INDIAN PARTNERSHIP ACT
- It is not quite easy to define the term ‘Partnership’. The definition given by Section 4 of the Act brings out very clearly the fundamental principle that each partner, when carrying on the business of the firm, is an agent as well as principal, and is probably the most business like definition of the term. The definition contains three elements which must be present before a group of persons can be held to be partners, namely; (a) agreement among all the partners; (b) agreement to share the profits of the business; (c) the business must be carried on by all or any of them, acting for all. These three elements may appear to overlap, but they are nevertheless distinct.
- The element of agreement in partnership distinguishes it from various other relations which arise by operation of law and not from agreement, such as, joint-owners, Hindu Undivided Family, etc.
- Partnership Vs. Joint Stock Company
|Basis of difierence||Partnership||Joint Stock Company|
|Legal status||A firm is not legal entity i.e., it has no legal personality distinct from the personalities of its constituent members.||A company is a separate legal entity distinct from its members (Salomon v. Salomon).|
|Agency||In a firm, every partner is an agent of the other partners, as well as of the firm.||In a company, a member is not an agent of the other members or of the company, his actions do not bind either|
|Distribution of profits||The profits of the firm must be distributed among the partners according to the terms of the partnership deed.||There is no such compulsion to distribute its profits among its members. Some portion of the profits, but generally not the entire profit, become distributable among the shareholders only when dividends are declared.|
|Extent of liability||In a partnership, the liability of the partners is unlimited. This means that each partner is liable for debts of a firm incurred in the course of the business of the firm and these debts can be recovered from his private property, if the joint estate is insucient to meet them wholly.||In a company limited by shares, the liability of a shareholder is limited to the amount, if any, unpaid on his shares, but in the case of a guarantee company, the liability is limited to the amount for which he has agreed to be liable. However, there may be companies where the liability of members is unlimited.|
|Property||The firm’s property is that which is the “joint estate” of all the partners as distinguished from the ‘separate’ estate of any of them and it does not belong to a body distinct in law from its members.||In a company, its property is separate from that of its members who can receive it back only in the form of dividends or refund of capital.|
|Transfer of shares||A share in a partnership cannot be transferred without the consent of all the partners.||In a company a shareholder may transfer his shares, subject to the provisions contained in its Articles. In the case of public limited companies whose shares are quoted on the stock exchange, the transfer is usually unrestricted.|
|Management||In the absence of an express agreement to the contrary, all the partners are entitled to participate in the management.||Members of a company are not entitled to take part in the management unless they are appointed as directors, in which case they may participate. Members, however, enjoy the right of attending general meeting and voting where they can decide certain questions such as election of directors, appointment of auditors, etc.|
|Registration||Registration is not compulsory in the case of partnership.||A company cannot come into existence unless it is registered under the Companies Act, 2013.|
|Winding up||A partnership firm can be dissolved at any time if all the partners agree.||A company, being a legal person is either wind up by the National Company law tribunal or its name is struck of by the Registrar of Companies.|
RELATIONS OF PARTNERS
- The mutual rights and duties of partners are regulated by the contract between them. Such contract need not always be expressed, it may be implied from the course of dealing between the partners (Section 11). Section 12 gives rules regulating the conduct of the business by the partners and Section 13 lay down rules of mutual rights and liabilities. Sections 14 to 17 also contain particular rules which become useful and important while determining the relations of partners to one – another. What is essential to note, however, is that all these rules are subject to contract between the parties.
- As regards third parties, a partner is the agent of the firm for all purposes within the scope of the partnership concern. His rights, powers, duties and obligations are in many respects governed by the same rules and principles which apply to the agent. Generally, he may pledge or sell the partnership property; he may buy goods on account of the firm; he may borrow money, contract debt and pay debts on account of the firm; he may draw, make, sign, endorse, accept, transfer, negotiate and get discounted promissory notes, bills of exchange, cheques and other negotiable papers in the name and account of the firm. The implied authority of the partner to bind the firm is restricted to acts usually done in the business of the kind carried on by the firm. He is also empowered under the Act to do certain acts in an emergency so as to bind the firm. The firm, however, is bound only by those acts of a partner which were done by him in his capacity as a partner.
- A partner may in some circumstances become liable on equitable grounds for obligations incurred by a copartner in doing acts in excess of his authority, real or implied. He may also become liable for an unauthorized act of his copartner on the ground of estoppel.
REGISTRATION AND DISSOLUTION OF A FIRM
- Registration of a firm is efiected by the Registrar of Firms by recording in the Register of Firms an entry of the statement relating to registration furnished to him. The Act does not make registration of the firm compulsory, yet the efiect of the rules relating to the consequences of non-registration is such as practically necessitates the registration of the firm at one time or other. Certain disabilities have been imposed on partners of an unregistered firm seeking to enforce certain claims in the Civil Courts. A firm which is not registered is not able to enforce its claim against third parties in the Civil Courts; and any partner who is not registered is not able to enforce his claim either against third parties or against the fellow partners. An unregistered partner may, however, sue for the dissolution of the firm or for accounts only if the firm is already dissolved.
- Dissolution of a firm means the breaking up or extinction of the relationship which subsisted between all the partners of the firm under various circumstances contemplated by Act. A partnership can be dissolved only in accordance with the manner prescribed under the Act.
LIMITED LIABILITY PARTNERSHIP ACT
- A LLP is a special type of partnership that can be used by business organizations owned by certain type of professionals such as Company Secretaries, Chartered Accountants, Cost Accountants, Lawyers, Engineers, Doctors, and Consultants etc., who are not allowed to use corporation form of entity to limit their liability. LLP is generally set up for carrying on a partnership consisting of partners carrying on practice in one or more eligible professions, etc.
- Since India has witnessed considerable growth in services sector and the quality of our professionals have been acknowledged internationally, It was necessary that entrepreneurship knowledge and risk capital combine to provide a further momentum to our impressive economic growth. It is likely that in the years to come Indian professionals would be providing accountancy, legal and various other professional/technical services to a large number of entities across the globe. Such services would require multidisciplinary combinations that would ofier a menu of solutions to international clients. In view of all this, the concept of LLP came into existence. LLP framework could be used for many enterprises, such as:-
- Persons providing services of any kind
- Enterprises in new knowledge and technology based fields where the corporate form is not suited.
- For professionals such as Chartered Accountants (CA), Cost and Management Accountants (CMA), Company Secretaries (CS) and Advocates, etc.
- Venture capital funds where risk capital combines with knowledge and expertise.
- Professionals and enterprises engaged in any scientific, technical or artistic discipline, for any activity relating to research production, design and provision of services.
- Small Sector Enterprises
- Producer Companies in Handloom, Handicrafts sector.
- LLP has partners but no directors or shareholders. The major constituents of a LLP are its partners who are the ultimate owners.