Today we like globalized competitive world. Today’s business has not been one mans show as it was few years back. For any business to survive alliance is almost necessary. Alliance may be in any form like partnership, joint venture, mergers & acquisitions. This article would give a brief about partnership form.
What is partnership?
In layman’s language its two or more persons coming together for common purpose. Sec. 4 of the Indian Partnership Act 1932 defines partnership as “it 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.” The persons who have entered into partnership with one another are called as partners & collectively known as firm. The firm has not a legal entity in India.
What are the essential elements of partnership?
1. Association of two or more persons.
There must be at least two or more persons to form a partnership. The partnership act is silent about the maximum numbers of partners in a firm. But the Indian Companies Act 1956 lays down that :(1) where the firm is carrying on banking business, the number of partners should not exceed 10, & (2) where the firm is carrying on any other business, the number of partners should not exceed 20. If the number of maximum partners exceeds these limits, the partnership becomes illegal association of persons.
2. Agreement between the persons.
As per sec.5 of Partnership Act, the relation of partnership arises from contract & not from status. The agreement of partnership may be expressed or implied.
3. Business.
Partnership can be formed only for the purpose of carrying on some business. Sec.2 (b) Partnership Act defines as it includes every trade, occupation or profession.
4. Sharing of Profits
The sharing of profits is only a prima facie evidence of the existence of partnership and this is not the conclusive test of it.
5. Business carried on by all or any one of them acting for all.
The mutual agency relationship amongst the partners is the cardinal principle which governs partnership. That means each partner is the agent of the firm as well as of the other partners.
Who can become the partners?
As per definition, “Partnership is an agreement.” Therefore all persons who are competent to contract can become partners. Sec.11 of the Indian Contract Act 1872 defines that “every person is competent to contract who is of the age of majority according to law to which he is subject and is of sound mind and is not disqualified from contracting by any law to which he is subject.”
Types of Partnership
Partnership can be classified:
A. Partnership at will (sec.7)
A partnership is called partnership at will when (a) the partnership is not for fixed period of the time and (b) when no provision is made as to when and how the partnership will come to an end. Partnership at will can be dissolved at any time when any partner chooses to do so after giving notice in writing to all other partners. The firm is then dissolved from the date mentioned in the notice as the date of dissolution and if no such date is mentioned then from the date of communication of the notice.
B. Partnership for fixed period
Where the partners agree to carry on its business for a definite term then the partnership is known as partnership for fixed period.
C. Particular Partnership
Particular partnership is a partnership formed for a particular adventure or undertaking. On completion of such undertaking or adventure the partnership is usually dissolved. But if all the partner mutually agrees to continue partnership then it becomes partnership at will.
My next few articles will be on how to get partnership firm registered in India? & Dissolution of partnership firm.
What is partnership?
In layman’s language its two or more persons coming together for common purpose. Sec. 4 of the Indian Partnership Act 1932 defines partnership as “it 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.” The persons who have entered into partnership with one another are called as partners & collectively known as firm. The firm has not a legal entity in India.
What are the essential elements of partnership?
1. Association of two or more persons.
There must be at least two or more persons to form a partnership. The partnership act is silent about the maximum numbers of partners in a firm. But the Indian Companies Act 1956 lays down that :(1) where the firm is carrying on banking business, the number of partners should not exceed 10, & (2) where the firm is carrying on any other business, the number of partners should not exceed 20. If the number of maximum partners exceeds these limits, the partnership becomes illegal association of persons.
2. Agreement between the persons.
As per sec.5 of Partnership Act, the relation of partnership arises from contract & not from status. The agreement of partnership may be expressed or implied.
3. Business.
Partnership can be formed only for the purpose of carrying on some business. Sec.2 (b) Partnership Act defines as it includes every trade, occupation or profession.
4. Sharing of Profits
The sharing of profits is only a prima facie evidence of the existence of partnership and this is not the conclusive test of it.
5. Business carried on by all or any one of them acting for all.
The mutual agency relationship amongst the partners is the cardinal principle which governs partnership. That means each partner is the agent of the firm as well as of the other partners.
Who can become the partners?
As per definition, “Partnership is an agreement.” Therefore all persons who are competent to contract can become partners. Sec.11 of the Indian Contract Act 1872 defines that “every person is competent to contract who is of the age of majority according to law to which he is subject and is of sound mind and is not disqualified from contracting by any law to which he is subject.”
Types of Partnership
Partnership can be classified:
A. Partnership at will (sec.7)
A partnership is called partnership at will when (a) the partnership is not for fixed period of the time and (b) when no provision is made as to when and how the partnership will come to an end. Partnership at will can be dissolved at any time when any partner chooses to do so after giving notice in writing to all other partners. The firm is then dissolved from the date mentioned in the notice as the date of dissolution and if no such date is mentioned then from the date of communication of the notice.
B. Partnership for fixed period
Where the partners agree to carry on its business for a definite term then the partnership is known as partnership for fixed period.
C. Particular Partnership
Particular partnership is a partnership formed for a particular adventure or undertaking. On completion of such undertaking or adventure the partnership is usually dissolved. But if all the partner mutually agrees to continue partnership then it becomes partnership at will.
My next few articles will be on how to get partnership firm registered in India? & Dissolution of partnership firm.
No Response to "WHAT IS PARTNERSHIP? AN INDIAN OVERVIEW"
Post a Comment