limited Liability Partnership Settlement Scheme, 2020’, Partnership and Founders, limited liability partnership (LLP)

Partnership and Founders


Partnership

A partnership is the relationship between persons who have agreed to share the profits of a business carried on by all or any of them acting or all. In India it is governed by the Indian Partnership Act, 1932, which extends to the whole of India except the State of Jammu and Kashmir. It came into force on 1st October 1932.

A partnership agreement can be entered into between persons who are competent to contract. Every person who is of the age of majority according to the law to which he is subject and who is of sound mind and is not disqualified from contracting by any law to which he is subject can enter into a partnership.

Partners are bound to carry on the business of the firm to the greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner or his legal representative. Each partner is in contemplation of law, the general agent of the partnership. He may buy or

sale the goods on account of partnership, contract debts, pay debts, draw, make, endorse bills of exchange, cheque etc.

When a partner in a firm is adjudicate 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 dissolve.

A deed of partnership, or of dissolution of partnership, must be executed and attest as a bond, and

its registration is no compulsory; but where a deed of dissolution of a firm involves transfer of immovable property worth of Rs. 100 or upwards, the deed is compulsorily registerable.

Who can enter into the partnership?

The following can enter into a partnership

  • Individual: An individual, who is competent to contract, can become a partner in the partnership firm. If there are more than two partners in a firm, an individual can be a partner in his individual capacity as well as in a representative capacity as Karta of the Hindu undivided family.
  • Firm: A partnership firm is not a person and therefore a firm can not enter into partnership with any firm or individual. But a partner of the partnership firm can enter into partnership with other persons and he can share the profits of the said firm with his other co-partners of the parent firm.
  • Hindu Undivided Family: A Karta of the Hindu undivided family can become a partner in a partnership in his individual capacity, provided the member has contributed his self acquired or personal skill and labor.
  • Company: A company is a juristic person and therefore can become a partner in a partnership firm, if it is authorized to do so by its objects.
  • Trustees: Trustees of private religious trust, family trust and trustees of Hindu mutts or other religious endowments are juristic persons and can therefore enter into partnership, unless their constitution or objects forbid.

Number of partners can enter into partnership

The number of partners in a firm shall not exceed 20 and a partnership having more than 20 persons is illegal. When there is partnership between two firms, all the partners of each firm will be taken into account. If the partnership is between the karta or

member of Hindu undivided family the members of the joint Hindu family will not be taken into account.

The essentials of partnership

Essentials of a Partnership

  • Agreement – The relationship between partners arises from contract and not status. If after the death of sole proprietor of a firm, his heirs inherit firm they do not become partners, as there is no agreement between them.
  • Sharing of Profits – The partners may agree to share profits out of partnership business, but not share the losses. Sharing of losses is not necessary to constitute the partnership. The partners may agree to share the profits of the business in any way they like.
  • Business – Business includes every trade, occupation, or profession. There must be course of dealings either actually continue or contemplate to be continue with a profit motive and not for sport or pleasure.
  • Relation Between Partners – The partner while carrying on the business of the partnership acts a principle and an agent. He is a principal because he acts for himself, and he is an agent as he simultaneously acts for the rest of the partners.

General duties of a partner

Subject to a contract to the contrary between the partners the following are the duties of a partner.

  • To carry on the business of the firm to the greatest common advantage. Good faith requires that a partner shall not obtain a private advantage at the expense of the firm. Where a partner carries on a rival business in competition with the partnership, the other partners are entitle to restrain him.
  • To be just and faithful. Partnership as a rule is presume to be based on mutual trust and confidence of each partner, not only in the skill and knowledge, but also in the integrity, of each other partner
  • To render true accounts and full information of all things done by them to their co-partners.
  • To indemnify for loss caused by fraud. Every partner shall indemnify the firm for loss caused to it
  • by his fraud in the conduct of the business of the firm.
  • Not to carry on business competing with the firm. If a partner carries on any business of the same nature as and competing with that of the firm, he shall account for and
  • pay to the firm all profits made by him in that business.
  • To indemnify the firm for willful neglect of a partner. A partner shall indemnify the firm for any loss caused to it
  • by his willful neglect in the conduct of the business of the firm.
  • To carry out the duties created by the contract. The partners are bound to perform all the duties create by the agreement between the partners.

Rights of the partner

Subject to a contract to the contrary a partner has the following rights.

  • To take part in the conduct and management of the business
  • To express opinion in matters connected with the business. He has a right to be consult and heard in all matters affecting the business of the firm
  • To have free access to all the records, books of account of the firm and take copy from them.
  • To share in the profits of the business. Every partner is entitle to share in the profits in proportion agree to between the parties.
  • To get interest on the payment of advance. Where a partner makes for he purpose of the business, any payment or
  • advance beyond the amount of capital he has agreed to subscribe, he is entitle to interest
  • thereon at the rate of 6% per annum.
  • To be indemnified by the firm against losses or expenses incurred by him for the benefit of the firm.

Reference:

https://learn.lawdocs.in/partnership-and-founders/


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