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INTRODUCTION

Partnership is the relationship between persons who have agreed to share the profits of a
business that is carried on by one of them or all of them as per Sir Fredrick Pollock. The
English Partnership Act, 1890 defines partnership as the relation subsisting between
persons carrying on business in common with a view to profits.
Indian Partnership Act is one of very old mercantile law. In 1932, the chapter XI of the
Indian Contract Act, 1872 (Chapter IX sections 239 to 266), was repealed and the
Indian Partnership Act came into existence. The Act came into force on the 1st day of
October 1932. The Act is not applicable to Jammu and Kashmir. The IPA was passed to
define and amend the law relating to partnership. But it is not exhaustive on the topic of
partnership as admitted in the Section 3 of the Act. There is nothing in the Act that
implies that the Act should be given a retrospective effect.
Contract, including partnership contract is a concurrent subject, covered in Entry 7 of
List III (Seventh Schedule to Constitution). The IPA, 1932 is a Central Act, but State
Government can also pass legislation on this issue. Provisions regarding registration of
firms and related matters are exclusively looked after by State Government as provided in
the Act itself.
Section 4 of the IPA defines persons who have entered into a partnership with one
another individually as partners, collectively as a firm and the name under which their
business is carried as the firm name.
ESSENTIALS OF PARTNERSHIP
1. Partnership is an association of two or more persons.
2. Partnership is the result of agreement between two or more people. The agreement
must

fulfill all the requirements of a valid contract. It is not a relationship that arises

out of a status. For example, a Hindu Joint Family firm is not a partnership because the
element of agreement is missing

3.The agreement must be to carry on some business. The term has to be taken in a
practical sense. The business may be permanent or temporary. However, Co-owners and
promoters of a company cannot be called partners.
Section 2(b) of the IPA says that Business includes every trade, occupation and
business. Thus, a partnership does not exist between members of a religious association
and the like.
FEATURES OF PARTNERSHIP
1. A partnership does not require property; services rendered jointly will also
constitute a partnership. For example, if two or more advocates work on the same
case as partners and share the fees or profits, a partnership is said to exist.
2. Partnership is not a product of status like the joint stock companies. It doesnt
arise by operation of law like co-ownership and it doesnt arise by mere joint
acquisition of property.
3. Partnership can arise out of a contract only and not from status as per Section 5 of
the Indian Partnership Act. There is no upper limit on number of members in
apartnership as per the Act though minimum two persons are required for a
partnership. However, Section 11 of the Companies Act, 1956 put the limit of 10
persons in case of banking business and 20 in others.
4. The agreement of partnership has to fulfil all essentials of a valid contract. For
example, there should be free consent, competency of the parties, lawful
consideration and object. The agreement need not be in writing except where
required under the Income Tax Act or if the partners wish to get the firm
registered.
5. A person may become partner in particular adventures or undertakings as per
Section 8 of the IPA. But a partnership does not exist between the members of a
charitable society or religious association or a building scheme. As per
CALDICOTT vs. GRIFFITHS (1853), a club is not a partnership.
6. The agreement must be to share profits of the business, trade or undertaking.
Unless otherwise so agreed, sharing of profits also involves sharing of losses.

Mere share in the profits of the business does not necessarily make a person a
partner. A servant or agent who receives a share of profits as his remuneration or
the seller of good will of a business who is given a share of profits as
consideration for sale of the good will, are NOT, by reason of such facts alone
partners. As held in COX vs. HICKMAN, it was held that sharing of profits is only
an apparent or prima facie test. Where a person is responsible only to his clients,
not supposed to share losses or have freedom of choice in core areas of the
business like commissions, discounts or maintenance, such association can not be
called partnership. Contribution of capital is not essential to become partner of a
firm.
7. Business must be carried on by all partners or any of them acting for all.
Expressly made clear in Section 18, Partnership includes the principle of
MUTUAL AGENCY, every partner assumes a dual role that of a principal and
of an agent. It is said that the foundation of the law of partnership is agency, and
thus, the law of partnership is a branch of the law of the principal and the agent.
Every partner is an agent whose acts will be binding on the other

partners

who are his principals and each partner is again a principal who is in turn bound
by the acts of others.
8. Partnership is a specific application of the principles of agency. The law of
partnership is

undoubtedly, a branch of the law of the principal and agent.

Every partner is an agent and principal, both, for other partner(s) in the firm. He is
entitled to profits and responsible for obligations. Subject to limitations under
Section 20 of the Act, one partner can always bind the other partner(s) in any
matter that falls within the scope of partnership.
9. It is not necessary that all the partners must be actively participate in the conduct
of the business. But a retired partner is not a partner. His annuity is mere
recognition of past services.
10. Formal or written agreement is not necessary. An agreement to create the
partnership can rise from the conduct of the parties too. The deed of partnership is
not needed as per law but an instrument of partnership is of great assistance in
income tax assessment.

11. Firm is not a juristic person but it is assessed under the IT Act.
12. The validity of a partnership firm does not depend upon the capital contribution
by partners.
13. The word partnership is derived from the term to part that means to divide.
And the division of profits is an essential condition of the existence of a
partnership. But after COX s.v HICKMAN, the conclusive test for partnership was
held to be mutual agency as every man who gets the profits might not be a partner
and therefore not liable.
14. Section 109 of the Indian Evidence Act provides that the burden of proof lies on
the person who claims that he or another is a partner.
PARTNERS, FIRM AND FIRM NAME
As per law, firm is only a convenient phrase for describing the two or more persons
constituting the partnership. It has no legal existence apart from those persons. James, LJ,
for the purpose of determining legal rights in EXPARTE CORBETT (1880) 14 Chap D
122 said, there is no such thing as firm known to law. A firm is nothing more than a
compendious name of the partners forming itUnlike a joint stock company which is a
legal entity, a firm has no separate existence apart from it members. A firm is not a body
corporate. The rights and obligations of the firm are in fact those of the individuals
composing a firm.
A firm cannot possess property and thus it cannot be a debtor or a creditor. The rights that
a partner enjoys and the duties that he owes are enjoyed against and owned to the other
partners and to the firm. Partners of a firm are not its employees though they may draw
salary from the firm under the Income Tax Act. A firm cannot be a member of a
partnership. The firm is not a separate legal person or a separate legal entity with its own
distinct identity. Thus, it can not enter into partnership with another firm. The assets of
the firm are jointly owned property of the partners. Of later, the law has started leaning
towards the commercial standing wherein the firm is regarded slightly separate from its
constituent partners.

A Firm has limited identity for purpose of tax laws. Though a partnership firm is not a
juristic person, Civil Procedure Code enables the partners of a partnership firm to sue or
to be sued in the name of the firm as held in ASHOK TRANSPORT AGENCY vs.
AWADESH KUMAR 1998(5) SCALE 730 (SC). Of course, whether the firm is registered
or not plays a huge role here.
Firm Name can be anything as long as it does not go against the rules relating to trade
name or goodwill. The name in which the partners carry on their business is the firm
name. Section 58 (3) of the IPA, says that A firm shall not contain any of the following
words, namely crown, Emperor, Empress, Implied, King, Queen, Royal, or
words expressing or implying the sanction, approach or patronage of government except
when (state government) signified its consent to the use of such words as part of the firm
name by order in writing.
As per Section 2(a), an act of the firm means any act or omission by all the partners or by
any partner or agent of the firm that gives rise to a right enforceable by or against the
firm.
COMPARISONS

PARTNERSHIP
# It arises by contract. The interests of

CO-OWNERSHIP
# Co-ownership means joint ownership.

partners is determined by contract.


# It may arise out of status or contract for
# It always implies a business.

example birth, marriage or adoption.

# It involves the sharing of profits and

# It may exist without any business.

losses.
# It dies not always involve a sharing of
# Each partner is an agent of the other

profits and losses as it can exist without any

partners.

business.

# A partner cannot transfer his interest

# A co-owner is not the agent of the others

without the consent of all other partners.

co-owners.

# A partner can claim a share in the surplus # A co-owner may transfer his interest to a
assets of the firm, but not a share in the

third party without the consent of other co-

properties of the firm in species.

owners,

# A partnership is dissolved by death or

# A co-owner can claim division of the joint

insanity of a partner.

property in specie.

# A partners liability is not limited to the

# Co-ownership is not dissolved by death or

extent of his interests in the assets of the

insanity of one of the co-owners.

firm.
# A co-owners liability is limited to the
# There is a restriction on the number of

extent of his share.

partners in a firm.
# There is no restriction on number of co# The concept of Mutual Agency bears

owners.

great importance here. Even the doctrine of


holding out and estoppel are applicable
more strictly.

# The concept of mutual agency does not


apply here.

CLUB
# A club is the association of a peculiar nature.
# Its objective is the promotion of some beneficial or social object.
# In St JAMES CLUB 1862 case, a member of a club is not liable to a creditor of the
club, except to the extent to which he took part in the contract concerned that gave rise
to the liability.
# A member of the club is not the agent of the other members.
# The death or resignation of a member of a member does not affect its existence

PARTNERSHIP
# Partnership has been given a legal status.

COMPANY
# In SALOMAN V SALOMAN & CO LTD, it
was decided that a company is a separate

# In INDIA COTTON V RAGHUNATH, it

legal entity distinct from all its members.

was decided that a partnership firm has no


existence apart from its members.

# A member of a company is not an agent of


other members.

# Mutual agency is the essence of


partnership.

# Liability of a member or a shareholder is


limited to the extent of the amount

# The liability of the members is unlimited


and includes his personal assets too.
# The transfer of interest by one partner
cannot take place without the consent of all
other partners.
# Unless there is a contract to the contrary
death, retirement or insolvency of a partner
results in the dissolution of the firm.
# There needs to be a minimum membership
of 2.
# Audit is not compulsory

remaining unpaid on shares held by him or


the amount of guarantee as mentioned in the
Memorandum of Association of the
Company.
# A shareholder, subject to restrictions
contained in the Articles, can freely transfer
his share.
# A company enjoys a perpetual succession.
# The minimum membership is 2 in case of
private companies and 7 in case of public
companies.
# There is no limit for maximum
membership in case of a public company
and a private company cannot have more 50
members.
# For companies, there is an obligatory
audit of the accounts.

PARTNERSHIP
JOINT HINDU FAMILY BUSINESS
# Section 5 of the IPA says that Partnership # The act does not prohibit the members of

is created by status. In particular, the

the joint Hindu family to enter into

members of a Hindu undivided family

partnership amongst themselves.

carrying on a family business as such or a


Burmese Buddhist husband and wife
carrying business as such are not partners in

# It exists because of the status.


# One becomes a member by birth.

such business.
# A family always arises by the operation of
# The relationship of partnership arises

law and not contract.

from contract.
# The family members are not mutual
# It can arise by an agreement.
# New members can be entered into by the

agents.
# Females cannot be members.

consent of all the members.


# Minors are members from the date of their
# Females can be members too.
# A partner cannot be a minor except in case

birth.
# Death leaves the business unaffected.

of benefits of an already existing


partnership.

# The karta has the authority to contract and


bind the family; the other coparceners

# Death of a partner dissolves the firm

cannot do so.

unless agreed otherwise.


# Only karta is liable unlimitedly; other
# Mutual agency is important. Here, every
partner is an agent of the rest of the partners
and his acts bind the firm.
# The remedy for a partner is a suit for
dissolution and accounts.

members are liable only to the extent of


share in profits of the family business unless
they took part in the act or transaction done
by the karta.
# The remedy for a co-parcener is a suit for
partition.