Updated: Nov 10, 2020
B. Sandeep Harish, III Year B.A.,LL.B.
The partnership is the most important role in the business organization. Where the two more persons were joining together to form a business and divide a profit and loss, it is known as a partnership. Indian Partnership Act 1932 deals with regulating the partnership firms in India. Registration of a partnership firm is most important, albeit not important by law. There does not exist a standard form of procedure, common throughout the discretionary powers given to the state government to establish a procedure suiting the need for the general public. However, the basis for registration and requirements for such an existence of a partnership deed is common to all.
· Indian Partnership Act 1932, Section 4 defines as the partnership ‘the relationship between the persons mutually agreed to share the profits of a business carried on by all or any of them acting for all’.
· The English Partnership Act defines partnership as, the relation which subsists between persons carrying the business in common with a view of profit’.
· Sir Fredrick Pollock defines ‘partnership’ as – ‘the relation which subsists between a person who has agreed to share the profits of a business carried on by or any of them on behalf of all of them’.
Characteristics of the partnership
1. Association of two or more persons
4. Sharing of profits
5. Mutual agency
Association of two or more persons
The term ‘person’ here does not include firms and limited companies. As such, two partnerships thought all the partners of the firms may form a partnership out of their respective firms, provided their number does not exceed the statutory limit. The number of partners in the firm carries the banking business not exceeding 10 and in other business 20. If the number exceeds 20, any partnership becomes an illegal association. The partnership is a special type of contract. Since a partnership is a contract, there should necessarily be more than one person
In M. Kasam vs. Commissioner of Income Tax, ILR[i], the court observed ‘to constitute a partnership, there should be a plurality of persons. Just as no man can contract with himself, similarly, no man can become a partner with himself’. A partnership has its source in a contract. It is not a creature of law arising from status, as in the case of Hindu joint family trading concern.
The partnership relation is one of the contractual natures and it springs from an agreement. The agreement may be expressed or implied. Section 5 declares that a partnership is created by a contract and not by status. An agreement to create a partnership may arise from the conduct of the parties concerned.
In Pratibha Rani vs. Suraj Kumar[ii], the Supreme Court held that the wife entrusting her stridhana (personal property) to her husband does not amount to an agreement of partnership even though the husband was using the property for running a business. The husband was therefore neither a partner nor a joint owner of the property. He could be punished for criminal breach of trust if he misappropriated the wife’s money.
A partnership can form only to carry on the business. The business includes trade, occupation and profession. The word ‘business’ generally conveys the ideas of the running business, involving numerous transactions.
In Smith vs. Anderson[iii], James LJ said ‘business’ refers to any activity which if successful would result in profit.
Sharing the profits
The objects of the partnership must be to make a profit. If any person claiming to be a partner is deprived of his or her rights to share in the profit of the business, he is not a partner, as he's carrying on the business is not for profit. The division of profit is the essential condition of the existence of a partnership. There was a time when sharing of profits was considered to be the final test for the determination of the existence of a partnership. Now the rule is changed and it states that every man who receives profits need not necessarily be a partner. Sharing of profits is only a prima facie evidence of the existence of a partnership, but it is not conclusive evidence.
The definitions of partnership in section 4 conclude with the words that the business may be carried on ‘by all or any of them acting for all’. Thus, the performer carrying on the business acts not only for him but for others also. The partner is both a principal and the agent. A partner is an agent of the firm in his dealings with the business of the firm. He can bind the firm by his acts within the scope of his authority done in the firm’s name and for the firm. A partner is a principal concerning the other partners. The relation among themselves is that of principals and agents for one another.
The Indian Partnership Act 1932 is defined as the partners in a partnership deed. And what are the main important characteristics of the partnership act? In this characteristic, there is a main important vital role in the partnership act. These are also essentials of the partnership act.
[i] 1937 5 ITR 182 Cal [ii] 1985 AIR 628 [iii] 1880 15 Ch. D. 247