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Unit 10: Law of Partnership Act

partnership,” (LLP) she added. “But what is LLP?” asked China. Ha, that’s why she loved Notes
China. The walking encyclopaedia had no inhibitions about seeking a clarification on a

doubt, if he had one.
“A limited liability partnership is a form of organisation which shields a partner’s assets
from limitless liabilities that may accrue from the omissions and commissions of other
partners,” answered Wafers. Not for nothing was Wafers considered strong in law. “In
LLP, every partner will be an agent of the partnership and not of the other partners,”
she added. “Isn’t this a merger of the partnership form of organisation and the company
form?” remarked China.
“Exactly,” said Wafers. “It promises perpetual succession and a distinct legal identity were
it to become law. Further, it requires only a minimum of two partners, having no cap on the
maximum number of partners a firm can have,” she added. “Sec.11,” said China hurriedly,

“of the Companies Act bars the formation of a partnership consisting of more than 20
persons. Won’t the firm have to register itself as a company?” “Yes and No.” said Wafers

“If LLP becomes law, Sec.11 will have to be amended. The idea is to make LLP a vehicle
for business expansion.
“How?” asked Muskan. Replied Wafers, “Because of the legal stipulation of unlimited
liability among partners, Indian partnerships are mostly restricted to family members and
persons who know each other thoroughly.” She added, “LLP being a form of partnership
having characteristics of a company will limit liability in the case of business failure or
professional negligence litigation to the partner responsible.” “You mean, only the negligent

partner will be penalised and not the whole firm,” asked China. “Yes,” said Wafers.
China played the devil’s advocate. “Is it possible to prove that only a particular partner was
negligent and not the others?” Wafers replied, “They will have to divide work amongst
themselves appropriately. This could create disputes between partners, but crystal clear
division of duties between partners will go a long way in reducing the same.”
“Excellent,” said Muskan. “The LLP form of organisation would help the small and medium
practitioners by encouraging networking and specialisation of functions.”
Wafers had a word of caution, “The decision to go for LLP will be based on the interplay of

costs and benefits.” China continued his black hat thinking, “Other forms of organisation
are tried and tested. Why then should one go for something new?” Wafers answered this
question philosophically quoting John Rockefeller, “If you want to succeed, you should
strike out new paths rather than travel the worn out paths of accepted success.” China
smiled.

Question
Comment on “A partnership is the relationship between persons who have agreed to share

the profits of a business carried on by all or anyone of them acting for all”. (Hints: Refer
partnership act).

10.6 Summary

z A partnership is defined as “the relationship between persons who have agreed to share

profits of a business carried on by all, or by any of them acting for all”.

z A club is an association of persons with the objective of promotion of some benefi cial or
social object such as promotion of health or providing recreation for its members. The
minimum number of persons required to form a partnership is 2.

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