Partnership
In India, Partnership firm is governed by the Indian Partnership Act 1932.
Section 4 of this act defines partnership as:
"The relationship between
persons, who have agreed to share the profits of a business carried on by all
or any one of them acting for all."
According to Prof. Haney,
partnership is "the relation
between persons competent to make contract who agree to carry on a lawful
business in common with a view to private gain."
Partnership in this way is an agreement, between two or more persons to
carry on legal business with profit motive, which is carried on by all or any
one of them acting for all.
From the above definition the following can be drawn as
essentials or characteristics of a Partnership Firm.
a)
Association of two or more persons :-
There must be atleast two persons to form a partnership. The maximum no.
of persons in a partnership is not provided in the Partnership Act but Section
11 of the Companies Act, 1956 provides for the same. Accordingly, if the
partnership firm is engaged in a banking business the maximum number of
partners permissible is 10 and in case the partnership firm is in any
other business the maximum number of partners permissible is 20.
b)
Presence of a Contract:- There is a
contractual relationship between the partners. Therefore there must be a
agreement between the partners. The agreement may be express or implied. This
agreement must fulfill all the essentials of a valid contract under the Indian
Contract Act.
c)
To conduct Business :- The idea of few
persons coming together and doing some activity for charitable purpose cannot
be termed as partnership. The intention to conduct business is essential for
the partnership. The term business is defined in Section 2(b) as ‘business
includes every trade, occupation and profession.’ The word business generally
covers the intention of doing transactions to achieve some goal.
d)
Profit-Sharing: The
agreement between/among partners must be to share profit or losses. It is not
essential that all the partners must share the losses also. There may be
specific provision in the partnership deed that a particular partner or
partners shall not bear the losses.
e)
Motive: For a
partnership firm there must be motive to earn profit. A partnership firm cannot
be formed with service motive.
