Partnership Act 1932
Partnership Act 1932 provides rules about form of business organization known as Partnership.
As per Section 4 of the Indian Partnership Act Partnership is the relation between two or more persons who have agreed to share the profits o f a business carried on by all or any of them acting for all.
Essentials of partnership
Two or more persons: There should be at minimum 2 persons to form a partnership. In case the number of partners gets reduced to 1 due to any reason, it would cease to be a partnership. For the maximum number of partners in a firm, the partnership Act is silent
Agreement between persons: A partnership due an agreement between persons which may be express or implied. Partnership does not arise out of status as in the Law of Joint Hindu Family or by operation of law as in the case of co-ownership. It is also important that all elements of a valid contract are present for the formation of Partnership. However there is exception to the rule. A Minor can be admitted in a partnership with consent of all the partners as partner in profits only.
Business: Partnership can be formed only for earning profits by carrying on some Lawful business. An association created primarily for charitable, religious and social purposes are not regarded as partnership. Similarly, when two or more persons agree to share the income of a joint property, it does not amount to partnership.
Sharing of profits: Sharing the profits of business is essential for partnership. Unless contrary agreed among the partners, sharing of profits of a business implies sharing of its losses in the same ratio. However, a person can become a partner in profits only by consent of all other partners.
Mutual Agency: The basic principle of partnership is the relation of mutual agency amongst the partners. The business of the firm may be carried on by all the partners or by any of them acting for all as a partner is both an agent and a principal of other partners. A partner can, by his acts, bind the other partners and is bound by the acts of the other partners in the same way. So, the partners have relationship of mutual agency among them and the law of partnership is regarded as an extension of the general law of agency.
Extent of liability: Liability of every partner is unlimited towards outsiders. Creditors have the right to recover the amount from the property of all partners or any partner where assets of the firm are not enough. So partners are jointly and severely liable to the creditors.
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