THE INDIAN PARTNERSHIP ACT
DEFINITION OF PARTNERSHIP Section 4 of the Indian Partnership Act, 1932 defines µ Partnership¶ as ³Partnership is a relation between persons who have agreed to share the profits of business carried on by all or any of them acting for all.´ A contract of Partnership is a special type of contract. The persons entering into the contract are called µPartners¶ and the collectively are called a µFirm¶. ESSENTIALS / CHARACTERISTICS OF PARTNERSHIP From the above definition the following can be drawn as essentials or characteristics of a Partnership Firm. 1. Association of two or more persons :- There must be atleast two persons to form a partnership. The maximum no. of persons in a partnership is not provided in the Partnership Act but Section 11 of the Companies Act, 1956 provides for the same. Accordingly, if the partnership firm is engaged in a banking business the maximum number of partners permissible is 10 and in case the partnership firm is in any other business the maximum number of partners permissible is 20. 2. Presence of a Contract:- There is a contractual relationship between the partners. Therefore there must be a agreement between the partners. The agreement may be express or implied. This agreement must fulfil all the essentials of a valid contract under the Indian Contract Act. 3. To conduct Business :- The idea of few persons coming together and doing some activity for charitable purpose cannot be termed as partnership. The intention to conduct business is essential for the partnership. The term business is defined in Section 2(b) as µbusiness includes every trade, occupation and prof ession.¶ The word business generally covers the intention of doing transactions to achieve some goal. 4. Sharing of profits :- The purpose of partnership should be to earn profits. The term profit means µnet profit¶. Sharing of profits is essential ingredient of any partnership. There must be an agreement between the partners to share profits and losses. 5. Essentials of Contract :- The partnership must fulfil essentials of contract as it is a contract between partners. 6. Mutual Agency :- The most fundamental characteristics of partnership is that the business must be carries on by all or any of them acting for all. Each partner is an agent of other partner or partners. Partners bind each other by their acts. Each partner is a principle as in he/she is liable for the acts of the other partner. Section 18 of the Partnership Act says that a partner is the agent of the firm for the purposes of the business of the firm.
TEST OF DETERMINING THE EXISTENCE OF PARTNERSHIP Section 6 of the Partnership Act, specifies that in determining whether a group of persons is or is not a firm, or whether a person, is or is not a partner in a firm, regard shall be had to the real relation between the parties shown by all relevant facts taken together. The intention of the partners will have to be decided with reference to the terms of the agreement and all the surrounding circumstances. Therefore, to determine whether there is partnership following tests can be undertaken: Sharing of profits: - Sharing of profits is the essence of any partnership. There must be an agreement between partners to sabre profits or losses. If such agreement does exist then we can say there is partnership. Mutual Agency: - It is most fundamental feature of partnership. Partners are agents of each other and principals for themselves. If there is such mutual agency among group of persons, we can say there is existence of partnership. Intension of the parties: - The intention of the partners will have to be decided with reference to the terms of the agreement and all the surrounding circumstances. In Cox Vs. Hickman it was held that the receipt by a person of a share in the profit is a prima-facie evidence that he is a partner but this is not a conclusive test the question whether a person is a partner or not therefore depends in all cases...
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