Indian Partnership Act, 1932

Sec 4. Definition of "partnership", "partner", "firm" and "firm name"

From the statutory definition of partnership, the essential elements of partnership can be understood as

• persons

  There should be at least two persons to form a partnership or partnership firm.

  Restrictions on the number of persons

  The maximum number of members that can exist in partnership is 10 in case of a firm carrying on banking business and 20 in case of any other business.

  This restriction is placed by the companies act and not the partnership act.

  Companies Act, 1956

  Sec 11. Prohibition of associations and partnerships exceeding certain number

  (1) No company, association or partnership consisting of more than ten persons shall be formed for the purpose of carrying on the business of banking, unless it is registered as a company under this Act, or is formed in pursuance of some other Indian Law.

  (2) No company, association or partnership consisting of more than twenty persons shall be formed for the purpose of carrying on any other business that has for its object the acquisition of gain by the company, association or partnership, or by the individual members thereof, unless it is registered as a company under this Act, or is formed in pursuance of some other Indian law.

  (3) This section shall not apply to a joint family as such carrying on a business; and where a business is carried on by two or more " joint families, in computing the number of persons for the purposes of Sec 11 (1) and Sec 11 (2), minor members of such families shall be excluded.

  (4) Every member of a company, association or partnership carrying on business in contravention of this section shall be personally liable for all liabilities incurred in such business.

  (5) Every person who is a member of a company, association or partnership formed in contravention of this section shall be punishable with fine which may extend to ten thousand rupees.

• who have agreed

  There should be an agreement between those persons who are forming the partnership. The agreement is the foundation for the partnership. Partnerships can arise only from a contract and not status.

  Indian Partnership Act, 1932

  Sec 5. Partnership not created by status

  The relation of partnership arises from contract and not from status; and, in particular, the members of a Hindu undivided family carrying on a family business as such, or a Burmese Buddhist husband and wife carrying business as such, are not partners in such business.

• the profits of a business

  There should be a business carried on by the partnership and that too with an intention to make and share profits of that business.

  Therefore we can say

  • No Business, No Partnership and
  • No intention to share profits, No Partnership

  Though, no specific mention of sharing of losses is made, we assume that Sharing profits implies Sharing Losses also.

  Indian Partnership Act, 1932

  Sec 2. Definitions

  (b) "business" includes every trade, occupation and profession;

• carried on by all or any of them acting for all

  The business may be carried on by any one or more of the partners.

  Acting for all

  This implies that a partner conducting the business should be understood as conducting the business on behalf of all the partners. Each partner would be responsible for the acts of every other partner in relation to the firm.

  As far as the outsiders are concerned, the partners and the firm are one and the same.

  Mutual Agency [Principal Agent relationship]

  • Concerning each of two or more persons or things; especially given or done in return
  • reciprocal
  In his/her role as a partner, a person acts both as a principal as well as an agent.

  A partner is an agent of the firm for the acts that the he/she does on behalf of the firm, whereby he/she can bind the other partners for such acts. The other partners would be in the position of a principal for such acts.

  With regard to the acts of the other partners, he/she will be in the position of a principal (since he as a partner is bound by the acts of the other partners on behalf of the firm)

  Where a partner cannot be made responsible for the acts of one or more other partners we cannot say they together form a partnership. This mutual agency is what really decides whether there is a partnership or not.

  Thus it is said the "Mutual Agency" is the real test of partnership.

  Indian Partnership Act, 1932

  Sec 18. Partner to be agent of the firm

  Subject to the provisions of this Act, a partner is the agent of the firm for the purpose of the business of the firm.

• Partners

  Persons who have entered into partnership with one another are called individually "partners".

• Partnership

  The relationship between the persons is called "partnership".

• Firm

  • The members of a business organization that owns or operates one or more establishments
  The partners are collectively called a "firm".

• Firm Name

  The name under which the partnership business is carried on is called the "firm name".