📚 Table of Contents
Indian Partnership act was enacted in 1932 and came into force from 1st October , 1932. This act deals with regulating the partnership business in India. Partnership is basically a form of business organization where two or more person join together for jointly carrying on some business. This article contains basics of Indian Partnership act, 1932 and types of partnership and partners.
What is Partnership?
Section 4 of the Act defines partnership as:
“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.”
Essentials of a Partnership
- An Agreement: Partnership arises from an agreement between two or more persons for the creation of this relation. Agreement here means a contract. The agreement may either be express or implied. If there is no agreement, then there cannot be a partnership.
- Carrying on Business: There must be a lawful business activity conducted with the objective of making a profit. It includes any kind of commercial activity aimed at earning profits. Purchasing goods for self consumption is not included in partnership.
- Sharing of Profits: The partners must agree to share the profits arising from the business. Therefore clubs or societies which do not aim at making profits are not included in partnerships.
- Mutual Agency: Every partner must act as both an agent and principal. Each partner represents the firm and the other partners.
📚 Landmark Case: Cox v. Hickman[(1860) 8 HLC 268] – In this case it was held that trustees who are managing the property do not become partners of that property.
Types of Partners
The various types of partners recognized under the Act are as follows:
| Type | Description |
|---|---|
| Active Partner | He is a kind of partner who takes active participation in day-to-day operations. He is also called as Ostensible Partner. |
| Dormant Partner | Dormant partner is also known as Sleeping Partner. He is a person who doesn’t participate actively in he firm but shares profits/losses of the firm. |
| Nominal Partner | He is a kind of partner who lends their name to the firm. He doesn’t invest or share profits of the firm but is liable to third parties. |
| Partner by Estoppel | If a person holds out to another that he is a partner of the firm, either by his words, actions, or conduct, then such a partner cannot deny by saying that he is not a partner. This basically means that even though such a person is not a partner, he has represented himself as such, and so he becomes a partner by estoppel or partner by holding out. |
| Partner in Profit Only | He is a kind of partner who shares only the profits, not the losses or liabilities of the firm. |
Section 5 – Partnership by Contract
This section clarifies that a partnership must arise through a contractual agreement, not by status or inheritance (e.g., Hindu Undivided Family).
Section 6 – Nature of Relationship
Section 6 provides that for determining whether there is partnership between certain persons or not, the real relation between the parties and all relevant facts are taken into consideration, merely sharing profits does not constitute partnership.
The conditions where the person may be sharing the profits with another but they are not partners are:
- Money Lender
- Servant or Agent
- Widow or child of deceased partners
- Seller of goodwill
Partnership at Will
Section 7 defines this as a partnership that has no fixed duration and can be dissolved at any time by any partner by giving notice.
Case: Kangamal vs Theatre Abirami (AIR 1991 SC 1020) – In this case it was held that a partnership at will dissolves upon notice from any partner.
Particular Partnership
Section 8 provides for a partnership formed for a specific purpose, project, or venture. Once the goal is achieved, the partnership is dissolved unless continued by agreement.
