Business structure(s)

• Sole proprietorship- capital + intellect, profit, unlimited risk

• Joint venture/AOP/BOI
• Partnership/firm
• Limited liability company
• Private – restriction on transfer of share and raising money from the public
• Public
• Limited liability partnership
• Trust – no direct business
• Societies – no direct business
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• Art. 372 of constitution
• List III, entry7- “contracts…except contract relating to agricultural
land”
• Indian Partnership Act, 1932
• Except s. 69, W.e.f October 1, 1932
• S. 69 w.e.f. october1, 1933
• Limited Liability Partnership Act, 2008
• W.e.f March 31, 2009
• Indian Contract Act, 1872

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• Introduction
• Meaning and nature of partnership(Firm)
• Formation of partnership
• Kinds of firm
• Kinds of partner
• Minors’ position
• Rights and liabilities of partners and firm
• Partners inter se
• With outside world/third party

• Registration of firm
• Optional
• Benefit of registration or effects of non registration of the firm

• Dissolution of firm

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Meaning of the firm
• "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.

• Essential Requirements
• Contract
• To share the profits of business
• Business can be carried on by all or any of them acting for all (mutual agency)

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Cont…
• Is a contract
• Is hence governed under the general provisions of the Indian Contract
Act.
• All the ingredients of a valid contract will apply to partnership
contract
• Exception is minor (S.30)
• Where 2 or more persons agree to join together to carry out the
business for the purpose of earning profits.
• It is an extension of sole proprietorship.

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Cont..
• The partnership arises from the contract but not from the status.
The partners may exercise any of its power at time but must not
exercise in the pursuance of illegal, fraudulent or misconduct.
• If any of the partners have made the contract without the
consent of all other partners then the question as to the validity
of such contract arises.
• If all the partners have accepted or ratified the contract then no
question as to the validity of such contract arise.
• With the consent of all the partners, the partnership can
become a member of another firm.

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Number of Members
• Minimum two member- 2 or more……there is no limit as per the Act
• However, the Companies Act, 2013
• The maximum number as notified not exceeding 100 in case of partnership
and in private company 200
• As per companies Act, 1956
• As per S.11 of the Companies Act the maximum number of partners in case of
Banking purpose is – 10 members
• Other purpose-20 members
• Private company- 50 members

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Partnership Deed
• Name and address of its firm and business
• Name and address of its partner
• Capital contributed by each partner
• Profit and loss sharing ratio
• Rate of interest on capital, loan, drawings etc
• Rights, duties and obligation of partners
• Settlement of accounts on the dissolution of the firm
• Salaries, commission payable to partners
• Rules to be followed in case of admission, retirement and death of a partner
• Mode of settlement on disputes among partner.
• Any other affecting the rights of the partners

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Business (S.12)
• The partnership must be created for the purpose of carrying the
business which is legal in nature. Co-ownership of property
does not amount to the partnership.

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Mutual Agency (S.13)
• The business is to be carried by all of them or by any one of
them on behalf of all. It gives two assumptions
• Each partner is entitled to carry out the business. The mutual
agency exists between the partners.
• Each partner is a principal as well as an agent for the other
partners he is bound by the acts of other partners as well as
can bind others by his own act.

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Sharing of Profit
• The agreement is to share profit and losses among the
partners. The sharing of profit and losses can be as agreed or
according to the ratio of the capital contributed or equally if
nothing agreed.
• It helps to distribute the burden among the partners in the case
when the partnership suffers losses.

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Kinds/types of partner
• Actual or ostensible partner
• Sleeping or dormant partner – not doing anything just share in profit. No need to
give notice to public if he retires
• Partner in profit only
• Nominal partner- a partner who simply lends his name to the firm, without having
any real interest in it. He is only for liability
• Partners by estoppel or holding out- only for liability.
• Represented(active/ passive- by words spoken/written, by conduct) himself to be a partner
• The other party must have acted on the faith of such representation
• E.g.- retiring partner, not giving public notice and the remaining partners still use his name
on letter heads, bills, etc. in case of death, notice is not needed.

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Liability of partnership

• All the partners are jointly and severally liable for paying the
debts of the firm.
• The liability is unlimited which means that the partner’s private
assets can be disposed of for the purpose of paying the debts
of the firm.

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Kinds of partnership

• Partnership at will
• Then no fixed period is prescribed for the expiration of
partnership then it is a partnership at will.
• According to Section 7 two conditions need to be fulfilled:
• No agreement about the determination of the  fixed period of
partnership
• No clause with respect to the determination of partnership.

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cont..

• Fixed Period Partnership
• When the partners fixed the duration of the partnership firm then after
the expiration of the fixed period the partnership comes to an end.
• When the partners decided to continue with the partnership even after
the expiry of the fixed period then it becomes a partnership at will.
• On the basis of the extent of the  business carried by a partnership

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cont..

• Particular Partnership
• When the partnership is created for completing any project or
undertaking.
• When such an undertaking or project have been completed
then partnership comes to an end.
• The partners have a choice to continue with the firm.

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Relation of partner with One Another

• Right to determine the relationship by contract (Section 11)

• The partnership deed determines the general administration of the

partnership like what will be the profit-sharing ratio, who will do what
work etc. The partnership deed contains the rights and duties of the
partners.
• Partnership Act states that the partners can restrain each other from
carrying a business other than the firm but such restraint must contain
in the partnership deed

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Relations of partners to Third parties - Section 18 to 22

• Partners are an agent of the firm for the purpose of conducting

the affairs of the business. The partners act as the principal and
agent as well.
• any act which is performed by the partners in the usual
course of its business binds the firm itself. The authority to
bind the firm is implied authority.
• if any act is done by any partners in case of an emergency which
a prudent man would do, then such acts need to bind the firm.
• if any act is done by any partner then it must be done in the
name of the firm or in such manner which binds the firm.
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• IMPLIED AUTHORITY OF PARTNER AS AGENT OF THE FIRM.
• No implied authority in case of-
• submit a dispute relating to the business of the firm to arbitration,
• open a banking account on behalf of the firm in his own name,
• compromise or relinquish any claim or portion of a claim by the firm,
• withdraw a suit or proceeding filed on behalf of the firm,
• admit any liability in a suit or proceeding against the firm,
• acquire immovable property on behalf of the firm,
• transfer immovable property belonging to the firm, or
• enter into partnership on behalf of the firm.

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Duties of Partners
• To carry on business to the greatest common advantage
• To observe good faith
• to act diligently
• to indemnify for fraud
• to hold and use the firm property exclusively for the purpose of
business of the firm
• to account for/hand over personal gains/profits
• Not to claim remuneration, but it may be provided to working partner
• Not to assign his rights- but he can assign his share of profits and assets
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Status of Minor
• no person who is not major ( i.e. below the age of 18 years) can
enter into the contract which implies that no minor can enter into
a contract.
• But Section 30 states that though minor cannot be a partner in
a partnership firm but he can be admitted to benefit from the
partnership firm.
• The minor will be liable to get only the benefits from the
partnership but is not liable for any losses or liability.
• The minor can be admitted to the partnership only with the
consent of all the partners.
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Rights of Minor
• Right as to have access to and inspect and copy any of the accounts
only (not the books) of the firm.
• Rights to share the profits from the firm
• Rights to sue any partner or all for his share of benefit or profit
but only if he wants to sever his connection with the firm
• A minor has a right to become a partner on attaining the age of
majority.

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Liabilities of a Minor
• He has a limited liability which means his personal assets may not be
disposed of to pay the firm debts. It means only his share in the profit or
in assets of the firm are liable. So he can not be declared insolvent.
• Position on attaining the age of majority
• To decide by public notice within 6 months, as to become or not to
become partner.
• If no pubic notice, deemed partner.
• Where he elects to become a partner
• He becomes personally liable to third parties for all acts of the firm done since his admission
for benefit
• Where he elects not to become a partner
• The rights and liabilities as of minor

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Registration
• Optional. Not mandatory

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How to Register a Partnership
• Application with fee to registrar of the firm in the State
• Name of the firm
• Principal place of business
• Any other place where the business is carried on
• Duration of partnership firm
• Name and address of all partners of a firm
• The date on which each partner joined the firm

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Effects of Non Registration s. 69
• it is not compulsory to register the partnership and no penalty is
being imposed for non-registration,
• Non-registration leads to a certain serious disabilities in
accordance with Section 69 of the Act.

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• No suit to enforce a right arising from a contract or conferred by this Act against
the other partner or alleged partner or firm
• No suit to enforce a right arising from a contract against any third party
• No suit for claim of set off or other proceeding to enforce a right arising from a
contract
• The firm must be registered for suit in aforesaid cases. The name of the partner must be registered
as a partner in a register of the firm.
• The bar is only on the firm or partner but not on third party. It means third party can sue
the firm or the partner.
• No partners can claim a relief of set-off.
• Any action which is brought out by the third party against the firm having a value of Rs
100 cannot be set off by the firm or any of its partners.
• An aggrieved partner cannot sue against firms or other partners

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Exceptions
• Statutory- express
• Right of the partners or firm to claim a relief of set off the claim
for the value which does not exceed Rs 100
• Enforcement of any right to sue for-
• the dissolution of a firm, or
• for accounts of a dissolved firm, or
• any right or power to realise the property of a dissolved firm
• Power of official assignee, receiver or court to realise the
property of insolvent partners

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• Statutory- Implied/by judiciary

• A suit based on infringement of statutory right under the trade marks Act
• A suit for recovery of damages for misconduct committed by another partner
by his act of forcibly breaking the lock of the shop of the firm and taking away
certain goods
• Suit for recovery of dishonoured cheque
• Suit for eviction if no contract of tenancy existed
• Suit for declaration that the deed is fake or genuine
• Suit for enforcement of arbitral award
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Admission of partner

• ONLY WITH THE CONSENT OF ALL THE EXISTING

PARTNERS
• The liabilities of new partner commences from the date when he
is admitted as a partner in a partnership firm.
• After the admission of a new partner, the new firm is liable for
the debts of the old firm and the creditor has to discharge the
old firm and accept a new firm as its debtor. It can be called as
a novation.
• It can be done only when the creditor gives the consent to it.

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Retirement of partner

• When there is a partnership at will, by serving a notice to all the existing

partners
• When there is an express agreement among the partners
• When the consent of all the partners is given
• A retired partner continues to be liable for the acts of firms and other
partners till he or any other partners give public notice about his retirement.
When the third party does not know that he was a partner and deals with the
firm; then in such case a retired partner is not liable. if it is a partnership at
will then there is no requirement to give public notice about his retirement.
• The outgoing partner may enter into an agreement to not carry similar
business or activities within a specified period of time.

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Liability of outgoing partner

• Using the name of the firm

• Representing himself as a partner
• Make the customer of the firm in which he was a partner as its
own.

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Dissolution of a firm

• by agreement
• Compulsory dissolution
• On happening of certain contingencies
• Expiry of term
• Completion of the project
• Death of a partner
• Adjudication of a partner as an insolvent
• By notice in case of partnership-at-will
• By court- on suit by a partner-
• Insanity of a partner
• Permanent incapacity
• Misconduct
• Transfer of interest
• Business not possible to run except losses
• Any other ground- which renders it just and equitable that the firm be dissolved
• Even when the partnership is dissolved then it gives certain rights and liabilities to the partners.

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Settlement of partnership account

• When the partnership has dissolved the accounts of the partners

needs to be settled under the usual course of business.
• The asset of the firm and the capital contributed by the partners
to meet up the deficiency in the capital is applied in the following
order:
• Repayment to third parties
• The amount which is due to him from the capital
• The amount which is due to him on account of capital
• And if any amount is left then it is distributed among all the partners in
their profit sharing ratio.

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Sale of Goodwill After Dissolution of Firm

• The goodwill is treated as an asset.

• The goodwill is included in the assets while settling the account after
the dissolution of the firm.
• The goodwill may be sold separately or with other assets. Once the
firm is dissolved and goodwill is sold then any partners can carry on a
similar business or advertise a business competing with the buyers of
the goodwill.
• The partners are prohibited from doing the following acts:
• To use the name of the firm
• To represent himself as carrying the business
• To solicit the customers of the firm dealing before dissolution.
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Limited Liability Partnership

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 Preamble of the Act
• LLP, in simple terms, is an alternative corporate business
form that gives the benefits of limited liability company and
the flexibility of a partnership firm.

• It does not restrict the benefit of LLP structure to certain

classes of professionals only and is available for use by any
enterprise which fulfils the requirement of the Act.

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 Statutory Recognition
• LLP is a Body Corporate (section 2(1) (d))
• LLP is a Legal Entity separate from its partners & have
Perpetual Succession
• Any change in the partners of a limited liability partnership
shall not affect the existing right or liabilities of the LLP
• Provisions of Indian Partnership Act, 1932 shall not apply to
LLP(section 4)
• Concept of designated partner

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 Companies Act 2013 – made LLP as most
convenient vehicle
• Stringent compliances
• Difficulties in getting the approvals for vital business transactions
• Incapacity to do business transactions
• Private Company at Par with Public – No lucrative exemptions available
to do business
• Restrictions on number of members for companies.

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 Salient Features of LLP
• Liability
• Liability of the partner is limited to his agreed contribution. 
• No partner is liable on account of the independent or un-authorized
acts of other partners, thus allowing individual partners to be
shielded from joint liability created by another partner’s wrongful
acts or misconduct.
• Every Partner, for the purpose of business of LLP, is the agent of LLP
but not of other partner.
• Partners are liable personally to the extent of guarantees provided
by them.

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 Salient Features of LLP
• Perpetual Succession & continuity
• Borrow/ Invest on its own name
• Initiate legal proceedings on its own name
• Simplified compliances & no mandatory requirement of statutory audit
for certain LLP’s
• Number of partners
• There is no upper limit for number of partners in LLP unlike a ordinary
partnership firm where the maximum number of partners cannot exceed 100
nor like private limited company wherein can not exceed 200.

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 Salient Features of LLP
• Rights and duties of partners governed by the agreement subject to
act
• Related Party Transactions:
• There is no restriction on entering into any contracts with related
parties.
• Loans to related LLP is also not falling within the provisions of section
185 of Companies Act,2013
• No mandatory meetings & their compliances.
• No restrictions on salaries, compensations, distribution of profit to
Partners. (under LLP Act)

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Thanking you!!!

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