Module 11: Partners and their
relations
Presented by:
Varnika Taya
ELIGIBILITY TO BE PARTNERS
❑ Section 22
RELATIONSHIP OF PARTNERS
❑ Section 23.
❑ Hosking v. Marathon Asset Management LLP, (2017) 2 WLR 746: Herein, the
claimant was an executive member of the defendant limited liability partnership. The
deed provided that members were entitled to a share of the income profits. Non-
executive members were to receive only half of the amount paid to the executive
members. The executive members were required to devote the whole of their time to
the business. The claimant gave notice of his intention to retire. He retired some
months later whereupon he became a non-executive member. There was allegation
that during the gap between his notice of retirement and actual retirement, he had
committed breach of fiduciary duties. The arbitrator decided that half of his
remuneration is to be forfeited and returned to the firm. The court dismissed the
appeal against arbitrators’ award. The court said that forfeiture principle was
applicable not only to agents but also to other fiduciaries. A partner is an agent. The
forfeiture principle was applicable.
LIMITED LIABILITY PARTNERSHIP AGREEMENT
❑ Section 2(1)(o)
⮚ Agreement in writing
⮚ Between (1) partners of LLP or between (2) LLP and partners of LLP
⮚ Determines mutual rights and duties of partners
⮚ Determines partners’ rights and duties in relation to the concerned LLP
❑ Any alteration in the agreement after incorporation has to be filed with the RoC (Section 23)
❑ LLP agreement is similar to AoA in companies
❑ LLP agreement may or may not discuss all the rights and liabilities of partners in relation to all
the matters. In the absence covenant in the LLP agreement on a matter, provisions of the First
Schedule govern the relationship of partners to each other and to their LLP. However, provisions
of the Schedule may not fit into different types of LLP structure. An agreement may become
necessary for spelling out the members’ respective positions, rights and duties. Disputes are
less likely to arise if sensitive points are already covered by an agreement. Further, the
agreement is the only way to modify the provisions of the Act which become applicable in the
absence of an agreement.
❑ The agreement can be altered under the signature of all the signatory members.
This consent may be implied or express unless mentioned in the LLP agreement
otherwise.
❑ Presence of implied consent: where the provisions relating to share of profits are not
followed and instead profits have been distributed differently with no objection from
any quarter, an implied consent comes into being.
❑ Absence of implied consent: Hopper v. Hopper, 2008 EWCA Civ 1417: herein, the
death of a member was not taken by itself to have altered the profit sharing
agreement as there was no indication of any surrender, etc., on the part of legal
heirs.
DUTIES OF PARTNERS AS UNDER THE
FIRST SCHEDULE
1. Duty to indemnify (Paragraph 4): Every partner shall indemnify the limited liability partnership for
any loss caused to it by his fraud in the conduct of the business of the limited liability partnership.
(Corresponding to Section 10 of IPA)
2. Duty to render true accounts (Paragraph 10): Each partner shall render true accounts and full
information of all things affecting the limited liability partnership to any partner or his legal
representatives. (Corresponding to Section 9 of IPA)
3. Duty not to compete (Paragraph 11): If a partner, without the consent of the limited liability
partnership, carries on any business of the same nature as and competing with the limited liability
partnership, he must account for and pay over to the limited liability partnership all profits made by
him in that business. (Corresponding to Section 16(b) of IPA)
4. Duty not to make secret profits (Paragraph 12): Every partner shall account to the limited
liability partnership for any benefit derived by him without the consent of the limited liability
partnership from any transaction concerning the limited liability partnership, or from any use by him
of the property, name or any business connection of the limited liability partnership.
(Corresponding to Section 16(a) of IPA)
DUTIES OF PARTNERS IN COMMON LAW
❑ Duty of good faith [Corresponding to Section 9, IPA]
▪ Partners share fiduciary relationship in which duty of utmost good faith is arisen. They are
bound to be true and faithful to each other.
▪ Duty of loyalty to partners cannot be excluded by way of an agreement. Its exclusion shall be
against public policy and therefore void to provide in any agreement that partners would not
be liable for things done in bad faith.
▪ A duty of disclosure of true facts which are affecting a person arises and becomes applicable
even when the parties are negotiating for formation of the firm. (Conlon v. Simms, (2008) 1
WLR 484) These duties last till the very end of partnership. (Tann v. Herrington, 2009 Bus
LR 1051)
❑ Duty of care and due diligence [Corresponding to Section 12(b), IPA]
▪ A partner is bound to indemnify the firm for the consequences of his wilful neglect of duty.
RIGHTS OF PARTNERS AS UNDER THE
FIRST SCHEDULE
1. Equal share in profits (Paragraph 2): All the partners of a limited liability partnership are entitled to share
equally in the capital, profits and losses of the limited liability partnership. (Corresponding to Section 13(b) of
IPA)
2. Right to indemnity (Paragraph 3): The limited liability partnership shall indemnify each partner in respect of
payments made and personal liabilities incurred by him: (a) in the ordinary and proper conduct of the
business of the limited liability partnership; or (b) in or about anything necessarily done for the preservation of
the business or property of the limited liability partnership. (Corresponding to Section 13(e) of IPA)
3. Right to participate (Paragraph 5): Every partner may take part in the management of the limited liability
partnership. (Corresponding to Section 12(a) of IPA)
4. Right to remuneration (Paragraph 6): No partner shall be entitled to remuneration for acting in the business
or management of the limited liability partnership. (Corresponding to Section 13(a) of IPA)
5. Admission of new partner (Paragraph 7): No person may be introduced as a partner without the consent of
all the existing partners. (Corresponding to Section 31 of IPA)
6. Settlement of matters or issues of LLP (Paragraph 8): Any matter or issue relating to the limited liability
partnership shall be decided by a resolution passed by a majority in number of the partners, and for this
purpose, each partner shall have one vote. However, no change may be made in the nature of business of
the limited liability partnership without the consent of all the partners. (Corresponding to Section 12(c) of IPA)
7. Recording of decisions in minutes book (Paragraph 9): Every limited liability
partnership shall ensure that decisions taken by it are recorded in the minutes
within thirty days of taking such decisions and are kept and maintained at the
registered office of the limited liability partnership.
8. Power of expulsion (Paragraph 13): No majority of the partners can expel any
partner unless a power to do so has been conferred by express agreement
between the partners. (Corresponding to Section 33 of IPA)
9. Resolution of disputes by arbitration (Paragraph 14): All disputes between the
partners arising out of the limited liability partnership agreement which cannot be
resolved in terms of such agreement shall be referred for arbitration as per the
provisions of the Arbitration and Conciliation Act, 1996.
CESSATION OF PARTNERSHIP INTEREST
❑ Section 24.
REGISTRATION OF CHANGES IN PARTNERS
❑ Section 25.
❑ Absence of provision for Register of Members – The Companies Act, 2013
mandates maintenance of a register of members by every company. It is a statutory
register of high importance. But there is no provision in the LLP Act akin to any such
requirement of the companies requiring maintenance of a register of members. The
Limited Liability Partnerships Act, 2000 (English Partnership Act), however
mandates maintenance of an equivalent of a Register of Members.
