PARTNERSHIP

Section 4 of Indian partnership Act 1932, defines

partnership in the following terms-
 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
persons who have entered into partnership with
one another are called individually ‘partners’ and
collectively ‘a firm’.
 The following essential characteristics stand out :
1. Association of two or more persons.
 There should be at least two competent persons to
form a partnership.
 As regards the maximum number of
partners in a firm, Sec. 11 of the Companies
Act, 1956 provides that the number of
partners in a firm carrying on banking
business should not exceed ten and in any
other business twenty.
2. Agreement.
 The partnership relation is one of
contractual nature. Agreement between the
partners is the basis of this contract.
 The agreement may be express (i.e., oral or
written )or implied.
 The agreement may be for a fixed period, or
it may give option to the partners to
withdraw from the partnership at any
time.
 Partnership is thus created by contract ; it does not
arise by operation of law.
3. Business. A partnership can be formed only for the
purpose of carrying on some business. ‘Business’
includes every trade, occupation and profession.
4. Sharing of profits. The object of partnership must
be to make profit. Profit must be distributed among
the partners in an agreed ratio.
5. Mutual agency.
Law of partnership -an extension of the law of agency
A partner assumes a two-fold character :
1. He is an agent of the firm so far his dealings with
the outside world for the purposes of the business of
the firm are concerned.
2. He is a principal so far as the other partners are
concerned.
Who may be partners ? A contract of partnership may
be every into by every person who is competent to
enter into a contract (Sec. 1 of the Indian Contract,
1872).
• Alien enemy. An alien enemy cannot enter into a
contract of partnership with an Indian subject. An
alien friend can do so.
• Person of unsound mind is not competent to enter
into a contract of partnership.
• Corporation. A corporation, i.e., a registered
company, can enter into a contract of partnership as a
single individual but not as a group of individuals
comprising it.