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Legislations

A Guide to the Indian Partnership Act, 1932

By: Prerna Anurup, 3rd year BALLB student at Ramaiah Institute of Legal Studies, Bengaluru.

Introduction

The Indian Partnership Act, 1932 is an act to define and amend the law relating to partnership. This act is based on the provisions of the English Partnership Act, 1890. This Act allows partnership between all kinds of people. A man may take his wife or daughter as a business partner. Before this Act came into existence, it was embodied in the Chapter 11 of the Indian Contract Act, 1872. The provision were not satisfactory in the Contract Act therefore it was repealed and the present Act was passed in the year 1932 with a view to make the law clearer and more satisfactory. 

Before this Act came into existence, it was embodied in the Chapter 11 of the Indian Contract Act, 1872. The provision were not satisfactory in the Contract Act therefore it was repealed and the present Act was passed in the year 1932 with a view to make the law clearer and more satisfactory. 

The Indian Partnership Act, 1932 is not exhaustive of all questions which can be raised in connection with partnership, as it “defines and amends” and not codifies the law relating to partnership. This Act consolidates all the existing laws relating to partnership as it is clear from the preamble and section 3 and 74 of the Act which expressly continue the unrepealed law e.g. Contract Act, etc. in so far they are inconsistent with the express provisions of this Act.

Definition

Section 4 of Indian Partnership Act, 1932 provides, “Partnership is 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”.

Under the Partnership Act, three elements are necessary to constitute a Partnership-

  1. There must be an agreement entered into by all the persons concerned;
  2. The agreement must be to share the profits of business; and
  3. The business must be carried on by all or any of the persons concerned acting for all.

These three elements relate to –

Firstly, the voluntary contractual nature of the partnership

Secondly, it gives the motive which leads to the formation of the firm i.e. acquisition of gain 

Thirdly, it shows that the persons of the group who conduct the business do so as agents for all the persons in the group and are liable to account for all.

Essential elements

  1. Agreement – Section 5 declares that the relation of partnership arises from contract, not from status. It may be too elementary to say that a partnership can arise only by an agreement between the parties concerned and in no other way, yet the point is important. It is one of those elements which clearly display the distinction between a partnership and other business relations, like joint family carrying on business, which do not arise from agreement, but are the result of status, operation of law, succession or inheritance.
  2. Business – “Business” being essential to partnership, the question arises what does it mean? Section 2(b) only says that it “includes every trade, occupation and profession”. This definition cannot be taken literally, because while every trade may be a business, but every occupation or profession is not. Nor is there any judicial definition of the term.  It generally conveys the idea of a running business involving numerous transactions, besides that a person may become a partner with another in a particular adventure. The business to be carried on by the firm must be legal.
  3. Sharing of profits – The word “partnership” derives from the word “to part” which means “to divide”. The division of profits is an essential condition for the existence of the partnership. In one of the case, a principle was laid down that, “Every man who has a share of the profits of a trade ought also to bear his share of the loss”.
  4. Mutual agency – The definition of partnership in section 4 concludes with the words, “a business may be carried on y all or any of them acting for all”. Thus, if the person carrying on business acts not only for himself but for others also, so that they stand in the position of principles and agents, they are partners.

It generally conveys the idea of a running business involving numerous transactions, besides that a person may become a partner with another in a particular adventure. The business to be carried on by the firm must be legal.

Limited liability partnership

In 2008, the Limited liability Partnership Act was enacted but it came into force in 2009 on different dates therein. This Act does not repeal or affect the present Partnership Act. It is meant to the information and the regulation of the Limited Liability Partnerships (LLP). The LLP is not completely defined but is defined as if partnership formed and registered under the Act.

In 2008, the Limited liability Partnership Act was enacted but it came into force in 2009 on different dates therein. This Act does not repeal or affect the present Partnership Act. It is meant to the information and the regulation of the Limited Liability Partnerships (LLP).

                         The LLP is a body corporate and a legal entity separate from its partners. It should have at least two partners and at least two designated partners and one is of Indian Citizen and Central Government has power to investigate the affairs of LLP. A private company or any unlisted public company is allowed to be converted into LLP.                    

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