IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships
Three friends in Pune, Asha, Bhaskar and Charu, run a consultancy under a written agreement and share profits equally. They have not registered as a limited liability partnership. A client wins a judgment against the firm that exceeds the firm's assets. Under the Indian Partnership Act, 1932, what is the position of the partners?
Each partner is jointly and severally liable without limit for the firm's debts, and personal assets can be reached. An ordinary partnership has no separate legal personality under the Partnership Act, 1932, so liability is not capped by capital or by the profit-sharing ratio.
- AOnly the partner who signed the client contract is liable, for the full shortfall
- BEach partner is jointly and severally liable, without limit, for the firm's debts, including from their personal assetsCorrect
- CEach partner is liable only up to the capital contributed to the firm
- DThe firm is a separate legal person, so the partners' personal assets cannot be reached
- Liability is limited to the agreed profit-sharing ratio of each partner, capped at one-third each
Explanation
A general partnership under the 1932 Act has no separate legal personality. Partners are jointly and severally liable without limit for acts of the firm done in the ordinary course of business, so personal assets can be reached. Options limiting liability to capital or to the profit ratio describe a limited form that does not apply here.
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