The document provides information on key aspects of partnership law in India according to the Partnership Act 1932. It defines a partnership as 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. It outlines the essentials of a partnership including association of two or more persons, agreement, business, sharing of profits, and mutual agency. It also discusses the rights, duties, and liabilities of partners, as well as provisions related to incoming and outgoing partners. Finally, it provides a brief overview of limited liability partnerships established under the LLP Act 2008.

1. PARTNERSHIP ACT 1932

2. Partnership as a form of organisation
• Advantages
– Easy to form
– Access to more capital
– Brings in skill and talent
– Division of labour
– Expansion of business
– Division of risks
– Free from legal formalities

3. • The Indian Partnership Act, 1932, came into force w.e.f.
1st October, 1932 except section 69, which came into
force on the 1st day of October, 1933.
• It extends to the whole of India except the state of
Jammu and Kashmir.
• It lays down the important provisions relating to
partnership contracts.
• However, the general principles of the Indian Contracts
Act, 1872 which formally contained the provisions of
the law of partnership shall apply so far as they are not
inconsistent with this Act. (Section 3)

4. Partnership
• Section 4
“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”.

5. Essentials of a Partnership
• (i) Association of two or more Persons:
– Maximum number of persons as partners: 50 (sec. 464 of companies
Act 2013)
• (ii) Agreement:
– Existence of an agreement is essential of partnership. Section 5 of the
Act states that the relation of partnership arises from contract and not
from status.
• (iii) Business:
– Partnership implies business and when there is no association to carry
on business there is no partnership. The term “business” is, however,
used in the widest sense to cover trade, occupation and profession.
• (iv)Sharing of Profits:
– To constitute a partnership, the parties must have agreed to carry on a
business and to share profits in common.
– it is open to the partners to agree to share the profits in any way they
like. They may agree to share the profits either in specific proportions
or in specific sums

6. • (v)Mutual Agency
– Each partner is both an agent and principal for himself
and others; that is the significance of the phrase
“carried on by all or any of them acting for all”.
• Each partner is an agent binding the other partners who are
his principal and
• Each partner is a principal, who in turn is bound by the acts
of the other partners.
– partner who conducts the business of the firm not
only acts for himself but for the other partners also

7. • Unlimited Liability:
– All partners are jointly and severally responsible for all
activities carried out by the partnership.
– where the assets of the firm are not sufficient to meet
the obligations of creditors of the firm, the private
assets of the partners can also be attached.
• Not a Separate Legal Entity:
– The firm does not have a personality of its own. The
business gets terminated in case of death, bankruptcy
or lunacy of any one of the partners.

8. Partnership deed
• A partnership is formed by an agreement. This agreement
may be in writing or oral though the law does not expressly
require that the partnership agreement should be in
writing, when the contract of partnership is made in
writing, it takes the form of a document.
• The document which contains the terms of partnership as
agreed among the partners is called a “partnership deed”.
• The partnership Deed is to be duly stamped as per the
Indian Contract Act, and duly signed by all the partners

9. Contents of partnership deed
The exact terms of the partnership deed (or agreement) will depend
upon the circumstances but generally a partnership deed contains
the following covenants:
(i) The firm name and business to be carried on under that name.
(ii) Names and addresses of partners.
(iii) Nature and scope of business and address(s) of business place(s).
(iv) Commencement and duration of partnership.
(v) The capital and the contribution made by each partner.
(vi) Provision for further capital and loans by partners to the firm.
(vii) Partner’s drawings.
(viii) Interest on capital, loans, drawings and current account.
(ix) Salaries, commission and remuneration to partners,
(x) Profit (or loss) sharing ratio of partners.

10. (xi) The keeping of proper books of accounts, inspection and audit, Bank
Accounts and their operation.
xii) The accounting period and the date on which that accounts are to be
prepared.
(xiii) Rights, powers and duties of the partners.
(xiv) Whether and in what circumstances, notice of retirement or dissolution
can be given by a partner.
(xv) Provision that death or retirement of a partner will not bring about
dissolution of partnership,
(xvi) Valuation of goodwill on retirement, death, dissolution etc.
(xvii) The method of valuation of assets (and liabilities) on retirement or death
of any partner.
(xviii) Provision for expulsion of a partner.
(xix) Provision regarding the allocation of business activities to be performed
by individual partners
(xx) The arbitration clause for the settlement of disputes.

11. Registration of partnership
• Preparing of Partnership Deed
• Drafted with care and signed by all partners
• Stamp duty as per Indian Stamp Act
• Each partner should have a copy of the deed
• Registered with Registrar of Firms and copy of deed to be filed
• Issue of certificate of registration

12. Effects of non registration
• Suit between partners and firm – partner of
unregistered firm cannot file suit
• Suit between firm and third parties- no suit
against third party; however suit by third party
against the firm is allowed
• Unregistered firm cannot claim set off

13. Difference between partnership and co-ownership

15. Difference between Joint Hindu Family Business
• Governing law
– Hindu Law- JHF
– Partnership Act-Partnership
• Mode of creation
– By status in JHF
– By agreement in Partnership
• Management of business
– Done by Kartha –JHF
– Can be managed by all or any of the partners
• Authority to bind
– Done by Kartha –JHF
– Can be managed by all or any of the partners
• Liability
– Limited for coparceners and unlimited for Kartha-JHF
– Unlimited liability for partners- partnership
• Death of member
– Does not affect the existence of JHF
– Leads to dissolution of partnership

16. • Continuity of business
– JHF continues until division in the family
– Partnership can be dissolved by death/insolvency etc
• Minor’s capacity
– Minor can be member in JHF
– Minor can be partner for receiving benefits only
• Number of members
– No limit-JHF
– 50 members in partnership
• Extent of share in business
– No definite share for coparceners
– Partners share as per agreement

17. Difference between partnership and Joint Hindu Family business

18. 00

19. Types / Kinds of partnership
• Partnership at will
• Particular partnership

20. Partnership at will
• When there is no provision in partnership agreement (known as
Partnership Deed, if in writing)for
1) The duration of their partnership, or
2) The determination of their partnership, then the partnership is called
‘Partnership at Will’
• Special feature of ‘‘Partnership at will’ is that such partnership may be
dissolved by any partner by giving a notice in writing to all other
partners of his intention to dissolve the partnership.
• The partnership will be dissolved from that date mentioned in the
notice as the date of dissolution and if no date is mentioned then from
the date of communication of notice.

21. Particular partnership
• partnership is called a ‘particular partnership’, when it is
formed for a
– 1) Specific venture or undertaking, or
– 2) Particular period (fixed term)- also known as partnership for a
fixed term
• Such partnership comes to an end on the completion of the
venture or the expiry of time period.
• If such partnership is continued after the expiry of term or
completion of venture it is deemed to be a partnership at
will.
• A particular partnership may be dissolved before the expiry
of the term or completion of the venture only by the
mutual consent of all the partners.

22. Types of partners
• Active or actual partner
• Dormant or Sleeping partner
• Nominal partner
• Sub- Partner
• Partner by holding out

23. Contd..
• Active partner–Actively participates the conduct of the
business
• Dormant Partner–Doesn’t take active part
• Nominal Partner–A partner who lends his name to the
firm without having any real interest in it.
• Sub-Partner–When a partner agrees to share his
profits derived from the firm with a third person, a sub-
partnership may arise. The third person is called as sub
partner.
• Partner by holding out-One who represents himself to
be partner of the firm, but in reality is not so. A retiring
partner does not give public notice of his retirement;
continuing partners still use the name as partner- he
will be held liable to third parties

24. Rights of partners
• Right to take part in the conduct of the business
• Right to be consulted
– ordinary matters –decision by majority; important matters- like that of
change in nature of business- all partners have to consent
• Right to access the books
• Right to share the profits
• Right to interest on capital
– - interest on capital shall be payable out of profits
• Right to interest on advances
– - beyond the amount of capital that he has agreed to subscribe
• Right to indemnify
– - for payments and liabilities incurred by the partner for the firm

25. Duties of partners
– Duty to carry on the business to the greatest common
advantage
– Duty to be just and faithful
– Duty to render true accounts
– Duty to provide full information
– Duty to indemnify for loss caused by fraud
– Duty to be liable jointly and severally
– Duty not to assign rights and interest in the firm to third
party

26. Contd..
– Duty to attend diligently to his duties
– Duty to work without remuneration
– Duty to contribute to losses
– Duty to indemnify for willful neglect
– Duty to use firm’s property exclusively for the firm
– Duty to account for personal profits derived
– Duty not to compete with the business of the firm

27. Liabilities of a partner
• Liability of a partner for acts of the firm
– Liability is unlimited, creditor may sue all partners together
or separately
• Wrongful acts of a partner
– Firm is liable to the third parties
• Misapplication by partners of money received from
third parties
– the firm is liable to make good the loss to third party due to
misapplication

28. INCOMING AND OUTGOING
PARTNERS

29. • Introduction of a new partner (Sec 31)
• Retirement of a partner (Sec 32)
• Expulsion of a partner (Sec 33)
• Insolvency of a partner (Sec 34)
• Death of a partner (Sec 35)
• Transfer of a partners interest (Sec 29)

30. Introduction of a partner
(1) No person shall be introduced as a partner into a
firm without the consent of all the existing partners
(unless already agreed otherwise).
(2) new partner is not liable for any act of the firm
done before he became partner
(3) New partner can be liable if
– By agreement he can assume past liabilities
– Or if the new firm assumes liabilities of the old firm and
the creditors accept the new firm as their debtors to
discharge old firm from liability

31. Retirement of a partner (sec 32)
• A partner may retire-
– (a) with the consent of all the other partners,
– (b) in accordance with an express agreement by the
partners, or
– (c) where the partnership is at will , by giving a notice in
writing to all the other partners of his intention to retire.
• The firm continues its operations without dissolution
of the firm.
• Until the public notice is given out, the retiring partner
holds liable for the acts of the firm to third parties

32. Expulsion of a partner(sec33)
• A partner may be expelled from a firm by majority of the
partners only if,
A) the power to expel has been conferred by contract between the partners,
B) such a power has been exercised in good faith for the benefit of the firm.
• The partner who is expelled must be given reasonable notice
and opportunity to explain his position and to remove the
cause of his expulsion.
• In case of irregular expulsion, the expelled partner may claim
– Reinstatement as a partner
– To sue for his share of capital and profits in the firm

33. Insolvency of a partner (sec 34)
• Where a partner in a firm is adjudicated an
insolvent he ceases to be a partner on the
date on which the order of adjudication is
made, whether or not the firm is thereby
dissolved (depends on the terms of
agreement).

34. Death of a partner (sec 35)
• Where under a contract between the partners
the firm is not dissolved by the death of a
partner, the estate of a deceased partner is
not liable for any act of the firm done after his
death.
• His estate is liable only for liabilities
undertaken during his life time

35. Transfer of partner’s interest
• Partner can transfer his interest in partnership
to a stranger.
• The transferee does not become a partner
• He is entitled to receive the share of profits
• He has limited rights only
– cannot interfere in the conduct of business or
inspect the book of accounts

36. Dissolution of partnership and
dissolution of firm
• The dissolution of partnership between all the
partners of a firm is called dissolution of the firm.
[section 39].
• Thus, if some partner is changed/added/ goes
out, the ‘relation’ between them changes and
hence ‘partnership’ is dissolved, but the ‘firm’
continues.
• However, complete breakage between relations
of all partners is termed as ‘dissolution of firm’.
After such dissolution, the firm no more exists.

37. Contd..
• Thus, ‘Dissolution of partnership’ is different
from ‘dissolution of firm’.
• ‘Dissolution of partnership’ is only
reconstruction of firm, while ‘dissolution of
firm’ means the firm no more exists.

38. Dissolution of firm
• A partnership firm is an ‘organization’ and like every
‘organ’ it has to either grow or perish. Thus, dissolution of
a firm is inevitable part in the life of partnership.
• Dissolution of a firm can happen
(a) By agreement (section 40)
(b)Compulsory dissolution in case of insolvency (section 41)
(c)Dissolution on happening of certain contingency (section
42)
(d) By notice if partnership is at will (section 43)
(e) By the order of the court

39. Dissolution by agreement
• A firm may be dissolved with the consent of
all the partners or in accordance with a
contract between the partners.

40. Dissolution on happening of certain contingencies
• 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
there of.
– c) by the death of a partner.
– d) by the adjudication of a partner as insolvent.

41. Dissolution by notice of partnership at will
• (1)Where the partnership is at will the firm
may be dissolved by any partner giving notice
in writing to all the other partners of his
intention to dissolve the firm.
• (2) The firm is dissolved as from the date
mentioned in the `notice as the date of
dissolution or, if no date is so mentioned, as
from the date of the communication of the
notice

42. Compulsory dissolution
• A firm is dissolved
• a) by the adjudication of all the partners or of
all partners but one as insolvent or,
• b) By the happening of any event which makes
it unlawful for the business of the firm to be
carried on or for the partners to carry it on in
partnership.

43. Dissolution by court
• When there is difference of opinion between the
partners regarding the matter of dissolution. The
court may dissolve a firm on any of the following
grounds upon the suit filed by the partner :
– Insanity
– Permanent incapacity
– Misconduct
– Persistent breach of agreement
– Continuous losses

44. LIMITED LIABILITY PARTNERSHIP
• LLP is a new form of legal business entity with
limited liability- LLP Act of 2008
• Hybrid organization of Company and
Partnership

45. LLP- Features
• 1. LLP is a body corporate:
• 2. Perpetual Succession:
• 3. Separate Legal Entity:
• 4. Mutual Agency: all partners will be the
agents of the LLP alone. No one partner can
bind the other partner by his acts
• Registration is mandatory. LLP can sue and be
sued in its own name

46. • 5. LLP Agreement:
– Mutual rights and duties of the partners within a LLP
are governed by an agreement between the partners.
• 6. Artificial Legal Person:
• 7. Common Seal:
• 8. Limited Liability: The liability of the partners
will be limited to their agreed contribution in the
LLP.
• Minimum and Maximum number of Partners:
Every LLP shall have least two partners and shall
also have at least 2 individuals as designated
partners, of whom at least one shall be resident
in India. There is no maximum limit on the
partners in LLP.

47. • Investigation: The Central Government shall have
powers to investigate the affairs of an LLP by
appointment of competence authority for the purpose
• Documents LLP is required to file: (i) Annual statement
of accounts (ii) Statement of solvency (iii) Annual
return with the registration of LLP every year
• E-Filling of Documents: Every form or application of
document required to be filed or delivered under the
act and rules made thereunder, shall be filed in
computer readable electronic form on its website
www.mca.gov.in