Page 157 - DMGT407Corporate and Business Laws

Corporate and Business Laws

Notes Limited Partnership

In this type of partnership, the liability of certain partners is limited to the amount of capital
which they have agreed to contribute to the business. In a limited partnership, there will be at
least one general partner whose liability is unlimited and one or more special partners whose
liability is limited. This type of partnership is prevalent in USA and European countries. In
India, it is not available, though unsuccessful attempts have been made in the beginning of
nineties to enact Limited Partnership Act.

Illegal Partnership

A partnership can be formed for genuine business purposes which are not illegal or prohibited
by law. Thus, if a partnership is formed to carry on smuggling activities which are prohibited by
law, then such a partnership will be an illegal one. Section 11 of the Companies Act, 1956, defines
an “illegal association”. It provides that an association of more than 10 persons in case of
banking and more than 20 persons for other business, the object of which is the acquisition of
gains, must be registered either under the Companies Act or any other law. If it is not so
registered then the association shall be an illegal association. A partnership, being an association
of persons, has to follow s. 11 of the Companies Act, 1956. Therefore, a partnership cannot exceed
the maximum limit of partners, i.e., 10 in the case of banking business and 20 in the case of
non-banking business.
A partnership may be illegal in either of the following two ways: (i) by being formed to do an
illegal business, e.g., to carry on a business of illicit liquor; or (ii) where the number of partners
exceed the maximum, limit. An illegal partnership can, however, be sued. But in case where a
person contracts with such a firm knowing its illegal character, he cannot sue on such a contract.

Self Assessment

Fill in the blanks:

1. All the essential elements of a …………………must be present in a partnership as it is
based on an agreement.
2. In accordance with s.8, a ………………….partnership is one which is formed for a particular
adventure or a particular undertaking.

6.2 Registration of Firms (Ss.58-59)

6.2.1 Application for Registration

Section 58 lays down the procedure for registration of partnership firms. A partnership firm
may be registered at any time by post, or delivering to the Registrar of Firms of the area in
which any place of business of the firm is situated or proposed to be situated, a statement in the
prescribed form and accompanied by the prescribed fee, stating: (i) the firm’s name, (ii) the place
or the principal place of business of the firm, (iii) the names of any other places where the firm
carries on business, (iv) the date when each partner joined the firm, (v) the names in full and
addresses of the partners and (vi) the duration of the firm. The statement must be signed by all
the partners, or by their agents especially authorised in that behalf and duly verified. When the
Registrar of Firms is satisfied that the provisions of s.58 have been duly complied with, he
registers the firm by recording an entry of the statement in a register called the Register of Firms
and shall file the statement (s.59). He then issues under his hand a Certificate of registration.
Registration is effective from the date when the Registrar files the statement and makes entries
in the Register of Firms.

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