The Indian Partnership Act, 1932 lays down the important provisions relating to partnership contracts. The subject of partnership is included in item 7 of the Concurrent List of in Seventh Schedule to the Constitution of India and therefore Parliament and Legislature of any State have power to make laws with respect to this matter as provided in Article 246 of the Constitution.
According to the Section 4 of Indian Partnership Act, 1932 “Partnership is the relation between persons who have agreed to share the profits of a business carried on by all and any one acting for all.” The essentials required for constituting a partnership firm are:- * There must be at least two persons.
* There must be a relationship arising out of an agreement between two or more persons to do a business. * The agreement must be to share the profits of a business. * The business must be carried on by all or anyone acting for all. All the four elements must be present before a group or an association can be held to be partners. It can also be said that all the afforestated elements must co-exist before a partnership can be said to come into existence. Persons who have entered into partnership with one another are called “individuals” and collectively they are known as “firm”, and the name under which the business is carried on is called the “firm name”. As regard the “firm name”, partners have a right to carry on business with any name or style, which they choose to adopt. The partnership firm cannot use the word “Limited” as part of its name, because the liability of the firm is unlimited. The partners will sue or be sued according to the individuals’ name itself and not with firm name.
Essentials of a Partnership Firm
* Association of two or more Persons: There must be a contract between two or more persons who must be competent to enter into contract. They may be natural or artificial persons in partnership firm. The artificial person includes a Company. A company can also be a partner in a partnership firm, as it is a separate legal entity. * Agreement: Existence of an agreement is essential of a partnership. Section 5 of the act states that “The relation of partnership arises from contract and not from status; and, in particular, the members of a Hindu Undivided Family carrying on a business as such, or a Burmese Buddhist husband and wife carrying on business as such are not partners in such business.”
Such an agreement between the partners may be expressed or implied. This agreement must be a valid agreement and for a lawful object and purpose and the partners must be competent to contract. * Business: Partnership implies business and when there is no association to carry on business there is no partnership. According to Section 2(b) of the Act, “The Business includes every trade, occupation, and profession. Business is used in the sense of “carrying on business” which means continuity or repetition of acts. The Business refers to any activity which is successful and would result in profits. * Sharing of Profits: To constitute a partnership, the parties must have agreed to carry on a business and to share profits in common. “Profits” means the excess of returns over advances, the excess of what is obtained over the cost of obtaining it. Sharing of profits also involves the sharing of profits. But sharing of profits is an essential in partnership but sharing of losses is not. It is open to one or more partners to bear all the losses of the business. * Mutual Agency: Mutual Agency decides the liability of a partner. Each and every partner is the agent binding the other partners as principal and all of them will be bound to each other, i.e. the phrase “business carried on by all or any acting for all.” This means that the partner who conducts the business of the firm not only acts for himself but for others also. In Partnership Firm, there must be an agreement between the...