A partnership is made by an agreement between parties known as partners. The agreement may be in writing or oral. From practical point of view and as per of the provisions of Acts such as the Income Tax Act as well as Partnership Act an oral partnership is not practicable, and therefore, a partnership agreement is necessarily required to be in writing.
Partners may be individuals, businesses, interest- based organizations, schools, governments or combinations. The number of partner may be increase to achieving organization mission and to amplify their reach. A partnership may result in issuing and holding equity or may be only governed by a contract.
According to section 4 of the Partnership Act of 1932,”Partnership is defined as the relation between two or more persons who have agreed to share the profits of a business run by all or any one of them acting for all”. This definition superseded the previous definition given in section 239 of Indian Contract Act 1872. The 1932 definition added the concept of mutual agency.
The Indian Partnerships have the following common characteristics:
- Separate legal entity: It has separate entity from partners. It has limited identity for the purpose of tax law as per section 4 of the Partnership Act of 1932.
- Liability and Profit: The partnership may have limited or unlimited liability of partners for the debts and liabilities of the firm depending on the agreement and share profit as per their agreement. Any partner can bind the firm and the firm is liable for all liabilities incurred by any firm on behalf of the firm. If property of partnership firm is insufficient to meet liabilities, personal property of any partner can be attached to pay the debts of the firm.
- Partners are Mutual Agents: Partnership means the business will be carried on by all or any of them for all. Any partner has authority to bind the firm. Act of any one partner is binding on all the partners. Thus, each partner is ‘agent’ of all the remaining partners. Under Section 18 of the Partnership Act, 1932, a partner is the agent of the firm for the purpose of the business of the firm.
- Oral or Written Agreements: The nature of Partnership may be written or oral format. The agreement can be ‘oral’ or ‘written’ as long as it satisfies the basic conditions of being a contract i.e. the agreement between partners is legally enforceable. A written agreement is advisable to establish existence of partnership and to prove rights and liabilities of each partner, as it is difficult to prove an oral agreement
- Number of Partners: As partnership is ‘agreement’ there must be minimum two partners. The Partnership Act does not put any restrictions on maximum number of partners. But as per section 464 of Companies Act 2013, and Rule 10 of Companies (Miscellaneous) Rules, 2014, law prohibits partnership consisting of more than 50 for any businesses, unless it is registered as a company under Companies Act, 2013.
Death /Minor/Mentally Handicapped person: A minor or a mentally handicapped person cannot enter into a partnership agreement though by virtue of the provisions of the Partnership Act a minor can be admitted only to the benefits of the partnership. But that only means that a minor can have a share in the profits of the business, but he cannot become a partner, and cannot execute any agreement of partnership
In case of Death if a partnership agreement has provides that on the death of a partner his heirs will be admitted as partner and a fresh agreement of partnership will have to be executed between the existing partners and the heirs or heir of the deceased partner and if the heir is a minor the new partnership will stand postponed till the minor attains majority or if the surviving partners are more than one, the minor can only be admitted to the benefits of partnership.
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