BCom- Sem IV
B.com, CS, LLB, PGDIPR Indian Partnership Act 1932 & LLP Act 2008
MODULE 3: INDIAN PARTNERSHIP ACT, 1932 &

LIMITED LIABILITY PARTNERSHIP ACT, 2008
INTRODUCTION:
This act came into force on 1st October 1932.
It was earlier a part of Indian Contract Act.
This act defines “partnership” as “relation between 2 or more persons, who agree to
share profits of a business, carried on by all or any one of them acting for all.”
Person who entered into partnership are individually called as “Partners” and
collectively called as “Firm”
The name under which the firm operates is called as “Firm Name”
To form a partnership, minimum 2 people are required and maximum 10 (Banking

Business) and 20 (Non-Banking Business)
Q1. DEFINE PARTNERSHIP AND EXPLAIN THE ESSENTIAL ELEMENTS OF PARTNERSHIP.
I] INTRODUCTION:
II] ESSENTIAL ELEMENTS OF PARTNERSHIP
1. Association of 2 or more person
2. There must be an agreement
Oral Writing
Partnership Deed
3. Sharing of profits
4. Mutual Agency (true test of partnership)
Every partner is Every partner is

an Agent of the the Principal of
firm the firm Case Law: Cox v/s Hickman
Disclaimer: That the Author is the absolute holder of Copyrights of this given notes. Unless expressly
provided in writing, no part of these notes should be reproduced, distributed or communicated to any third
party. Further the Author herein does not accept any liability, intended or unintended in respect of this
report.
Prof Farheen Ansari S.Y.BCom- Sem IV
Q2. WHAT IS THE IMPORTANCE OF MUTUAL AGENCY IN A PARTNERSHIP? OR TEST

TO DETERMINE THE EXISTENCE OF PARTNERSHIP
I] INTRODUCTION
II] IMPORTANCE OF MUTUAL AGENCY
It is the right of all partners to represent the firm’s normal business operations.
It is the authority given to a partner doing business on behalf of the firm.
A partner is both an Agent as well as the Principal of the business.
An act of one partner, binds the entire firm.
Ex. In a retail business, if one partner purchases goods from a vendor and require
the partnership to pay. As the transaction is within the normal course of business, the
firm shall be bound to pay.
The relation of partners is governed by law of agency.
Case Law: Cox v/s Hickman
In the given case, Mr.Smith and his sons had a partnership business under the name
M/s Smith and sons. Due to financial difficulties, they assigned their business to their
Creditors (Haywood, Cox and others).
It was agreed that from net income/profit, after paying off to the Creditors, the business
will be transferred to Mr.Smith.
Hickman, supplied goods to the firm and Haywood accepted. Cox did not took part in
the transaction and hence did not accept. Hickman sued the firm for non-payment,
treating Cox and Haywood as partner of the firm.
The Court held that there is no partnership relation between M/s Smith and sons and
Cox and Haywood
Transferred the
Supplied goods
business
There is no Haywood & Cox Filed a suit for non Hickman

M/s Smith and sons partnership (Creditors) payment
report.
Q3. EXPLAIN FORMATION OF PARTNERSHIP
I] INTRODUCTION
II] FORMATION OF PARTNERSHIP
 A Partnership is based on agreement. Agreement can be made orally or in writing

between the partners.
 Any agreement made in writing, between the partners is called “Partnership Deed”
 Registration of firm is optional, except in the state of Maharashtra.
III] WHO CAN BECOME A PARTNER?
1. ALIEN ENEMY
2. MINOR
Minor can be a partner, but can only

enjoy profits in the firm, not bear
any losses
3. PERSON OF UNSOUND MIND
report.
4. CORPORATION
A company cannot become a

partner in a firm BUT, a firm can
become a member in a company.
5. MEMBER OF HINDU UNDIVIDED FAMILY
6. BURMESE BUDDHIST HUSBAND AND WIFE
7. LENDER OF THE MONEY 8. SERVANT OR AGENT OF THE FIRM
9. WIDOW OR CHILD OF PREDECEASED PARTNER
Cannot be a partner, if they have

already received the portion of profit
as annuity
report.
IV] TYPES OF PARTNERSHIP
Partnership for Partnership at will Particular Partnership

Fixed Term [Section 7] [Section 8
V] KINDS OF PARTNERS:
1. ACTIVE PARTNER/ OSTENSIBLE PARTNER
2. SLEEPING PARTNER/DORMANT PARTNER
3. PARTNERS IN PROFIT ONLY
4. NOMINAL PARTNER
5. SUB PARTNER
PARTNER
SUB-PARTNER
report.
Q4. EXPLAIN PROPERTY OF THE FIRM
I] INTRODUCTION:
II] PROPERTY OF THE FIRM
 Section 14 and 15 deals with property of the firm.
 It is deemed to include;
(I) all property, rights and (II) all property, rights and
interest brought into by interest acquired with the (III) Goodwill of the
contribution of partners money of the firm business
Goodwill is the reputation of the business. It is an

intangible asset. It is created over the years by integrity,
efficiency and quality of products/service.
Personal Goodwill Firm Goodwill
This is attached to an individual This is attached to the entire firm

partner.
It is when the firm name enjoys
When a particular partner enjoys reputation in the market.
reputation in his own name is
called personal goodwill.
report.
Q5. EXPLAIN THE RIGHTS, DUTIES AND LIABILITIES OF

PARTNERS
I] INTRODUCTION
II] RIGHTS OF PARTNERS:
1. To take part in business
2. To share profits
3. To access the books of accounts
4. To be indemnified
5. To be consulted
6. To interest on capital and loans
7. Power in emergency
8. To retire
9. To use partnership property
10. To have business wound up after dissolution
III] DUTIES AND LIABILITIES OF PARTNERS:
1. To carry business to common advantage
2. To indemnify
3. To be diligent
4. No remuneration
5. To account for any personal profit made
6. Not to carry competing business
7. To share losses
8. Not to assign his rights
report.
IV] RIGHTS & DUTIES OF PARTNER ON CHANGE IN THE FIRM
When any change occurs in the firm, eg. A new partner is admitted in the firm, then the
mutual rights and duties of the partners are reconstituted by a fresh agreement.
V] RIGHTS & DUTIES OF PARTNER AFTER EXPIRY OF TERM OF FIRM
When the fixed term of the firm expires and the firm still continues to do business, then
after the expiry of the term, the mutual rights and duties of the partners shall still remain
the same.
report.
Q6. EXPLAIN THE AUTHORITY OF A PARTNER TO THIRD PARTY
I] INTRODUCTION
II] MEANING
 The term Authority means “power”
 Every partner has some authority, which may either be
Expressed Authority Implied Authority
Oral Written Without being told
 An express authority is one, which is clear as to what a partner has to do and

what not.
 But, in the absence of express authority, a partner may commit some act for
an on behalf of the firm. Such act of partner comes under “Implied authority”
Q. What is the extent of Implied Authority?
Q. Does an implied act of Partner binds the firm?
III] WHAT PARTNERS MAY GENERALLY DO IMPLIEDLY?
1. He may sell any goods of the firm

2. He may purchase goods on behalf of the firm
3. He may receive payments or release payments on behalf of the firm
4. He may engage servants for partnership business
5. He may accept, make and issue bills and other negotiable instruments on behalf of
the firm
6. He may borrow money/credit for the firm
7. He may for the purpose of business, pledge goods of the firm
8. He may acknowledge debts and bind the firm
report.
IV] When a partner has no Implied Authority [what things a partner cannot do,
without all partners consent]
1. Submit a dispute in the court relating to firm

2. Open bank account on behalf of firm in his own name
3. Compromise or relinquish any claim of the firm
4. Withdraw any suit filed by the firm
5. Admit any liability against the firm
6. Acquire Immoveable property on behalf of the firm
7. Transfer Immoveable property of the firm
8. Enter into partnership on behalf of firm
V] Extension or Restriction of partners Implied Authority
 The partners in a firm, may by contract, extend or restrict a partner’s Implied

Authority in a firm.
 Any act done by a partner, within his implied authority, binds the entire firm.
report.
Q7. EXPLAIN THE LIABILITIES OF PARTNER IN A FIRM
I] INTRODUCTION:
II] MEANING:
 A partner is both a “principal”, as well as an agent of the “firm”
 For the act of one partner, the entire firm could be held liable.
 Ex. A, B, C are partners in a partnership firm. “A” enters into contract with a 3rd
party on behalf of the firm. Now, if “A” breaches the contract with the 3 rd party,
then the 3rd party will have all the rights to take action against the entire firm (not
only A). And the firm shall be liable for the act/omission/breach of a partner
[Section 26]
III] LIABILITY OF A FIRM FOR MISAPPLICATION BY PARTNER(S):
If a partner received And misapplied that Then the firm shall

money/property from money/property be liable for the loss
3rd party caused
report.
Q8. EXPLAIN THE TERM “HOLDING OUT PARTNER” UNDER INDIAN PARTNERSHIP ACT
1932
I] INTRODUCTION
II] MEANING
 Partner by Holding out, is not a real partner of the firm but is “represented” as a
partner to 3rd party(ies)
Ex.
Raj Rohan Customer
Partner by Holding Out
 Such partner does not contribute in the capital of the firm.
 Such partner do not take part in the management of the firm.
 But, the act of such partner makes the firm liable.
 Such partners are called “Partners by Estoppel”
III] EFFECTS OF HOLDING OUT
 The person holding out becomes personally and individually liable
 Partners by holding out does not become partner in the firm
 Partners by holding out does not become agent of the firm.
 Partners by holding out are not entitled to any rights nor does he acquire any claim
on the firm
report.
Q9. EXPLAIN PUBLIC NOTICE [SECTION 72]
I] MEANING:
 A public notice is given:
On retirement of a partner from registered firm
On explusion of a partner from registered firm
On dissolution of registered firm
On minor electing to become a partner after attaining majority
 A public notice is given to:
By notice to Registrar of Firm
By publication in Office Gazatte
By publication in atleast 1 regional

newspaper
II] CONSEQUENCES IF PUBLIC NOTICE NOT GIVEN:
1. On election to become a partner, Deemed to have been elected and

by a minor on attaining majority shall be liable as a partner in the
If fail to give public firm
notice within 6
months of attaining
majority
2. On retirement of a partner Shall continue to be liable as a

Failed to give public partner, even after retirement.
notice on retirement
Shall continue to be liable as a

3. On Explusion of a partner partner, even after retirement.
Failed to give public
notice on retirement
report.
Q10. EXPLAIN MINOR’S POSITION IN A PARTNERSHIP
I] MEANING:
 A minor is a person who has not completed his 18 years of age and is not a
competent person under Indian Contract Act. Minor is not capable to enter into any
agreements.
 However a minor can be admitted as “partner” with the consent of all partners in a
partnership firm. He will be entitled to all profits but shall not be liable for any losses.
II] POSITION OF MINOR BEFORE ATTAINING MAJORITY
1. Right to share the profits of the firm.
2. Right to enjoy the property of the firm.
3. Right to access and inspect books of accounts of the firm.
4. Right to sue for his share of profits.
5. Neither personally liable nor his private estate liable for any losses.
II] POSITION OF MINOR ON ATTAINING MAJORITY
1. At the time of attaining majority, within 6 months, the minor has to elect either to
continue to become partner or to discontinue as partner in the firm.
2. A public notice Is required to be given in the newspaper, in case if he wants to elect

to be a partner or not to be a partner.
3. If the public notice is not given, then the partner shall be deemed elected to become
the partner and continue to be liable like any other partner.
report.
Q11. DISSOLUTION OF FIRM
I] MEANING:
 The term “dissolution” means “termination” or “closure”. Dissolution of partnership

ends all the relation between the partners.
Dissolution of Firm
Dissolution of Firm Dissolution of Partnership
It means complete breakdown of It means change in relationship of a

relationship of all partners in a firm partner.
 Dissolution of firm can be Voluntary or by the order of court.
II] DISSOLUTION WITHOUT ORDER OF COURT [VOLUNTARY DISSOLUTION]:
(a) By Agreement
 A firm may be dissolved with consent of all partners or in accordance with

contract between them.
 Agreement for dissolution may be oral or in writing.
(b) By Compulsory Dissolution
 Adjudication of all partners to be insolvent

 Happening of an event which makes the business unlawful
(c) On happening of certain contingencies
 Expiry of the term of partnership

 Completion of the venture for which the firm was constituted
 Death of all partners
 Adjudication of all partners to be insolvent
(d) By Notice
A firm may be dissolved by any partner giving notice In writing to all other partners of
his intention to dissolve the firm.
report.
III] DISSOLUTION WITH ORDER OF COURT [COMPULSORY DISSOLUTION]:
(a) Insanity of all partners
When partners become unsound mind, the court may dissolve the firm on the petition of
any other partners or next friend of any insane partner.
(b) Permanent incapacity
Where a partner, other than suing partner has become permanently incapable of
performing duties as partners, the Court may dissolve the firm.
(c) Misconduct:
If any partner other than partner suing is responsible for any loss to the firm, which
amounts to misconduct and prejudicially affects the carrying on of business then the
court may order for the dissolution of the firm.
iv) Constant breach of agreement by partner:
The court may order for the dissolution of the firm if the partner other than the suing
partner is found guilty for constant breach of agreement regarding the conduct of
business or the management of the affairs of the firm and it becomes impossible to
continue the business with such partner.
(v) Transfer of Interest
When any of the partner other than the suing partner transfers whole of its share to the
third party for permanently.
(vi) Continuous Losses
The court may order for dissolution if the firm is continuously suffering losses and there is
no more capital available for the future growth of the firm.
(vii) Just and Equitable
The court may order for dissolution on any other ground which court think is just, fair and
equitable.
IV] CONSEQUENCE OF DISSOLUTION
1. Rights to an equitable lien (S.46)
Lien means “retention”. On the dissolution of a firm every partner or his representative is
entitled, as against all the other partners or their representatives, to have the property of
report.
the firm applied in payment of the debts and liabilities of the firm, and to have the
surplus distributed among the partners or their representatives according to their rights.
2. Continuing authority of partners for purposes of winding up ( S.47)
After the dissolution of a firm the authority of each partner to bind the firm, and the other
mutual rights and obligations of the partners continue to wind up the affairs of the form
to complete transactions begun but unfinished at the time of the dissolution. Winding up
ends when final decree for accounts is passed.
3. Right to have the debts of firm settled out of the property of the firm.
4. Right to restrain from use of firm name or firm property, upon dissolutions.
5. Until public notice of dissolution is given, partners continue to be liable as such to 3rd
parties for any done by any of them after the dissolution.
report.
Q12. REGISTRATION AND EFFECTS OF NON-REGISTRATION OF PARTNERSHIP
MEANING
Registration of a partnership firm is not mandatory under law. The Partnership

Act,1932 provides that if the partners so desire may register the firm with the Registrar of
Firms of the state in which the firm’s main office is situated. A partnership firm may be
registered at the time of formation or at any time thereafter.
PROCEDURE FOR PARTNERSHIP REGISTRATION
In order to get a partnership firm registered, an application in a prescribed form must be

filled with the Registrar of Firms. The application should contain the following
information:
1. The name of the firm
2. The principal place of business of the firm
3. Names of other places where the firm’s business is carried on.
4. Names in full and permanent addresses of the partners.
5. The date on which each partner joined the firm
6. Duration of partnership, if any.
The application should be signed and verified by each partner, then it is to be

submitted to the Registrar of Firms of the area in which the main office of the firm’s
business is situated or proposed to be situated. The registration fee is also deposited
along with the application. After the submission of the application, the registrar will
examine the application. If he is satisfied that everything is in order and all the legal
formalities have been observed, he will make an entry in the register of firms. He will
also issue a certificate of registration. Any change in the information submitted at the
time of registration should be communicated to the Registrar.
CONSEQUENCES OF NON- REGISTRATION OF PARTNERSHIP
1. It cannot enforce its claims against the third party in a court of law.
2. It cannot file a legal suit against any of its partners
3. Partners of an unregistered firm cannot file any suit to enforce a right against the firm.
4. A partner of an unregistered firm cannot file suit against other partners.
report.
5. It cannot claim adjustment for any sum exceeding Rs. 100. Suppose an unregistered
firm owes Rs. 1200 to X and X owes Rs.1000 to the firm. The firm cannot enforce an
adjustment of Rs.1000 in a court of law.
NON- REGISTRATION OF A FIRM, HOWEVER, DOES NOT AFFECT THE FOLLOWING RIGHTS:
1. The right of a partner to sue for the dissolution of the firm or for the accounts of a
dissolved firm or to enforce any right or power to realize the property of a dissolved firm.
2. The power of an official assignee or receiver to realize the property of an insolvent

partner.
3. The rights of the firm, or its partners, having no place of business in India.
4. Any suit or set off in which the claim does not exceed rupees hundred.
5. The right of a third party to sue the unregistered firm or its partners.
6. The right to sue a third party for infringement of a patent right.
report.
LIMITED LIABILITY PARTNERSHIP ACT 2008
1. LLP is a body corporate and a legal entity separate from its partners. It will have a
perpetual successions.
2. An LLP is a hybrid form of organization having features of a partnership firm under the
Partnership Act, 1932 and a company under the Companies Act, 1956 / 2013.
3. No partner would be liable on account of the independent or unauthorized actions of

other partners or their misconduct. The liabilities of the LLP and its partners who are
found to 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.
4. LLP must have at least two individuals as Designated Partners. At least one of the
Designated Partners must be resident in India. A body corporate partner of the LLP may
nominate an individual as a Designated Partner. There is no limit on the maximum
number of partners.
5. Rights and duties of partners of an LLP and mutual rights and duties between an LLP
and its partners are governed by the LLP Agreement between the partners or between
the LLP and its partners.
6. The LLP shall be under an obligation to maintain annual accounts reflecting true and
fair view of its state of affairs. A statement of accounts and solvency shall be filed by
every LLP with the Registrar every year.
7. A partnership under the Partnership Act, 1932 may be converted into an LLP. A private
company or an unlisted public company may also be converted into an LLP provided
there is no ‘security interest’ subsisting on the date of application for conversion.
8. Foreign LLP can establish a place of business in India and its regulatory mechanism
will be as per the rules prescribed by the Central Government.
9. The contribution may consist of money, tangible or intangible property, or any other
benefits such as promissory notes, contracts for services performed or to be performed.
The obligation of a partner to contribute money or property to a LLP shall be as per the
LLP agreement.
10. The Central Government may make rules for the provisions in relation to winding up
and dissolution of limited liability partnerships.
report.

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Prof Farheen Ansari S.Y.

MODULE 3: INDIAN PARTNERSHIP ACT, 1932 &

This act came into force on 1st October 1932.

It was earlier a part of Indian Contract Act.

To form a partnership, minimum 2 people are required and maximum 10 (Banking

Q1. DEFINE PARTNERSHIP AND EXPLAIN THE ESSENTIAL ELEMENTS OF PARTNERSHIP.

II] ESSENTIAL ELEMENTS OF PARTNERSHIP

1. Association of 2 or more person

2. There must be an agreement

4. Mutual Agency (true test of partnership)

Every partner is Every partner is

Q2. WHAT IS THE IMPORTANCE OF MUTUAL AGENCY IN A PARTNERSHIP? OR TEST

II] IMPORTANCE OF MUTUAL AGENCY

It is the authority given to a partner doing business on behalf of the firm.

A partner is both an Agent as well as the Principal of the business.

An act of one partner, binds the entire firm.

The relation of partners is governed by law of agency.

Case Law: Cox v/s Hickman

There is no Haywood & Cox Filed a suit for non Hickman

Q3. EXPLAIN FORMATION OF PARTNERSHIP

II] FORMATION OF PARTNERSHIP

 A Partnership is based on agreement. Agreement can be made orally or in writing

 Registration of firm is optional, except in the state of Maharashtra.

III] WHO CAN BECOME A PARTNER?

Minor can be a partner, but can only

3. PERSON OF UNSOUND MIND

A company cannot become a

5. MEMBER OF HINDU UNDIVIDED FAMILY

6. BURMESE BUDDHIST HUSBAND AND WIFE

7. LENDER OF THE MONEY 8. SERVANT OR AGENT OF THE FIRM

9. WIDOW OR CHILD OF PREDECEASED PARTNER

Cannot be a partner, if they have

IV] TYPES OF PARTNERSHIP

Partnership for Partnership at will Particular Partnership

1. ACTIVE PARTNER/ OSTENSIBLE PARTNER

2. SLEEPING PARTNER/DORMANT PARTNER

3. PARTNERS IN PROFIT ONLY

Q4. EXPLAIN PROPERTY OF THE FIRM

II] PROPERTY OF THE FIRM

 Section 14 and 15 deals with property of the firm.

Goodwill is the reputation of the business. It is an

Personal Goodwill Firm Goodwill

This is attached to an individual This is attached to the entire firm

Q5. EXPLAIN THE RIGHTS, DUTIES AND LIABILITIES OF

II] RIGHTS OF PARTNERS:

1. To take part in business

3. To access the books of accounts

6. To interest on capital and loans

9. To use partnership property

10. To have business wound up after dissolution

III] DUTIES AND LIABILITIES OF PARTNERS:

1. To carry business to common advantage

5. To account for any personal profit made

6. Not to carry competing business

8. Not to assign his rights

IV] RIGHTS & DUTIES OF PARTNER ON CHANGE IN THE FIRM

V] RIGHTS & DUTIES OF PARTNER AFTER EXPIRY OF TERM OF FIRM

Q6. EXPLAIN THE AUTHORITY OF A PARTNER TO THIRD PARTY

 The term Authority means “power”

 Every partner has some authority, which may either be

Expressed Authority Implied Authority

Oral Written Without being told

 An express authority is one, which is clear as to what a partner has to do and