In simple terms: Partnership is the bond between two or more people who have agreed to carry on some work for profit. It is based on mutual consent.
Definition: According to Section(4) of the Indian Partnership Act 1932, defines ‘Partnership- as 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’. Some of the important features of the partnership are as follows:
- Contract: It is the result of a contract, it does not arise from the status, operation of law or inheritance. Which means in order to have a partnership , you need to create a contact i.e an agreement enforceable by law.
For example: Death of father, who was a partner in a firm, the son can claim share in the partnership property but cannot become a partner unless he enters into a contract.
- Association of two or more persons: As partnership is the result of a contact, at least two persons are necessary to constitute a partnership. It states that for a partnership firm , minimum number of person required are two because contract is signed minimum by two persons.
But sec 11 of Company’s act -1956 states that partnership consisting of more than 10 persons for banking business and 20 persons for any other business would be illegal.
- Carrying on a business: Partnership only for friendship means or charitable work is not a partnership firm . Partners must agree to carry on a business.”Business includes every trade, occupation or profession”.
- Sharing of profits: Agreement to carry on business must be with the object of sharing profits amongst all the profits. Thus there will be no partnership where the business is carried on with a philanthropic motive and note for making a profit or where only one of the partners is entitled to the whole of the profits of the business.
Sharing of loss is not necessary.
- Mutual Agency: Business must be carried on by all the partners or any of them acting for all, i.e there must be mutual agency . Thsu every partner is both an agent and principle for himself and other partners i.e he can bind by his acts the other partners and can be bound by the acts of other partners in the ordinary course of action.