RIGHTS AND DUTIES OF PARTNERS IN

A PARNERSHIP FIRM & LLP

By : Ankur mishra on 18 July 2009 Print this

Report Abuse / Feedback

Top of Form
http://w w w .goog Articles

Name

Email

Subject

Message

Verify

Submit Reset

Bottom of Form

Note : The above form can be used to intimate the moderators regarding abuse of the platform.
 INTRODUCTION

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.
The subject of partnership is included in item 7 of the Concurrent List in the Seventh
Schedule to the Constitution of India and therefore, the parliament and the Legislature of
any state have the power to make laws with respect to this matter as provided in art 246 of
the constitution. The task of consolidating the many common law rules largely formulated in
the 18th and 19th centuries was performed by Sir Frederick Pollock who first drafted the
Partnership bill in 1879 and having amended it several times, saw it enacted as the
Partnership Act 1890 which has proved to be one of the most successful pieces of the
legislation in English law. The Indian Partnership Act has drawn its luminosity from the
English Act by enacting several similar substantive provisions. The Act defines and amends
the law relating to partnership but does not purport to completely codify it and the
unrepealed provisions of the Indian Contract Act, in so far as they are not inconsistent with
the Act, continue to apply to firms. The Act provides only a voluntary framework for
businessmen planning to use the medium of partnership and contains contracting out
provisions in s 11(1) and 13, which make mutual rights and liabilities of the partners,
subject to a contract between them. The definition of the expression ‘business’ under s 45
of the English Act is retained in s 2(b). The definition is not exhaustive. ‘Business’ would
include a single commercial adventure. Road building activity under a government contract
even in a single venture is a business activity. Thus virtually any commercial activity or
adventure amounts to a business for the purpose of the Act, but it is not every occupation,
which results in monetary gain that constitutes a business. A landowner does not carry on a
business although the management of his estate and collection of his rents may be his only
serious occupation. The term business is restricted to what is regarded by businessmen as
commercial or professional business.ie, calling in which men holds themselves out as willing
to sell goods or to provide skilled assistance or other service. Partnership is one of the
oldest forms of business relationships. Though limited liability companies have replaced
partnership firms in complex businesses, partnerships are still preferred by professionals
and small trading and business enterprises in India and abroad. The Indian partnership act
of 1932 provides for a general form of partnership which is the most prevalent form in
India, but, over time the general form of partnership has lost its charm because of the
inherent disadvantages in it, the most important is the unlimited liability of all partners for
business debts and legal consequences, regardless of their holding, as the firm is not a legal
entity. It has been suggested to us that the fundamental principle on which the Indian
Partnership Act is based, that a “firm” is not a legal entity, should be replaced by the
contrary principle which recognizes the firm as a legal person or legal entity, on the ground
that such a change would be useful to the business and commercial community as well as to
those who deal with a firm and that it would also simplify proceedings by and against a firm.
Thus questions for a long time engaged the attention of jurists, lawyers and textbook
writers in India, England and the United States of America. In England, it has been
suggested that the English law of Partnership should in this respect be assimilated to that of
Scotland which recognizes a firm as a legal or juristic person.

Definition of ‘partnership’, ‘partner’, ‘firm’, and ‘firm name’

The entire above are defined in sec 4 of The Indian Partnership Act 1932 as below:

‘Partnership’ is a relation between persons who have agreed to share the profits of a
business carried on by all or any of them acting for all. Persons who have entered into
partnership with one another are called individually ‘partners’ and collectively ‘a firm’, and
the name under which their business is carried on is called the ‘firm name’.

The definition of partnership now substituted for the condensed version of Kent’s, which
stood in the Contract Act, reproduces, with slight verbal alteration, a suggestion made long
ago by Sir F Pollock. His purpose then was to meet an objection of Sir G Jessel’s, which
seemed to him rather captious to the effect that persons who do not in fact bring any
property, labour or skill to the common undertaking, such as a deceased partner’s widow
admitted under a provision in the partnership articles may be partners. The answer in that
case appears to be that the share acquired by her is nonetheless hers, by virtue of being
given to her. It will be observed that the present section is confined, as a definition ought to
be, to stating the attributes, which are necessary and sufficient to identify any particular
example as a member of the class defined. Cautions, qualifications and exceptions, which
have to be attended to in applying the general conception, are properly left to come
afterwards. The fault of including too much is easy to commit, and has been committed by
several of the authors whose definitions are collected in the first chapter of Lindley. One
typical mistake is to add words about the object being lawful. It is not correct to say or
imply that partnership entered into for an unlawful purpose, or purposes, some of which are
unlawful, is not a partnership at all. One might as well say (contrary to the definition of
larceny in English law) that a thief does not have possession of the thing stolen. Under
common law legal systems, the basic form of partnership is a general partnership, in which
all partners manage the business and are personally liable for its debts. Two other forms
which have developed in most countries are the limited partnership , in which certain
"limited partners" relinquish their ability to manage the business in exchange for limited
liability for the partnership's debts, and the limited liability partnership , in which all
partners have some degree of limited liability.

There are two types of partners. General partners and silent partner general partner have
an obligation of strict liability to third parties injured by the Partnership. General partners
may have joint liability or joint and several liability depending upon circumstances. The
liability of limited partners is limited to their investment in the partnership. Whereas a silent
partner is one who still shares in the profits and losses of the business, but who is
uninvolved in its management, and/or whose association with the business is not publicly
known.

According to Civil Law: In civil law system, a partnership is a nominate contract between
individual who, in the spirit of corporation, agree to carry on an enterprise, contributing it
by combining property, knowledge and sharing the profit. Partner may have partnership
agreement or declaration of partnership and in some jurisdiction such agreement may be
registered and available for public inspection. In many civil law countries partnership is
considered to be a legal entity, although different legal system reach different conclusion.
In India: The definition of partnership was first given in section 239 of
Indian contract act 1872 as “Partnership is the relation which subsists
between persons who have agreed to combine their property, labour, skill in
some business and to share the profits thereof between them”. Later
partnership was separated from Bear act and older definition was
superseded, given as follows
According to the Section 4 of Indian Partnership Act of 1932, partnership is “the relation
between persons who have agreed to share the profits of a business carried on by all or any
of them acting for all”. Thus the present definition of Partnership act according to Indian
contract Act is much wider than previous definition because the 1932 definition adds the
concept of mutual agency.

In England: Partnership is the relation which subsists between persons

carrying on a business in common with a view of profit. The definition of
partnership is given by different personalities some of the definitions given
by them are as fellow Prof. Haney, “partnership is the relation existing
between persons, competent to make contracts, who have agreed to carry
on a lawful business in common with a view to private gain”. According to
Dr. William R.Spriegel, “partnership has two or more members, each of
whom is responsible for obligation of the partnership. Each of the partners
may bind the others and the assets of partners may be taken for the debts
of the partnership”. In the words of Kimball and Kimball, “A partnership or
firm as it is often called, is thus a group of men who have joined capital or
services for the prosecuting of some business”. Therefore, by going through
all the definition we can conclude that partnership is “that form of business
organization in which, partners agree to share the profits of a lawful
business, managed and carried on either by all or by any one of them acting
for all”.

The definition of ‘partnership’ contains three elements:

There must be an agreement entered into by all the persons concerned;

the agreement must be to share the profits of a business; and
the business must be carried on by all or any of the persons concerned, acting for all.
All these elements must be present before a group of associates can be held to be partners.
These three elements may appear to overlap, but they are nevertheless distinct. The first
element relates to the voluntary contractual nature of partnership; the second gives the
motive which leads to the formation of firms, i.e., the acquisition of gain; and the third
shows that the persons of the group who conduct the business do so as agents for all the
persons in the group, and are therefore liable to account for all.

The definition which stands in English Act, ‘the relation which subsists between persons
carrying on a business in common with a view of profit’, appears to be founded on the
following dictum of the Privy Council in an Indian case decided on the analogy of English
Law: ‘To constitute a partnership the parties must have agreed to carry on business and to
share profits in some way in common’. It will be observed that this definition does not
mention sharing as distinguished from making profits; and it has been suggested that in
England persons may be partners in an undertaking carried on by them in concert without
aiming at personal gain, or even on the express terms that none of them shall derive any
individual profits from it, and that the object of dividing profits, though almost always
important in fact, ‘points to the conclusion that it is rather an accident than of the essence
of the partnership relation’.

REGISTRATION OF PARTNERSHIP FIRMS

Registration of a firm is not compulsory, though usually done as registration brings many
advantages to the firm. Since Partnership Act is a concurrent subject as per the constitution
of India, the registration firms and the related works are handled by the State government
in each state. Section 71 authorises State government to make rules for prescribing fees for
filing documents with registrar prescribing forms of various forms of various statements and
intimations are to be made to registrar and regulating procedures in the office of the
registrar.

TYPES OF PARTNERSHIP FIRM

Different kinds of partnership may be explained as follows.

General or Unlimited Partnership

Limited Partnership
1. General or Unlimited Partnership
A partnership in which the liability of all the partners is unlimited is known as unlimited
partnership. All the partners can take part in the working of the business. In India, only this
kind of partnership exists. General partnership can be classified into three types such as
partnership-at-will, particular partnership and joint venture. They are discussed below.

a. Partnership–at–will
Partnership-at-will is a partnership which is formed to carry on business without specifying
any period of time. The life of such a partnership continues as long as the partners are
willing to continue it as such. The partnership can be terminated, if any partner notifies his
desire to quit.
b. Particular Partnership
It is a partnership established for a stipulated period of time or for the completion of a
specified venture. It automatically comes to an end with the expiry of the stipulated period
or on the completion of the specified venture, as the case may be. For example, a
partnership may be created for one year only. When the time lapses, the partnership comes
to an end.
c. Joint Venture
A joint venture is a temporary partnership which is formed to complete a specific venture or
job during a specified period of time. Every partner does not have the right of implied
agency. No
partner can withdraw his interest in the firm before the completion of the venture. For
example, a partnership is formed for the construction of a building. The partnership comes
to an end if the
construction is over.

2. Limited Partnership
A partnership in which the liability of the partner is limited is called limited partnership. The
Law does not permit the formation of a limited partnership in India. But in Europe and
U.S.A. and U.K limited partnership is allowed. A limited partnership firm must have at least
one partner whose liability is unlimited. The liability of remaining partners is limited. Thus
limited partnership consists of two types of partners, general partner and limited partner.

PARTNER CANNOT SUE IF FIRM IS UNREGISTERED - No suit to enforce

a right arising from a contract or conferred by this Act shall be instituted in
any court by or on behalf of any person suing as a partner in a firm against
the firm or an {person alleged to be or to’ have been a Partner in the fir}
unless the firm is registered and the person suing! is or has been shown in
the Register of Firms as a partner in the firm. [Section 69(1)]. - Thus, a
partner cannot sue the firm or any other” partner if firm is unregistered. - If
third party files suit against a partner, he cannot claim of set off or institute
other proceeding to enforce a right arising from a contract.- Suit or claim or
set off upto Rs 100 can be made as per section 69(4)(b), but it is negligible
in today’s standards. - Criminal proceedings can be filed, but civil suit is not
permissible.

UNREGISTERED FIRM CANNOT SUE THIRD PARTY - No suit to enforce a

right arising from a contract shall be instituted in any Court by or on behalf
of a firm against any third party unless the firm is registered and the
persons suing are or have been shown in the Register of Firms as partners in
the firm. [section 69(2)].- If third party files suit against the unregistered
firm, the firm cannot claim set off or institute other proceeding to enforce a
right arising from a contract. - Suit or claim or set off upto Rs 100 can be
made as per section 69(4)(b), but it is negligible in today’s standards. -
Criminal proceedings can be filed, but civil suit is not permissible.

GENERAL DUTIES OF A PARTNER

Subject to a contract to the contrary between the partners the following are the duties of a
partner according to section 9 of The Indian Partnership Act, 1932-

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 entitled to restrain him.

To be just and faithful. Partnership as a rule is presumed 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.

According to sec. 10 of the said act every partner shall 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 carry out the duties created by the contract. The partners are bound to perform all
the duties created by the agreement between the partners.

RIGHTS AND DUTIES OF THE PARTNERS

Determination of rights and duties of partners by contract between the partners:

Subject to the provisions of the Indian Partnership Act, the mutual rights and duties of the
partners of a firm may be determined by contract between the partners, and such contract
may be express or may be implied by a course of dealing. Such contract may be varied by
consent of all the partners, and such consent may be express or may be implied by a course
of dealing. [Section 11(1)]. Thus, partners are free to determine the mutual rights and
duties by contract. Such contract may be in writing or it may be implied by their actions.

According to section 17 of the said act, rights and duties of partners is subject to a contract
between the partners:

After a change in a firm- where a change occurs in the constitution of a firm, the
mutual rights and duties of the partners in the reconstituted firm remain the
same as they were immediately before the change.

After the expiry of the term of the firm- where a firm constituted for a fixed term
continues to carry on business after the expiry of that term, the mutual rights
and duties of the partners remain the same as they were before the expiry, so far
as they may be consistent with the incidents of partnership at will.

Where additional undertakings are carried out- where a firm constituted to carry out
one or more adventures or undertakings carries out other adventures or
undertakings are the same as those in respect of the original adventures or
undertakings.

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

consulted 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 entitled to share in the profits in
proportion agreed to between the parties.

To get interest on the payment of advance. Where a partner makes for the purpose of
the business, any payment or advance beyond the amount of capital he has agreed
to subscribe, he is entitled 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.

SPECIAL RIGHTS AND DUTIES OF THE PARTNERS

After the change of the firm-Where the change occurs in the constitution of a firm, the
mutual rights and duties of the partners in the reconstituted firm remain the same.

RELATIONS OF PARTNERS TO THIRD PARTIES

According to sec 18 of the Indian Partnership Act, a partner is the agent of the firm for the
purpose of the business of the firm.
This and the two following sections supersede sec 251 of the contract act by a much more
explicit statement , which closely resembles sec 5 of the English Act in form. For obvious
reasons, the summary statement of principle in sec 18 called for the expansion which is
supplied in sec 19 , and these two closely connected sections are here dealt with together
for the reader’s convenience. In Cox v. Hickman, Lord Wensleydale said:
So far if two or more agree that they should carry on a trade, and share the
profits of it, each is a principal, and each is an agent for the other, and each
is bound by the others contract in carrying on the trade, as much as a single
principal would be by the act of an agent who was to give the whole of the
profits to his employer. The settled position of law is that the act of the
partner of the firm can well be constructed as an act on behalf of all the
partners if the circumstances warrant such a conclusion. A firm is not
presumed conversely to be an agent of the individual partners. Payment to
one partner is in general a good payment to the firm , but the payment to
the firm of a private debt due to one partner is not a discharge unless it is
shown that the firm had in fact authority to receive it.
RESTRICTIONS ON AUTHORITY OF A PARTNER
Restrictions are governed by Contract and by the Partnership Act

The partners may by contract extend or restrict the implied authority of any partner.

Under the Partnership Act in the absence of any usage of trade to the contrary, the implied
authority of a partner does not empower him to do the following acts:

1-Submit a dispute relating to the business of a firm to arbitration.

2-Open a bank account in his own name.

3-Compromise or relinquish any claim of the firm.

3-Withdraw a suit or proceeding on behalf of the firm.

4-Admit any liability in a suit or proceeding against the firm.

5-Acquire immovable property on behalf of the firm.

6-Transfer immovable property belonging to the firm, or

7-Enter into partnership on behalf of the firm.

IMPLIED AUTHORITY OF PARTNER

The contract act provided that a partner has such authority as he would have if he were an
expressly appointed agent of the firm. Section 18 has adopted the more direct method of
the English Act and lays down that he is an agent. This is a clear improvement. The
generality of a partner’s authority as agent is not affected by the fact, where it is so, that
two Hindu partners are brothers or otherwise members of a joint Hindu family, they are on
an equal footing for the purposes of partnership law. Implied authority in Indian situation
arose for consideration by the Supreme Court and by the High court of Madras and Andhra
Pradesh. One of the partners entered into a contract for supply of dal, a purpose not
specifically enumerated as business of the firm. The Supreme Court noted ‘It was not the
case of partners that the firm was not carrying on the business of supply of dal. Another
fact found by the court was that the partner was authorized to do business on behalf of the
firm.’ In that factual setting the apex court held that the contract for the supply of dal,
though entered in only by one of the partners, would be binding on other partners of the
firm. In addition to the facts already found, the court held that the subsequent conduct of
the partners also constituted ratification of the contract. The Andhra Pradesh High Court in
Kalingala Sesha Giri Rao v. Kanneganti Dasiahi and anor, distinguished the decision, in that
case, the firm had as its objects, trade in rice, paddy and groundnut with the usual
processing of those articles. There was an express provision in the partnership deed
authorising them to deal in any other commodity as may be agreed upon by the partners.
The court held that the dealing in turmeric was beyond the implied authority under s 19(2),
particularly in view of the agreement by partners visualized under the deed, and when the
express agreement pleaded was found as not established.

LIABILITIES OF PARTNER
1. Every partner is liable for the debts of the firm to an unlimited extent, jointly and
severally.
2. A retiring partner is liable for all the debts incurred before his retirement
3. An incoming partner is liable only for the debts incurred by the firm after his admission
into the partnership.
4. In case of deceased partner, his legal representatives are liable only for the debts
incurred by the firm before his death.
5. In the case of minor partner, he is not personally liable for the debts of the firm. Only his
share in the profits and assets of the partnership is liable for the debts of the firm.
6. Every partner is liable to make good the loss that the firm or other partners suffer as a
result of his negligence.
RIGHTS OF A MINOR
1. A person who is a minor according to the law to which he is subject
may not be a partner in a firm, but, with the consent of all the partners
for the time being, he may be admitted to the benefits of partnership.
2. Such minor has a right to such share of the property and of the profits
of the firm as may be agreed upon, and he may have access to and
inspect and of the accounts of the firm.
3. Such minors share is liable for the acts of the firm, but the minor is not
personally liable for any such act.
 4. Such minor may not sue the partners for an account or payment of his
share of the property or profits of the firm
5. At any time within six months of his attaining majority, or of his
obtaining knowledge that he had been admitted to the benefits of
partnership, whichever date is later, such person may give public
notice that he has elected to become or that he has elected not to
become a partner in the firm, and such notice shall determine his
position as regards the firm, provided that, if he fails to give such
notice, he shall become a partner in the firm on the expiry of the said
six months.
6. Where any person has been admitted as a minor to the benefits of
partnership in a firm, the burden of proving the fact that such person
had no knowledge of such admission until a particular date after the
expiry of six months of his attaining majority shall lie on the person
asserting that fact.
7. Where such person becomes a partner-

a. His rights and liabilities as a minor continue upto the date on

which he becomes a partner, but he also becomes personally
liable to third parties for all acts of the firm done since he was
admitted to the benefits of the partnership, and
b. His share in the property and profits of the firm shall be the
share to which he was entitled as a minor.
8. Where such person elects not to become a partner-

a. His rights and liabilities shall continue to be those of a minor up

to the date on which he gives public notice,
His share shall not be liable for any acts of the firm done after the date of the
notice, and he shall be entitled to sue the partners for his share of the
property and profit.

DISSOLUTION OF FIRMS
Dissolution comes under sec 39 of Indian Partnership Act. This signifies the dissolution of a
partnership between the partners of a firm is called the “Dissolution of the Firm”. As per
section 4, Partnership is the relation between persons who have agreed to share profits of
business carried on by all or any of them acting for all. Thus, if some partner is
changed/added/ goes out, the ‘relation’ between them changes and hence ‘partnership’ is
dissolved, but the ‘firm’ continues. Hence, the change is termed as ‘reconstitution of firm’.
However, complete breakage between relations of all partners is termed as ‘dissolution of
firm’. After such dissolution, the firm no more exists. Thus, ‘Dissolution of partnership’ is
different from ‘dissolution of firm’. ‘Dissolution of partnership’ is only reconstruction of firm,
while ‘dissolution of firm’ means the firm no more exists after dissolution. Dissolution of
partnership, firm might be dissolved by any partner giving notice in writing to all the
partners of his intentions to dissolve the firm.
DISSOLUTION OF AN AGREEMENT- This comes under sec 40 of Indian
Partnership Act. A firm may be dissolved with the consent of all the partners
or in accordance with a contract between the partners.
COMPULSARY DISSOLUTION- This comes under sec 41 of Indian
Partnership Act. A firm is dissolved under the following circumstances-:
(1)By the adjudication of all partners or of all the partners but one is insolvent.
(2)By the happening of any event which makes it unlawful for the business of the firm to be
carried on or for the partners to carry it on in the partnership.
Provided that, where more than one separate adventure or under taking is carried on by the
firm, the illegality of one or more shall not of itself cause the dissolution of the firm in
respect of its lawful adventures and undertakings.
Referred case – Esposito vs Bowden – In this case, A and B are partners. They charter a
ship to go to a foreign country and receive a cargo on their joint venture. War breaks out
between England and the country where the port is situated before the ship arrives at the
port and continues until after time appointed for loading. The partnership between A and B
is dissolved.

DISSOLUTION ON THE HAPPENING OF CERTAIN CONTINGENCIES

Subject to contract between the partners a firm is dissolved , which is mentioned in sec.42
of The Indian Partnership Act,1932.
(a) If constituted for a fixed term, by the expiry of that term.
(b) If constituted to carry out one or more adventures or undertakings, by the completion
thereof.
(c) If the death of a partner.
(d)By the adjudication of a partner as an insolvent.
Referred Case- Mann vs D’Arcy – The managing partner of a firm of produce merchants
have entered into a single venture co-partnership with the plaintiff for the purchase and
resale of a particular quantity of potatoes on the terms of quall share in the profits and the
validity of the co-partnership for the said venture was upheld.

DISSOLUTION BY NOTICE OF PARTNERSHIP AT WILL

Section 43 of the said act says that:
(1) Where the partnership is at will, the firm may be dissolved by any partner giving notice
in writing to all the other partners of his intention to dissolve the firm.
(2) The firm is dissolved as from the date mentioned in the notice as the date of dissolution
or, if no date is so mentioned, as from the date of the communication of the notice.

DISSOLUTION BY THE COURT

Section 44 of the said act says that:
At the suit of a partner, the Court may dissolve a firm on any of the following grounds,
namely:
(a) That a partner has become of unsound mind, in which case the suit may be brought as
well by the next friend of the partner who has become of unsound mind as by any other
partner
(b) That a partner, other than the partner suing, has become in any way permanently
incapable of performing his duties as partner
(c) That a partner, other than the partner suing, is guilty of conduct which is likely to affect
prejudicially the carrying on of the business regard being had to the nature of the business
(d) That a partner, other than the partner suing, willfully or persistently commits breach of
agreements relating to the management of the affairs of the firm of the conduct of its
business; or otherwise so conducts himself in matters relating to the business that it is not
reasonably practicable for the other partners to carry on the business.

LIABILITY FOR ACTS OF PARTNERS DONE AFTER DISSOLUTION

(1) Notwithstanding the dissolution of a firm, the partners continue to be liable as such to
third parties for any act done by any of them which would have been an act of the firm, if
done before the dissolution, until public notice is given of the dissolution : Provided that the
estate of a partner who dies, or who is adjudicated an insolvent, or of a partner who, not
having been known to the person dealing with the firm to be a partner, retires from the
firm, is not liable under this section for acts done after the date on which he ceases to be a
partner.

Notices under sub-section (1) may be given by any partner.

The first sub section of sec. 45 of the Indian Partnership Act is really equivalent to s.36,
sub s.(1). Of the English Act, but is more explicitly stated. That enactment speaks of
dealings with a firm after a change in its constitution, but older authority makes it clear
that the meanings of these words cannot be narrowed to a change short of dissolution. it
will be observed that in India public notice as per sec, 72 is now sufficient in all cases,
without any distinction between old and new customers. The question arises whether as a
literal readings of the term would suggest, public notice is necessary as well as sufficient;
in other words, that it would be no answer to a party suing on an act such as here
described that, although public notice of dissolution has not been given, the plaintiff was in
fact aware that the firm was dissolved. Compare the English Act, s.36 sub s. (2), where
there is no express savings of private notice. The best opinion is that notice in fact, of any
kind, is good if proved. It will not, of course, be established by matter of mere surmise or
conjecture. Section 45(1) has a twofold objective. On the one hand it seeks to protect third
parties dealing with the firm who had no notice of its prior dissolution and on the other
hand, it also seeks to protect partners of a dissolved firm from liability to third parties for
acts of other partners done subsequent to the dissolution.

RIGHT OF PARTNERS TO HAVE BUSINESS WOUND UP AFTER DISSOLUTION

Section 46 of The Indian Partnership Act says that: On the dissolution of a firm every
partner or his representative is entitled, as against all the other partners or their
representatives, to have the property of the firm applied in payment of the debts and
liabilities of the firm, and to have the surplus distributed among the partners or which
representatives according to their rights.

RECENT DEVELOPMENT ON PARTNERSHIP FIRM IN INDIA

Limited liability partnership is the recent development on partnership in India.

A limited liability partnership protects each partner from personal liability for certain
obligations of the partnership. The limited liability partnership differs in one important way
from general partnerships. Each partners is not liable to the other partner's debts or
obligations as they would be in a general partnership. It is a partnership in which all
partners are limited partners. In an LLP one partner is not responsible or liable for another
partner's misconduct or negligence. This is an important difference from that of a limited
partnership. In an LLP, all partners have a form of limited liability for each individual's
protection within the partnership, similar to that of the shareholders of a corporation.
Limited liability partnerships are distinct from limited partnerships, in that limited liability is
granted to all partners, not to a subset of non-managing "limited partners." As a result the
LLP is more suited for businesses where all investors wish to take an active role in
management.

The Parliament of India has passed the Limited Liability Partnership (LLP) Bill 2008.

Lok Sabha granted its assent to the Bill on December 12, 2008 which was earlier passed
by the Rajya Sabha.

The Limited Liability Parternship Act 2008 has been notified in the official Gazette of
India on Januay 9, 2009.

The Minister of Corporate Affairs is striving hard to get the first LLP in India be
incorporated on 1st April 2009.