For Examination purposes Only – Ujwala, Faculty of Law

SYNOPSIS: LAW OF PARTNERSHIP

NOTE: Students are not to write the synopsis verbatim in answers.

It is only guideline and aid to structure and memory, not to be replaced with notes
prepared using classroom discussion and reference books.

Essentials of Partnership:
Contract (sec 5) to carry on business (sec 2(b) for profit sharing where any or all act for
all of them (mutual agency – sec 6)
Davis v Davis (1894) 70 LJ 265
Wheatcroft & Cox v Hickman (1860) 8 HLC 268

Partnership and Co-ownership:

• Agreement/consent only → Birth/operation of law
• Mandatory sharing of profit/loss → Profit-sharing not necessary
• Mutual agency → Not agents of other co-owner
• No transferability of own interest without consent → transfer own interest
without consent of co-owners
Champaran Cane Concern v State of Bihar AIR 1963 SC 1737;
Helme v Smith (1831) 7 Bing 709

Partnership and HUF business:

• Admission of person – consent/agreement → birth
• Mutual agency – partner inter se →karta only

Partnership & Company:

• No separate legal entity than partners → Separate legal entity
• Dissolved without partners → Perpetual succession
• Unlimited liability of partners, irrespective of contribution → Liability of
directors limited as per law/contract
• Partners liable for wrongs of other partners → Directors not liable for wrongs of
other Directors
• Less procedural regulation by statutory authorities → More procedural
regulations
• Min 2 partners any capacity → Min 2 designated partners
• Partnership converted to Company →Company not converted to Partnership

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For Examination purposes Only – Ujwala, Faculty of Law

Duration of Partnership:
a. Fixed duration
continue firm even after expiry of period (sec 17)
b. Partnership at will

Partnership Property:
i. Property originally brought into firm stock
BN Murthy & Sons v VV Suguna & Ors AIR 1978 AP 257
ii. Property subsequently acquired
Wray v Wray (1905) 2 Ch 349
iii. Personal property of partner used for firm’s business
Robinson v Ashton (1875) 44 LJ Ch 542
iv. Joint property used for benefit of partners and firm

Kinds of Partners:
i. Working partner
ii. Silent/Sleeping/Dormant partner
Share in capital – share in profits, liabilities – not engaged in daily business of firm
– name not reflected while dealing with third parties – on retirement, mandatory
public notice not necessary
Court v Berlin (1897) 77 LT 293; Glorious Plastics Ltd v Laghate Enterprises AIR
1993 Bom 224
iii. Nominal partner
No share in capital or profits – not engaged in daily business of firm – name,
reputation used for benefit of firm – liable to third parties if third party transacted
with firm on faith of nominal partner’s reputation
iv. Partner by holding out – sec 28
Estoppel – represents self by act/acquiescence, as partner – liable as partner to any
person who transacts with firm on faith of such representation
Martyn v Gray (1863) 14 CBNS 824
v. Minor as partner – sec 30
• Not allowed as partner – allowed to be admitted to benefits of partnership &
entitled to share in property, profits of firm
• Minor’s share liable for acts of firm – minor’s personal property not liable
• After attaining majority – minor choose to become full partner & issue public
notice – becoming full partner applies retrospectively to time when minor

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For Examination purposes Only – Ujwala, Faculty of Law

admitted to benefits of partnership regarding minor’s personal liability for acts of

firm

Relation of Partners with third parties:

a. Joint and several liability – sec 25
Ashutosh v State of Rajasthan (2005) 7 SCC 308
b. Implied authority of partner – sec 18, 19
Mercantile Credit Co Ltd v Garrod (1962) 3 All ER 1103
c. Authority in emergency – sec 21
d. Liability of firm for wrongs of partner
Tendering Hundred Waterworks Company v Jones (1903) 2 Ch 615

Registration of Partnership: Section 58, 59

Badri Prasad v Nagarmal AIR 1959 SC 559
Effects of non-registration / Disadvantages of non-registration: section 69
i. Partner cannot sue the partnership firm
ii. Partner cannot sue other partner of the firm
iii. Partnership firm cannot sue third party
iv. Partnership firm cannot hold property in its name
M/s. Shree Ram Finance Corpn v Yasin Khan AIR 1989 SC 1769
Jagdish Chander Gupta v Kajaria Traders Ltd AIR 1964 SC 1882
M/s. Raptakos Brett & Co Ltd v Ganesh Property AIR 1998 SC 3085

Outgoing Partner:
i. Death – sec 35
ii. Retirement – sec 32
By consent – By agreement – By notice
Mandatory public notice of retirement
No liability to third party after date of retirement
iii. Insolvency – sec 34
Mandatory to cease to be partner – firm may continue with remaining partners –
No liability to third party after date of being adjudged insolvent
iv. Expulsion – sec 33
General rule: expulsion or removal not permitted
Exception: expressly provided in partnership deed & partners exercise good faith
v. Unsoundness of mind
General rule: unsoundness of mind not sufficient to remove partner

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For Examination purposes Only – Ujwala, Faculty of Law

Exception: expressly provided in partnership deed & unsoundness makes partner

unfit to conduct firm business

Rights of Partner:
i. Right to share in profits, interest – sec 13(b), (c), (d)
ii. Right to accounts – sec 12(d)
iii. Right to engage in business of firm, use majority rights – sec 12(a), (c)
Exceptions: silent partner, nominal partner, minor partner
iv. Right to indemnity – sec 13(e)
v. Right to remuneration – sec 13(a)
vi. Right of implied authority:
pledge/sell partnership property, buy goods on firm’s account, contract
transactions binding firm to third parties, borrow/lend money on account of firm
etc
vii. Rights of outgoing partner:
a. Right to compete – sec 36
Exception to agreement in restraint of trade under sec 27 Contract Act
Whitehill v Bradford (1952) 1 All ER 115
b. Right to share subsequent profits – sec 37
If no final settlement of accounts with outgoing partner
Barclays Bank Trust Co Ltd v Blutt (1981) 3 All ER 232

Liabilities of Partner:
i. Liability for acts of firm to third parties
Joint and several liability
State of Kerala v Saroja AIR 1987 Ker 239
ii. Liability of an agent of the firm and other partners – all liabilities/duties of agent

Dissolution of Partnership:
Modes of dissolution:
i. Agreement / Notice – sec 40, 43
CIT v Pigot Chapman & Co AIR 1982 SC 1085
ii. Expiry of pre-determined period of firm (subject to contract to contrary)
Saligram v Rajnath AIR 1974 SC 1094
iii. Completion of pre-determined purpose of firm (subject to contract to contrary)
Gherolal Parakh v Mahadeodas AIR 1959 SC 181
iv. Insolvency/Death of a partner (subject to contract to contrary)

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For Examination purposes Only – Ujwala, Faculty of Law

CIT v Empire Estate (1996) 2 SCC 345

v. Retirement/death of a partner in a 2-partner firm (compulsory) – sec 42
CIT v Seth Gobindram Sugar Mills AIR 1966 SC 24
vi. Insolvency/Death/Unsoundness of mind of all partners except one (compulsory) –
sec 42
vii. Business of firm becoming unlawful (compulsory)

Partnership & Limited Liability Partnership:

• No separate legal entity than partners → Separate legal entity
• Partners liable for wrongs of other partners → Partners not liable for wrongs of
other partners
• Partners agents of each other & of firm → Partners agent of LLP, not of each
other
• Registration optional → Mandatory registration
• Dissolved without partners → Perpetual succession
• Unlimited liability of partners, irrespective of contribution → Liability of
partners limited as per contract/contribution
• Less procedural regulation by statutory authorities → More procedural
regulations
• Min 2 partners any capacity → Min 2 designated partners
Overview of Limited Liability Partnership Act 2008
Object of LLP Act: alternate corporate business vehicle combining benefits of limited
liability with flexibility of organising internal structure as a partnership on mutual
agreement
Nature of LLP: sec 3
Body corporate – existence separate from its partners – perpetual succession –
independent of change in partners
Formation of LLP:
Two or more partners – individuals or body corporate – carrying on lawful business –
to make profit – file requisite documents with Registrar by advocate or Company
Secretary or Chartered Accountant or Cost Accountant – apply for incorporation &
registration
Incorporation documents: prescribed form, name of LLP, proposed business of LLP,
registered office address of LLP, names & addresses of each partner, names &
addresses of each designated partner

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For Examination purposes Only – Ujwala, Faculty of Law

Registration of LLP: sec 12, 14: If all conditions under sec 11 complied, Registrar to
register incorporation of LLP and issue certificate within 14 days – certificate
conclusive evidence of incorporation and registration of LLP
Registered LLP capable of suing & being sued in own name; acquiring, owning &
disposing property in ow name; having common seal; acts that body corporate can
lawfully do
Relation of partners: sec 23, 26
Agents of LLP, subject to rights and duties stated in LLP agreement
Not agents of other partners
Liability of LLP and partners: sec 27, 28, 29, 30
• LLP not liable to third parties for wrongs of partner outside authority (as per LLP
agreement)
• LLP liable to third parties for wrongs of partner done in course of business of LLP,
within partner’s authority
• Partner not personally liable to third parties for LLP’s losses / wrongs
• Partner personally liable to third parties for LLP’s wrongs, when wrong done by
same partner within his/her authority
• Partner not personally liable to third parties for wrongs of other partners done in
course of business of LLP, within their authority
• Partner acting with fraudulent intention to defraud creditors liable personally and
unlimitedly to third parties; LLP also liable unlimitedly for the fraudulent act done
by that partner – other partners not acting with fraudulent intention not personally
liable
Conversion to LLP: sec 55, 56
Conversion mechanism available in LLP Act for conversion from partnership firm to
LLP, from private company to LLP and from unlisted public company to LLP
Dissolution and Winding up of LLP:
Voluntary dissolution (without Tribunal)
Winding up by Tribunal (non-voluntary): sec 64
• On application by partners of LLP
• Number of partners in LLP is less than two for more than 6 months
• LLP acted against interests of sovereignty, integrity of India or security of State or
public order
• LLP defaulted in filing statement of account & solvency or annual returns with
Registrar for 5 years
• Tribunal of opinion that winding up of LLP is just and equitable