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CSEET · Business Laws and Management · Elements of Law relating to Partnership and Limited Liability Partnership

Anil, a partner in a firm, was assured by his co-partners that he would not bear any share of losses. Anil takes no part in management but receives a share of profit. A creditor of the firm now claims payment from him. Which statement is correct?

Anil is liable to the creditor. An agreement to share profits but not losses is effective only among the partners themselves, not against outsiders. After paying, Anil can seek indemnity from his co-partners under their agreement.

  1. AAnil is not liable to the creditor since the agreement excludes his liability for losses
  2. BAnil is liable to the creditor, because the agreement among partners does not bind third parties, though he can claim indemnity from the co-partnersCorrect
  3. CAnil is liable only if he took part in the business
  4. DAnil is liable only up to the amount of capital he contributed

Explanation

Being a partner, Anil is jointly and severally liable to third parties for the firm's acts. The agreement to exclude him from losses operates only between the partners, so he may recover from them what he pays. Non-participation in management, or a capital limit, does not reduce liability to creditors.

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