INTRODUCTION

The law of partnership is contained in the INDIAN PARTNERSHIP ACT 1932, which came into
force on Oct. 1, 1932.

The main principles are the same as the English Law on the subject as contained in the
Partnership Act, 1890 (prior to this law).

The most important change brought by the act is the provicion for the registration of firms. The
contract of partnership is a special contract. Where the Partnership Act is silent on any point, the
general principles of the law of contract apply.(Sec 3)

DEFINITION OF PARTNERSHIP

Parnership 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 ( Sec4, para 1). Persons who have entered the
parnership with one another are called individually 'partners' and collectively a 'firm' (Sec 4, para
2).

CHARACTERISTICS OF A PARTNERSHIP

1) ASSOCIATION OF TWO OR MORE PERSONS

There must be at least 2 competent persons to form a partnership. The maximum number of
partners in any firm except a banking business can not exceed 20, otherwise it becomes illegal.

The term 'person' does not include a 'firm', because a firm is not a separate entity.

As such 2 partnership firms cannot enter into a partnership, though all the partners of the 2
firms may form a partnership out of their separate firms provided their number does not exceed
the statutory limit.

A company is a 'person' within the meaning of Sec 4.. It may, being an entity distinct from its
members, enter into a contract of parnership if it is authorized by its Memorandum of
Association.

2) AGREEMENT

A partnership is of contractual nature- it arises from contract, not from status as agreement
between the partners is the basis of this contract (Sec5, para 1). The agreement may be express
(i.e. oral or written) or implied.

Implied agreement may be inferred from the course of dealing or the conduct of the parties.

The agreement maybe for a fixed period, or for the execution of a particular adventure, or it
may give option to the partners to withdraw from the partnership at any time.
Thus partnership is created by contract, and the agreement must have all the essential elements
of a valid contract.

3) BUSINESS

A partnership can be formed only for the purpose of carrying on some 'business'- it may include
trade, occupation or profession (Sec 2(b)).

The word 'business' generally conveys the idea of a running business involving numerous
transactions, besides that a person may become a partner with another in a particular
adventure.

The business to be carried on by the firm must be legal.

4) SHARING OF PROFITS

The partnership must be to make net profit, i.e., excess of returns over outlays , the excess of
what is obtained over the cost of obtaining it.

A profit must be distrbuted among the partners in a agreed ratio.

If any person claiming to be a partner is deprived of his right to share in the profits of the
business, he is not a partner as his carrying on the business is not for profit. But the reverse is
not necessarily true.

The sharing of profits also involves the sharing of loss, which in fact, is negative profit.

5) MUTUAL AGENCY

The business of partnership maybe carried on by all the partners or any of them acting for all.

A partner is both an agent and the principal. Whether a person is or not a partner depends on
whether he has the authority to act for those who are admittedly partners.

LAW OF PARTNERSHIP- AN EXTENSION OF THE LAW OF AGENCY

The partnership business maybe carried on by all the partners or any of them acting for all. Thus
the relationship of principal and agent is established among the partners and this relationship is
governed by the law of agency. Sec 18 provides the provision of Partnership Act.

FORMATION OF PARTNERSHIP

A partnership is based on an agreement . It may be made orally or in written.

Essential elements of a valid contract must be present.

Free and genuine consent of parties who must be competent to contract.

The object of partnership should be lawful and other legal formalities should be complied with.

The following points are to be noted:

1)THE MINOR PARTNER

He may be admitted to the benefits of parnership with the consent of all the other partners.

2) CONSIDERATION

As no consideration is required to create an agency, no consideration is required to create a

partnership which is an extension of the law of agency.

A- PARTNERSHIP DEED- The agreement creating parnership maybe express or implied and the
later maybe inferred from the conduct or the course of dealing of the parties or from the
circumstances of the case. The document containing this agreement is called partnership deed.
It usually contains provisions relating to the nature and the principle place of business, the name
of the firm, the name and addresses of the partners, the duration of firm, profit sharing ratio,
interest on capital and drawings, valuation of goodwill on the death or retirement of the partner,
management accounts, etc. The deed must be duly stamped as required by the Indian Stamp
Act, 1889.

WHO MAY BE PARTNERS- a contract of partnership maybe entered into by every person who is
competent to enter into a contract(Sec 11 of Indian Contract, 1872).

ALIEN ENEMY- An alien enemy cannot enter into a contract of partnership with an Indian
subject. An alien subject can do so.

MINOR- A minor cannot become a partner in a firm but with the consent of all the other
partners, he may be admitted to the benefits of a partnership.

PERSON OF UNSOUND MIND- a 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 indiavidual but not as a group of individuals comprising it.