Partnership in India- Definition and Essentials

Definition:

Section 4 of the Indian Partnership Act, 1932 defines 'Partnership' as under:

'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.
Partnership- Two partners shaking hands

Further light on the definition was provided by the Calcutta High Court’s definition where they stated that- partnership is the relation between persons, created by contract whereby parties to such contract have agreed to share the profits of a business with a further condition that the proposed business must be carried out by all or any of them acting for all.


Persons who have entered into a partnership with one another are called individually as ‘partners’ and collectively as a ‘firm’. And the name under which is carried on is the ‘firm name’.


ESSENTIALS OF A PARTNERSHIP:

According to Section 4, the following essentials are necessary to constitute a ‘partnership’:


  1. There should be an agreement between the persons who want to be partners.

  2. The purpose of creating partnership should be carrying on of business.

  3. The motive for the creation of the partnership should be earning and sharing profits.

  4. The business of the firm should be carried on by all of them or any of them acting for all i.e. mutual agency.


1. An Agreement:

A Partnership arises from an agreement between two or more persons for the creation of this relation. The agreement here means a contract. This indicates the voluntary contractual nature of a partnership. The presence of such agreement must be there may it be expressed or implied. If the obligations are not outlined in a contractual nature, there arises no valid partnership.


A person signing an agreement



Section 5 clearly states that a partnership arises from a contract and not from status. Thus implied positions or statuses cannot, in their virtue be called a ‘partner’.





Persons capable of becoming partners:

The agreement to form a partnership has to be between two or more persons. Since a valid partnership requires a contract, the parties entering into it must be, therefore, eligible. The competent persons must be :


a) Of majority of age i.e. more than 18 years of age.

b) Of a sound mind.

However, there is nothing that prevents a person incompetent to contract from accepting any benefit and hence the business organization permits a minor to be admitted to the benefits of a partnership.


However, a partnership is not a legal person and thus, cannot enter into another partnership and firm in its name:

a) Persons;

b) Business carried on by all of them or any of them acting for all;

c) An agreement between those persons to carry on such business and shares its profit.

Insolvent as a partner:

The Partnership Act does not directly mention that only a solvent person can become a partner but Section 34 however, states that, when a person is adjudicated as insolvent, he ceases to be a partner.


2. Carrying On Business:

The object of every partnership must be carrying on a business and sharing its profits. It may be any business that is not unlawful. The Act defines business as including ‘every trade’, occupation or profession. The definition is not exhaustive and is capable of including any kind of commercial activity aimed at earning profits.


Business as usual

#Purchasing goods for self-consumption:

When the goods are purchased for resale, it is a business transaction. But if several persons join together to make a bulk purchase of certain goods and divide the very goods amongst themselves to have the benefit of having a bulk purchase. Such persons cannot be called partners, although each of them stands to something because purchasing goods without any idea of selling them is not carrying on a business.


#Particular Partnership [Section 8] :

According to Section 8, there can be a ‘particular partnership’ between partners whereby they engage in particular ventures or undertakings.


In K. Jaggaiah vs Kokumanu, the plaintiff and the two defendants joined together and obtained a contract for the maintenance of a road. There was held to be a partnership in the road-building activity.


Business should be ‘carried on':