Introduction

Prior to the Indian Partnership Act 1932 the law of partnership was covered
by the Indian Contract Act, 1872. Due to rapid growth in trade and
commerce and growing industrialization, a need was felt to have a separate
law on partnership. This led to the enactment of the Indian Partnership Act
1932. It extends to the whole of India. It came into force on the 1st day of
October, 1932, except section 69, which came into force on the 1st day of
October, 1933.

The partnership is the most important role in the business organization.

Where the two more persons were joining together to form a business and
divide a profit and loss, it is known as a partnership. Indian Partnership Act
1932 deals with regulating the partnership firms in India. Registration of a
partnership firm is most important, albeit not important by law. There does
not exist a standard form of procedure, common throughout the
discretionary powers given to the state government to establish a procedure
suiting the need for the general public. However, the basis for registration
and requirements for such an existence of a partnership deed is common to
all.

What is a Partnership?
Before the enactment of the Indian Partnership Act, 1932 the arena of
partnership law was covered under the ambit of the Indian Contract Act,
1872. However, due to rapid growth and development in trade and
commerce and growing industrialization, a separate law on partnership was
the need of the hour.

According to the provisions of Section 4 of the Indian Partnership Act,

1932, “Partnership is the relation between persons who have agreed
to share the profits of a business carried on by all or any one of them
acting for all.” Here the persons who have entered into partnership
with each other are known as Partners and collectively they are known
as a Firm. The name under which all the partners collectively run the
business is known as Firm Name. In a partnership firm, two or more
people come together to carry out a business to earn profits and share
those profits in the agreed profit-sharing ratio as per the partnership
deed.

Partnership Deed
Agreement to carry on business between the partners, the partnership
appears. The partnership agreement can be either oral or composed. The
Partnership Act does not necessitate that the agreement must be recorded
as a hard copy. Be that as it may, when the agreement is in composed
structure, it is called ‘Partnership Deed’. Partnership deed ought to be
appropriately marked by the partners, stepped and enlisted.
Partnership deed, for the most part, contains the accompanying subtleties.
A Names and Addresses of the firm and its primary business;
B Names and Addresses everything being equal;
C A commitment of the measure of capital by each accomplice;
D The bookkeeping time of the firm;
E The date of initiation of partnership;
F Principles concerning a task of Bank Accounts;
G Benefit and misfortune sharing proportion;
H The rate of enthusiasm on capital, credit, illustrations, and so on;
I Method of reviewer’s arrangement, assuming any;
J Pay rates, commission, and so on, if payable to any accomplice;
K The rights, obligations, and liabilities of each accomplice;
L Treatment of misfortune emerging out of indebtedness of at least one
partners;
M Settlement of records on the disintegration of the firm;
N The mode for a settlement of disputes among the partners;
O Guidelines to be followed in the event of confirmation, retirement, the
demise of a Partners; and
Some other issue identifying with the lead of business. Ordinarily, every one
of the problems influencing the relationship of partners among themselves
is canvassed in the partnership deed.

Essential of the partnership

1. Association of two or more persons

2. Agreement
3. Business
4. Sharing of profits
5. Mutual agency

1 Association of two or more persons

There must be at least two persons to form a partnership.The term ‘person’
here does not include firms and limited companies. As such, two
partnerships thought all the partners of the firms may form a partnership
out of their respective firms, provided their number does not exceed the
statutory limit. The partnership is a special type of contract. Since a
partnership is a contract, there should necessarily be more than one person
In M. Kasam vs. Commissioner of Income Tax , the court observed ‘to
constitute a partnership, there should be a plurality of persons. Just as no
man can contract with himself, similarly, no man can become a partner with
himself’. A partnership has its source in a contract. It is not a creature of law
arising from status, as in the case of Hindu joint family trading concern.

2 Agreement
Section 5 of the Indian Partnership clearly rules out that relation of
partnership from the contract must be a result of a valid agreement which
must be mutually agreed by all the partners. In various judicial
pronouncements, it has been ruled that if there is no agreement, then the
arrangement will not be considered as an agreement.
It is to be noted that Partnership must not be created by any status. E.g. The
members of HUF will not be considered as the partners, also if husband and
wife are carrying on any business, then they will also be not considered as
partners unless there is an agreement governing them.
The partnership relation is one of the contractual natures and it springs from
an agreement. The agreement may be expressed or implied. Section 5
declares that a partnership is created by a contract and not by status. An
agreement to create a partnership may arise from the conduct of the parties
concerned.
In Pratibha Rani vs. Suraj Kumar , the Supreme Court held that the wife
entrusting her stridhana (personal property) to her husband does not
amount to an agreement of partnership even though the husband was using
the property for running a business. The husband was therefore neither a
partner nor a joint owner of the property. He could be punished for criminal
breach of trust if he misappropriated the wife’s money.

3 Business
A partnership can form only to carry on the business. The business includes
trade, occupation and profession. The word ‘business’ generally conveys the
ideas of the running business, involving numerous transactions.
A motive of partnership firm and partnership as a whole must be to do
business. This should not be judged with a strict interpretation. In some of
the judicial pronouncements, it has been ruled by the judiciary that the term
business is the activity which results in accruing more and more profits by a
particular organisation. However, it is not necessary that a business must
have long chains and ventures. A partnership may even exist in a single
venture business. It is the carrying on business in a particular way, which
constitutes a valid partnership
In Smith vs. Anderson , James LJ said ‘business’ refers to any activity which if
successful would result in profit.

4 Sharing the profits

The objects of the partnership must be to make a profit. If any person

claiming to be a partner is deprived of his or her rights to share in the profit
of the business, he is not a partner, as he's carrying on the business is not
for profit. The division of profit is the essential condition of the existence of
a partnership. There was a time when sharing of profits was considered to
be the final test for the determination of the existence of a partnership.
Now the rule is changed and it states that every man who receives profits
need not necessarily be a partner. Sharing of profits is only a prima facie
evidence of the existence of a partnership, but it is not conclusive evidence.

5 Mutual agency
The definitions of partnership in section 4 conclude with the words that the
business may be carried on ‘by all or any of them acting for all’. Thus, the
performer carrying on the business acts not only for him but for others also.
The partner is both a principal and the agent. A partner is an agent of the
firm in his dealings with the business of the firm. He can bind the firm by his
acts within the scope of his authority done in the firm’s name and for the
firm. A partner is a principal concerning the other partners. The relation
among themselves is that of principals and agents for one another.

Section18
PARTNER TO BE AGENT OF THE FIRM.
Subject to the provisions of this Act, a partner is the agent of the firm for the
purposes of the business of the firm.

Section19
IMPLIED AUTHORITY OF PARTNER AS AGENT OF THE FIRM.
(1) Subject to the provisions of section 22, the act of a partner which is done
to carry on, in the usual way, business of the kind carried on by the firm,
binds the firm.
The authority of a partner to bind the firm conferred by this section is called
his "implied authority".
(2) In the absence of any usage or custom of trade to the contrary, the
implied authority of a partner does not empower him to -
(a) submit a dispute relating to the business of the firm to arbitration,
(b) open a banking account on behalf of the firm in his own name,
(c) compromise or relinquish any claim or portion of a claim by the firm,
(d) withdraw a suit or proceeding filed on behalf of the firm,
(e) admit any liability in a suit or proceeding against the firm,
(f) acquire immovable property on behalf of the firm,
(g) transfer immovable property belonging to the firm, or
(h) enter into partnership on behalf of the firm.

Section20
EXTENSION AND RESTRICTION OF PARTNER'S IMPLIED
AUTHORITY.
The partners in a firm may, by contract between the partners, extend or
restrict the implied authority of any partner. Notwithstanding any such
restriction, any act done by a partner on behalf of the firm which falls within
his implied authority binds the firm, unless the person with whom he is
dealing knows of the restriction or does not know or believe that partner to
be a partner.