Indian Partnership Act, 1932
The law governing partnership in India is now em-
bodied in the Indian Partnership Act, 1932 which came into force [except Sec. 69] on the 1st day of October 1932. Prior to this act, the law of partnership was dealt with in Chapter XI of the Indian Contract Act, 1872. However, the law of partnership is still a branch of the law of contracts and the unrepealed provisions of the Indian Contract Act continue to apply to the partnership firms so far as they are not inconsistent with the express provisions of this Act. [Sec. 3]
Concept 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.
Persons who have entered into partnership with one another are called individually partners’ and collectively a firm’ and the name under which their business is carried on is called the firm name’.
Definitions of ‘Partnership
In the simple words, when two or more than two persons combine together to form an organisation for earning profits, it is known as the ‘Partnership’. Really speaking, partnership is a group or collection of persons, possessing various qualities of businessmanship.
In the opinion of Kimball and Kimball, partnership is a group of more than two individuals, who have invested capital mutually for the fulfilment of some commercial purpose.
Gertsenberg has expressed that the general partnership is that form of business organistion by which two or more than two persons as co-owners, run some business for earning profit.
The Indian Partnership Act, 1932, in its Section 4
defines the ‘partnership’ as the mutual relationships of those persons who have agreed to divide the profits of such business among themselves which is being run by them or by someone on behalf of all of them.
Essential Elements of Partnership
The following are the essential elements, the existence of which testifies to the formation of ‘partnership firm’:
1.Two or More Persons. The partnership is an as-
sociation of two or more persons. In other words, in order to constitute partnership there must be at least two persons.
(2)An Agreement Among the Partners. The other
essential element of partnership is an agreement among the partners. This agreement could be either written or oral. The partnership could originate on the basis of either the clear or implied agreement. It is necessary for the validity of the contract that there must be all those essentials existing asnare required to be there in valid contract. In absence of a contract, we can’t call a Joint Hindu Family as a partnership firm.
(3) There Must be Some Business. The third essential element of partnership is ‘some business’. Without any business, the partnership cannot exist, like a body without soul. In absence of business, the partnership is meaningless and without purpose. Business includes every trade, occupation or profession.
4.Objective Being Earning and Sharing Profit. One
of the important features of partnership is to earn profits by running the business and sharing it amongst the partners. Any trade which doesn’t aim at earning profits, can’t be called partnership. Further, the profit so earned is shared by the partners in an agreed proportion, or equally in absence of any such agreement. A partner who is not sharing the èprofits, cannot be called the partner of firm. Mostly thenprofits are earned, and the occurrence of loss is only accidental. But the losses too, like profits, are to be borne by the partners.
(5) Business Run by All or One on Behalf of All. It is not essential that all the partners must be active participants in business, but the business must, of course, be run for and on behalf of all the partners. If, therefore, they have agreed that the work of the firm shall be carried on by some particular partner, the firm shall then not be dissolved since each partner is liable to every other partner of the firm just as the principal is liable towards his agent. Every partner is the proprietor himself as well as an agent to the other partners.
(6) Liability of Each Partner, Joint and Several. In a partnership firm, the liability of partners is unlimited. A partner cannot plead that his liability is limited to the amount of capital contributed by him. Further, the liability of a partner is joint and several both which means a partner can be held liable for the act of the firm either individually or jointly with the other partners.
(7) Existence of Firm Not Separate from Partners. A firm cannot exist independently or separate from its partners. If the partnership comes to an end, the firm also ends. Only by the partners does the firm exist in its status and structure. That’s why, if there is any suit filed by any third party against the firm, it means that all the partners are liable to defend the suit.