Indian Partnership Act, 1932 and LLP Act, 2008
Scope
This domain covers the Indian Partnership Act, 1932 and the Limited Liability Partnership Act, 2008. The exam tests the firm's legal nature, mutual agency, registration effects and the LLP's separate personality.
Partnership
Partnership (s 4) is the relation between persons who agree to share the profits of a business carried on by all or any of them acting for all. Its hallmarks are agreement, business, profit-sharing and mutual agency. A firm is not a separate legal person; partners have unlimited joint and several liability. Registration is optional, but an unregistered firm cannot enforce contractual rights in court against third parties, and its partners cannot sue for accounts or contribution, subject to s 69 exceptions. A minor may be admitted to benefits with the consent of all partners (s 30) but is not personally liable. Dissolution may be by agreement, notice, operation of law or court (ss 39-44).
LLP
An LLP is a body corporate with perpetual succession and a separate legal entity. Partners' liability is limited to their agreed contribution. Minimum two partners are required, with at least two designated partners, one resident in India. Incorporation requires filing with the Registrar, and the LLP agreement governs mutual rights. A partner is an agent of the LLP, not of other partners. Conversion of a firm into an LLP does not affect existing liabilities.
Worked example
A and B carry on business as 'AB Traders' and share profits equally. C supplies goods to B for the firm's business. A later claims C must sue only B. Because B acted in the ordinary course of the firm's business, mutual agency binds A; C may sue the firm and both partners. If the firm were unregistered, registration would affect the firm's ability to sue on the contract, not its liability to C.
Traps
Profit-sharing alone does not create a partnership; mutual agency must exist. Registration is not a condition precedent to existence. In an LLP, a partner is not the agent of another partner. Do not confuse designated partners with all partners.