BL
Unit 4Partnership Laws Q1) What is Partnership Act and its characteristics?A1) CONCEPT PARTNERSHIPIn India, we've a particular law that covers all factors and functioning of a partnership, The Indian Partnership Act 1932. The act also defines a partnership as “the relation between two or more persons who have agreed to share the profits from a business carried on by either all of them or any of them on behalf of/acting for all”So in such a case two or more (maximum numbers will differ consistent with the business being carried) persons close as a unit to realize some common objective. and therefore the profits earned in pursuit of this objective are going to be shared amongst themselves.The entity is collectively called a “Partnership Firm” and every one the person members are the “Partners”. So allow us to check out some important features. CHARACTERISTICS OF A PARTNERSHIP1] Formation/ContractA partnership firm is not a separate legal entity. But consistent with the act, a firm must be fashioned via a legal agreement between all the partners. So a contract must be entered into to make a partnership firm.Its commercial activity must be lawful, and therefore the motive has got to be one among profit. so two people forming an alliance to hold out charity and/or welfare work won't constitute a partnership. Similarly, a partnership contract to scoop illegal work, like smuggling, is void also.2] Unlimited LiabilityIn a unique feature, all partners have unlimited liability within the business. The partners are all individually and jointly responsible for the firm and therefore the payment of all debts. this suggests that even personal assets of a partner are often liquidated to satisfy the debts of the firm.If the cash is recovered from one partner, he can, in turn, sue the opposite partners for his or her share of the debt as per the contract of the partnership.3] ContinuityA partnership cannot perform in perpetuity. The death or retirement or bankruptcy or insolvency or insanity of a partner will dissolve the partnership. The remaining partners may continue the partnership if they so choose, but a replacement contract must be involved . Also, the partnership of a father can't be inherited by his son. If all the opposite partners agree, he are often added on as a replacement partner.4] Number of MembersAs we all know that there should be a minimum of two individuals for a partnership. However, the utmost number will vary consistent with a couple of conditions. The Partnership Act itself is silent on this issue, but the businesses Act, 2013 provides clarity.For a banking business, the amount of partners must not exceed ten. For a business of the other nature, the utmost number is twenty. If the amount of partners increases it'll become an illegal entity or association.5] Mutual AgencyIn a partnership, the business must be administered by all the partners together. Or alternatively, it are often administered by any of the partners (one or several) acting for all of them or on behalf of all of them. So this suggests every partner is an agent as properly because the principal of the partnership.He represents the opposite partners in some cases so he's their agent. But in several circumstances, he's bound by the actions of any of the opposite partners asking him the principal also.Q2) Explain the different types of partner.A2) Active Partner: Because the name suggests he takes active participation within the business of the firm. He contributes to the capital, features a share within the income and also participates within the daily activities of the firm. His liability within the company are going to be unlimited. And he often will act as an agent for the opposite partners.Dormant Partner: Also referred to as a silent partner, he won't participate within the daily functioning of the business. But he will still need to make his share of contribution to the capital. In return, he will have a share within the profits. His liability will additionally be unlimited.Secret Partner: Here the partner’s association with the firm isn't general knowledge. He won't signify the firm to outside agents or parties. aside from this his participation with reference to capital, profits, management and liability are going to be an equivalent as all the opposite partners.Nominal Partner: This partner is solely a partner in name only. He allows the firm to use the name of his firm, and therefore the connected goodwill. But he in no way contributes to the capital and hence has no share within the profits. He doesn't involve himself within the firm’s business. But his liability too are going to be unlimited.Partner by Estoppel: If an individual makes it bent be, through their conduct or behaviour that they're partners during a firm and he doesn't correct them, then he becomes a partner by estoppel. However, this partner too will have unlimited liability. Q3) What are the different types of partnership?A3) TYPES OF PARTNERSHIPSVarious sorts of partnerships exist, including limited partnership, indebtedness partnership, joint liability, indebtedness , and joint ventures. the foremost important thing to know is that partnerships are agreements between two or more parties to realize a specific business goal. General partnerships are: Equal agreementsVarious responsibilities are often delegated among members.Partnerships force all parties to share sure risks and rewards during business endeavours.For instance, a partner can handle the investment angle by pouring capital within the business, while another can act during a management capacity. additionally , one partner can bind group partners into one legal obligation. Under partnerships, each party takes responsibility for individual obligations or debts.Limited Partnerships (LPs) A limited partnership allows each partner to avoid personal liability to the quantity of his or her business investment. Such an appointment requires one individual to require the role of general status, opening his or herself up to potential personal liabilities, while the limited partner takes less of a risk. However, the accepted partner retains control of the business, and therefore the limited partner is usually not involved in management operations.Limited Liability Partnerships (LLP) LLPs accompany tax advantages within the same manner as general partnerships combined with liability protections. for instance , individuals aren't liable for any debts or liabilities arising from the business. LLPs are usually found among law or accounting partnerships. Where taxation cares , the IRS recognizes such businesses as partnerships and approves members to file taxes individually on personal returns. GPs, LLPs, and LPs are taxed within the same manner, however partnerships don't pay taxes.LLPs permit members to figure together while retaining a measure of independence when it involves liability. With that, not all parties are held equally responsible, and other members aren't held responsible for the actions of others. Before engaging in any sort of partnership, know the terms before agreeing or signing any document.Limited Liability Protection If you're concerned about indebtedness protection, remember that general partnerships don't afford you any protective measures. during a general capacity, partners are often held liable for movements or decisions of other partners. General partnerships pose the very best risk to general partners, but they're the simplest to make . LLCs became a well-liked alternative to general partnerships. LLCs are ideal for those that wish to take a position during a business, but don't want face exposure to any legal ramifications.Joint Ventures as Partnerships According to the tiny Business Administration, a venture is another sort of partnership. Joint ventures occur when a variety of entities converge in pursuit of a group goal. for instance , businesses may forge a partnership to construct a building.Qualified joint ventures are a special partnership that permits spouses to co-own a business but to file separate returns to avoid partnership returns.Joint Liabilities A joint liability partnership holds all partners equally responsible for any financial and legal issues. Joint liability partnerships bind all parties into equal liability. Moreover, each party are often held responsible in pending lawsuits or other legal consequences. Joint liabilities are different than several liability principles within the respect that partnerships are persisted equal footing in the least times.Several liability, on the opposite hand, is that the agreement to settle any legal disputes and is predicated on a partner’s standing or contribution to a partnership.Limited Liability Company A Limited Liability company (LLC) offers each the foremost benefits and therefore the most protection for a business owner.A Limited liability company allows members to forge one entity while taking benefits of liability protection. LLCs provide equivalent tax havens as partnerships, but with the brought liability benefits of an organization. Corporate law dictates that corporations are held responsible for start-up investments only. for instance , a $10 million business doesn't give others the proper to sue you for over $2 million if you started that business for less than $2 million.The LLC provides for an equivalent tax protection as a partnership, but also gives the liability protection of an organization. Under corporate law, an organization is merely responsible for the entire start-up investment within the company. Also, certain states allow members to make what's recognized as knowledgeable LLC, which provides certain professionals like doctors or lawyers more limitations than regular businesses. Q4) What are the rights of partner?A4) RIGHTS OF PARTNERS:Broadly, the provisions of the Act regarding rights, responsibilities and powers of partners are as under:(a) Every partner features a right to require part within the habits and management of business.(b) Every partner features a right to be consulted and heard altogether matters affecting the business of the partnership.(c) Every partner features a right of free access to all or any records, books and accounts of the business, and additionally to look at and replica them.(d) Every partner is entitled to share the profits equally.(e) A partner who has contributed quite the agreed share of capital is entitled to interest at the speed of 6 per cent once a year . But no interest are often claimed on capital. (f) A associate is entitled to be indemnified by the firm for all acts done by him within the direction of the partnership business, for all payments made by him in respect of partnership debts or liabilities and for expenses and disbursements made in an emergency for shielding the firm from loss provided he acted as an individual of normal prudence would have acted in similar circumstances for his own personal matters .(g) Every partner is, as a rule, joint owner of the partnership property. he's entitled to possess the partnership property used exclusively for the needs of the partnership.(h) A partner has power to act in an emergency for shielding the firm from loss, but he must act reasonably.(i) Every partner is entitled to stop the introduction of a replacement partner into the firm without his consent.(J) Every partner features a right to retire consistent with the Deed or with the consent of the opposite partners. If the partnership is at will, he can retire by giving note to other partners.(k) Every partner features a right to continue within the partnership.(l) A retiring partner or the heirs of a deceased partner are entitled to possess a share within the profits earned with the help of the proportion of assets belonging to such outgoing partner or interest at six per cent once a year at the choice of the outgoing partner (or his representative) until the accounts are finally settled. Q5) What are the duties of partners?A5) DUTIES OF PARTNERS:(a) Every partner is sure to diligently raise on the business of the firm to the best common advantage. Unless the agreement provides, there's no salary.(b) Every partner must be just and faithful to the opposite partners.(c) A partner is sure to keep and render true, proper, and proper accounts of the partnership and must permit other partners to see out and replica such accounts.(d) Every partner is sure to indemnify the firm for any loss prompted by his delinquency or fraud within the conduct of the business.(e) A partner need to not keep it up competing business, nor use the property of the firm for his private purposes. In each cases, he must fork over to the firm any profit or gain made by him but he must himself suffer any loss which may have occurred.(f) Every partner is sure to share the losses equally with the others.(g) A partner is sure to act within the scope of his authority.(h) No partner can assign or transfer his partnership interest to the other person so on make him a partner within the business. Q6) What are the modes of dissolution of partnership?A6) DISSOLUTIONWhen the partnership between all the partners of a firm is dissolved, then it's called dissolution of a firm. it's important to word that the connection between all partners should be dissolved for the firm to be dissolved. allow us to check out the legal provisions for the dissolution of a firm.The dissolution of a firm means discontinuance of its activities. When the working of a firm is stopped and therefore the assets are realized to pay a variety of liabilities it amounts to dissolution of the firm. The dissolution of a firm shouldn't be confused with the dissolution of partnership. When a partner agrees to continue the firm underneath an equivalent name, even after the retirement or death of a partner, it amounts to dissolution of partnership and not of firm.The remaining partners may purchase the share of the outgoing or deceased partner and proceed the business under an equivalent name; it involves solely the dissolution of partnership. The dissolution of firm includes the dissolution of partnership too. The partners have a contractual relationship among themselves. When this relationship is terminated it's an end of the firm.A firm could also be dissolved under the subsequent circumstances:(a) Dissolution by Agreement (Section 40):A partnership firm is often dissolved by an agreement among all the partners. Section 40 of Indian Partnership Act, 1932 approves the dissolution of a partnership firm if all the partners agree to dissolve it. Partnership concern is created by settlement and similarly it are often dissolved by agreement this sort of dissolution is understood as voluntary dissolution.(b) Dissolution by way of Notice (Section 43):If a partnership is at will, it are often dissolved by any partner giving a notice to other partners. The notice for dissolution must be in writing. The dissolution are going to be effective from the date of the notice, just in case no date is mentioned within the notice, then it'll be dissolved from the date of receipt of notice. A notice as soon as given can't be withdrawn without the consent of all the partners.(c) Compulsory Dissolution (Section 41):A firm could also be compulsorily dissolved beneath the subsequent situations:(i) Insolvency of Partners:When all the partners of a firm are declared insolvent or about one partner are insolvent, then the firm is compulsorily dissolved.(ii) Illegal Business:The activities of the firm may find yourself illegal under the changed circumstances. If government enforces prohibition policy, then all the firms dealing in liquor will need to close their business because it'll be an unlawful undertaking under the new law. Similarly, a firm could also be trading with the businessmen of the other country. The trading are going to be lawful under present conditions.After a while a war erupts between the 2 countries, it'll become a trading with an alien enemy and further trading with an equivalent events are going to be illegal. Under new circumstances the firm will need to be dissolved. just in case a firm carries on quite one sort of business, then illegality of 1 work won't amount to dissolution of the firm. The firm can continue with the activities which are lawful. (d) Contingent Dissolution (Section 42):In case there's no agreement among partners associated with certain contingencies, partnership firm are going to be dissolved on the happening of any of the situations:(i) Death of a Partner:A partnership firm is dissolved on the demise of any of the partner.(ii) Expiry of the Term:A partnership firm could also be for a hard and fast period. On the expiry of that period, the firm is going to be dissolved.(iii) Completion of Work:A partnership concern could also be formed to hold out a specified work. On the completion of that employment the corporate are going to be automatically dissolved. If a firm is made to construct a road, then the second the road is completed the firm are going to be dissolved.(iv) Resignation by Partner:If a partner doesn't want to continue within the firm, his resignation from the priority will dissolve the partnership.(e) Dissolution via Court (Section 44):A partner can apply to the court for dissolution of the firm on any of those grounds:(i) Insanity of a Partner:If a partner goes insane, the partnership firm are often dissolved on the petition of various partners. The firm isn't automatically dissolved on the insanity of a partner. The court will act only on the petition of a partner who himself isn't insane.(ii) Misconduct by the Partner:When a partner is guilty of misconduct, the opposite partners can move the court for dissolution of the firm. The misconduct of a partner brings bad name to the firm and it adversely affects the reputation of the priority . The misconduct are often in business or otherwise. If a partner is jailed for committing a theft, it'll also affect the great name of the firm though it's nothing to try to with the business.(iii) Incapacity of a Partner:If a partner aside from the suing partner becomes incapable of performing his duties, then partnership is often dissolved.(iv) Breach of Agreement:When a partner will fully commits breach of agreement concerning business, it'll become a ground for getting the firm dissolved. Under such a situation it becomes hard to hold on the business smoothly. (v) Transfer of Share:If a partner sells his share to a 3rd party or transfers his share to a different person permanently, other partners can pass the court for dissolving the firm.(vi) Regular Losses:When the firm can't be carried on profitably, then the firm are often dissolved. Though there can also be losses in every sort of business but if the firm is incurring losses continuously and it's impossible to run it profitably, then the court can order the dissolution of the firm.(vii) Disputes amongst Partners:Partnership firm is predicated on mutual faith. If partners don't have faith one another , then it'll not be possible to run the business. When the partners quarrel with every other, then the very basis of partnership is lost and it'll be better to dissolve it.Following are the ways during which dissolution of a partnership firm takes place:1. Dissolution by AgreementA firm could also be dissolved if all the partners comply with the dissolution. Also, if there exists a contract between the partners regarding the dissolution, the dissolution may happen in accordance with it.2. Compulsory DissolutionIn the following cases the dissolution of a corporation takes place compulsorily:• Insolvency of all the partners or about one partner as this makes them incompetent to enter into a contract.• When the business of the firm becomes illegal thanks to some reason.• When thanks to some event it turns into unlawful for the partnership firm to hold its business. for instance , a partnership firm features a companion who is of another country and India declares war against that country, then he becomes an enemy. Thus, the business becomes unlawful.3. When certain contingencies happenThe dissolution of the association takes place subject to a contract among the partners, if:• The firm is made for a hard and fast term, on the expiry of that term.• The firm is made to hold out specific venture, on the completion of that venture.• A partner dies.• A partner becomes insolvent.4. Dissolution by NoticeWhen the partnership is at will, the dissolution of a firm may happen if anybody of the partners gives a word in writing to the opposite partners stating his intention to dissolve the firm.5. Dissolution by CourtWhen a partner files a suit within the court, the court may order the dissolution of the corporate on the idea of the subsequent grounds:• In the case where a partner becomes insane• In the case the place a partner becomes permanently incapable of performing his duties.• When a partner will become guilty of misconduct and it affects the firm’s business adversely.• When a partner continually commits a breach of the partnership agreement.• In a case where a partner transfers the entire of his interest within the partnership company to a 3rd party.• In a case where the business can't be carried on barring at a loss• When the court regards the dissolution of the firm to be just and equitable on any ground. Q7) Explain “The Limited Liability Partnership Act, 2008” and the Salient Features of LLPA7) A limited liability Partnership or LLP is an alternate corporate business form which offers the advantages of limited liability to the partners at low compliance costs. It also allows the partners to arrange their internal structure sort of a traditional partnership. A limited liability partnership may be a legal entity, responsible for the complete extent of its assets. The liability of the partners, however, is restricted. Hence, LLP may be a hybrid between a corporation and a partnership.SALIENT FEATURES OF LLPLLP may be a body corporateAccording to Section 3 of the Limited Liability Partnership Act (LLP Act), 2008, an LLP may be a body corporate formed and incorporated under the Act. it's a legal entity break away its partners.Perpetual SuccessionUnlike a partnership firm, a limited liability partnership can proceed its existence even after the retirement, insanity, insolvency or maybe death of 1 or more partners. Further, it can enter into contracts and hold property in its name. Separate Legal EntityIt is a separate legal entity. Further, it's absolutely responsible for its assets. Also, the liability of the partners is restricted to their contribution in the LLP. Hence, the lenders of the limited liability partnership aren't the creditors of individual partners.Mutual AgencyAnother difference between an LLP and a partnership firm is that independent or unauthorized actions of 1 partner don't make the opposite partners liable. All partners are agents of the LLP and therefore the actions of 1 partner don't bind the others.LLP AgreementThe rights and duties of all partners are governed by an agreement between them. Also, the partners can devise the agreement as per their choice. If such an agreement isn't made, then the Act governs the mutual rights and duties of all partners.Artificial Legal PersonFor all legal purposes, an LLP is a man-made legal person. it's created by a legal process and has all the rights of a private . it's invisible, intangible and immortal but not fictitious since it exists.Common SealIf the partners decide, the LLP can have a standard seal [Section 14(c)]. it's not mandatory though. However, if it decides to possess a seal, then it's necessary that the seal remains under the custody of a responsible official. Further, the harbour seal are often affixed only within the presence of a minimum of two designated partners of the LLP.Limited LiabilityAccording to Section 26 of the Act, every partner is an agent of the LLP for the aim of the business of the entity. However, he's not an agent of other partners. Further, the liability of every partner is restricted to his agreed contribution within the limited liability Partnership.Minimum and Maximum Number of PartnersEvery limited liability Partnership got to have a minimum of two partners and a minimum of two individuals as designated partners. At any time, a minimum of one designated partner should be resident in India. there's no maximum limit on the amount of maximum partners within the entity.Management of BusinessThe partners of the limited liability Partnership can manage its business. However, only the certain partners are liable for legal compliances.Business for Profit OnlyA indebtedness Partnership can't be created for charitable or non-profit purposes. it's essential that the entity is made to hold on a lawful business with a view to incomes a profit.InvestigationThe power to research the affairs of a limited liability Partnership resides with the Central Government. Further, they will appoint a competent authority for an equivalent.Compromise or ArrangementAny compromise or arrangement sort of a merger or amalgamation desires to be in accordance with the Act.Concept of LLP: limited liability Partnership enterprise, the planet wide recognized sort of business, has now been brought in India by enacting the limited liability Partnership Act, 2008. LLP Act was notified on 31.03.2009.A limited liability Partnership, popularly referred to as LLP combines the benefits of both the corporate and Partnership into one sort of organization. Limited liability Partnership (LLP) may be a new corporate form that permits expert knowledge and entrepreneurial skill to mix, organize and operate in an revolutionary and proficient manner.It provides an alternate to the normal partnership association with unlimited liability. By incorporating an LLP, its members can avail the advantage of limited liability and therefore the flexibility of organizing their internal management on the idea of a mutually-arrived agreement, as is that the case during a partnership firm. CHARACTERISTICS OF AN LLP:1. LLP is governed by way of the limited liability Partnership Act 2008, which has inherit force with effect from April 1, 2009. The Indian Partnership Act, 1932 isn't applicable to LLP.2. LLP may be a body incorporate and a legal entity break away its partners having perpetual succession, can own assets in its name, sue and be sued.3. The partners have the proper to manage the business directly, unlike corporate shareholders.4. One partner isn't responsible or in charge of another partner’s, misconduct or negligence.5. Minimum of two partners and no maximum limit.6. Should be ‘for profit’ business.7. The rights and duties of partners in an LLP, are going to be governed by the agreement between partners and therefore the partners have the pliability to plan the agreement as per their choice. The duties and obligations of Designated Partners shall be as provided within the law. 8 Limited liability of the partners to the extent of their contributions within the LLP. No exposure of private assets of the partner, except in cases of fraud.9. LLP shall maintain annual accounts. However, audit of the accounts is required solely if the contribution exceeds Rs. 25 lakh or annual turnover exceeds Rs. 40 lakh. a press release of accounts and solvency shall be filed by every LLP with the Registrar of Companies (ROC) per annum . NATURE OF LIMITED LIABILITY PARTNERSHIPLimited Liability Partnership to be body corporate.—(1)A indebtedness partnership may be a body corporate formed and incorporated under this Act and may be a legal entity breaks away that of its partners.(2) A limited liability partnership shall have perpetual succession.(3) Any change within the partners of a limited liability partnership shall not affect the existence, rights liabilities of the limited liability partnership.4. Non-applicability of the Indian Partnership Act, 1932.—Save as otherwise provided, the provisions of the Indian Partnership Act, 1932 (9 of 1932) shall not apply to a limited liability partnership.5. Partners.—Any individual or body corporate could also be a partner during a limited liability partnership:Provided that a private shall not be capable of becoming a partner of a limited liability partnership, if—(a) he has been found to be of unsound mind by a Court of competent jurisdiction and therefore the finding is in force;(b) he's an discharged insolvent; or(c) he has applied to be adjudicated as an insolvent and his application is pending.6. Minimum number of partners.(1) Every limited liability partnership shall have a minimum of two partners.(2) If at any time the amount of partners of a limited liability partnership is reduced below two andthe limited liability partnership carries on business for quite six months while the amount is so reduced, the person, who is that the only partner of the limited liability partnership during the time that it so carries on business after those six months and has the knowledge of the very fact that it's carrying on business with him alone, shall be liable personally for the obligations of the limited liability partnership incurred during that period.
0 matching results found