Partnership is an association of two or more than two persons.
There must be atleast two persons who should join together to constitute a partnership, because oneperson cannot become a partner with himself. These persons must be natural personshaving legal capacity to contract. Thus, a company (which is an artificial person) cannotbe a partner. Similarly, a partnership firm cannot be a partner of another partnershipfirm. As regards maximum number of partners in a partnership firm, Sec.11 of theCompanies Act, 1956, puts the limit at 10 in case of banking business and 20 in case of anyother business.2.
Partnership must be the result of an agreement between two or more persons.
An agreement presupposes a minimum number of two persons. As mentioned above, apartnership to arise, at least two persons must make an agreement. Partnership is theresult of an agreement between two or more persons (who are known as partners after thepartnership comes into existence).3.
The agreement must be to carry on some business.
The term „business‟ includes
every trade, occupation or profes
sion [Sec.2(b)]. Though the word „business‟ generally
conveys the idea of numerous transactions, a person may become a partner with anothereven in a particular adventure or undertaking (Sec.8). Unless the person joins for thepurpose of carrying on a business, it will not amount to partnership.4.
The agreement must be to share profits of the business.
The joint carrying on of abusiness alone is not enough; there must be an agreement to share profits arising from thebusiness. Unless otherwise so agreed, sharing of profits also involves sharing of losses. Butwhereas the sharing of profits is an essential element of partnership, sharing of losses isnot.
A, a trader, owed money to several creditors. He agreed to pay his creditors outof the profit
s of his business (run under the creditors‟ supervision) what he owed to them.
Held, the arrangement did not make creditors partners with A in business [Cox v.Hickman, (1860) 8 H.L.C., 268].6.2.1 Formation of partnershipsAll the essential elements of a valid contract must be present in a partnership as it isbased on an agreement. Therefore, while constituting a partnership. The following pointsmust be kept in mind:1. The Act provides that a minor may be admitted to be benefits of partnership.2. No consideration is required to create partnership. A partnership is an extension of agency for which no consideration is necessary.3. The partnership agreement may be express (i.e., oral or writing) or implied and thelatter may be inferred from the conduct or the course of dealings of the parties or fromthe circumstances of the case. However, it is always advisable to have the partnershipagreement in writing.4. An alien friend can enter into partnership, an alien enemy cannot.5. A person of unsound mind is not competent to enter into a partnership.