Partnership Act Salient Features



To carry on a business, a person may choose any form of organization depending upon his needs. When a person works in his individual capacity, he runs a proprietary organization, also known as a sole trader. When he works with some person, they are running a partnership. ‘Partnership’ is the most common form of organisation . Law relating to partnership is governed by the Indian Partnership Act, 1932 (the Act). it extends to the whole of India except to the state of Jammu and Kashmir.


Definition of Partnership

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.


Essential Elements of a Partnership

An analysis of the definition of partnership reveals the following essential elements.

a) An agreement: partnership is the result of an agreement. It does not arise from status (as in the case of Hindu Undivided Family) operation of law (as of co-owners) or inheritance. Agreement may be express or implied. Again it may be oral or in writing. partnership deed is example, of an agreement in writing.

b) Two or More Persons: There must be at least two persons to form a partnership. The Act does not mention any thing about the maximum number of persons who can be partners in a partnership firm but the Companies Act, 1956 (Section 11) lays down that a partnership consisting of more than 10 persons for banking business and 20 persons for any other business would be illegal. Hence these should be regarded as the maximum limits on the number of partners in a partnership firm.

Note: The term ‘person’ means any person competent to enter into a contract and includes a company also. A minor can be admitted as a partner only for the benefits of partnership.

c) Carrying on a Business: For a partnership to exist, it is essential that there should be a business. Business includes every trade, occupation and profession.2 It may be for long term business activities or for a particular venture or for a short duration.

d) Sharing of Profits: There must be sharing of profits. However, partners may agree to share profits in any proportion. But whenever the partnership firm runs into losses, the partners will share it too since a loss represents a negative profit.

e) Mutual Agency: There must exist a mutual agency relationship among the partners. Mutual agency implies that each partner acts for the other partners. He, thus, is an agent of other partners. Also, each partner is a principal for he is bound by the acts of other partners.







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