NATURE AND ESSENTIALS OF PARTNERSHIP[1]:
INTRODUCTION:
The partnership is the relation between persons who have come under a contract to share the profits of a business carried on by all or any of them individually acting on the behalf of them. Persons who have entered into a partnership with one another are called individually, “partners” and collectively a “firm”.[2]
The partnership should not merely be constituted from the status but shall arise out of a contract which creates an obligatory duty on each individual to represent the firm[3].
Partners are obligated to carry on the business of the firm to the greatest common advantage of it and they should be faithful to each other[4]. The term advantage represents profits which firm makes. Profits in a broader sense refer to the profit as well as the loss which each partner is obligated to share on an equal basis.
According to J.L Hanson, “a partnership is a form of business organisation in which two or more persons up to a maximum of twenty join together to undertake some form of business activity”.
This blog will analyse the main essentials and nature of the partnership with respect to the Partnership Act 1932. The author tried to portray all the substantial developments which are affected by the working of the act.
NATURE OF PARTNERSHIP:
The partnership is form agreement which two entities form to compile their resources to invest in a business with an intention of sharing the profits incurred from the said business[5]. The partnership to its very sense is meant to support sole proprietorship in order to de-limit the risk of limited capital and skills. In a partnership, the partners form an agreement to manage the profits as well as losses.
BUSINESS:
The foremost aim of the partnership is to carry on a legal business venture. But the partnership cannot be called as something as a result of any operation of law but is a product of the agreements which define the rights and duties of the partners they ought to perform.
AGREEMENT TO SHARE PROFITS:
In a business firm, the partnership is created to protect the sole proprietorship from the extreme loses. The partners of the firm aim at earning maximum profits and share it amongst them. Not merely the profits, but also the losses incurred to the firm in a predetermined ratio. A person who does not have any right or claim in the sharing of profit and losses of the business cannot be called a partner. However, due to consensus, the other partners can dissolve someone from the share of the losses.
MUTUAL AGENCY:
The functioning of the business can be carried on by all the partners or any particular amongst them acting on behalf of all of them. It states that there is a mutual agency between the partners every as each of the partners is liable to pay for the losses as well as collect profits from the earnings of the firm, they are entitled to participate in the functioning of its affairs. The partners acting on the behalf of the other partners would be same as an agent working in the course of employment of his master and the other on working partners will too be held liable for other partners wrong done during his employment.
ESSENTIAL OF PARTNERSHIP:
- RELATIONSHIP OF AT LEAST TWO PEOPLE:
There must be no less than two people to frame a business firm. Every one of the partners must be capable to contract. In this manner, if in a firm, the quantity of partners is decreased to one, the firm is said to be broken down as the foremost essential to form the partnership is to by creating a mutual agency of two or more individuals.
The Partnership Act, 1932 has put no impediments on most extreme quantities of partners in a firm. Be that as it may, nonetheless, Indian Companies Act, 2013 puts a point of confinement on a number of an accomplice in a firm as pursuing:
- For Banking Business, Partners must be not as much as equivalent to 10.
- For Any Other Business, Partners must be not as much as equivalent to 20.
- If the quantity of partners surpasses the limits, the association ends up unlawful.
- Presence of Business Activity[6].
Business must be nonstop in nature and must be legitimate[7]. The principle adage of the organization is to bear on business and acquire benefits. Henceforth, people combining for social or altruistic work won’t be considered an association.
- SHARING OF PROFITS:
The principal target of a firm is to gain benefit. These benefits are shared among partners in pre-chosen proportion. Notwithstanding, if no such apportion is chosen, it will be viewed as that the partners have measured up to the proportion in benefit sharing. On the off chance that a man doesn’t have a privilege to share benefits, he cannot be called accomplice. Be that as it may, according to the assertion, an accomplice may not be at risk to share the misfortunes.
- SHARED AGENCY:
Shared Agency connection implies that the matter of the firm should be completed by all or any of the partners. A Partner is the operator of the other accomplice and along these lines can tie another accomplice by his demonstrations. Likewise, an accomplice is a centre who can be made at risk for the demonstrations of different partners of the firm. Indirectly, it upholds the principle of mutual gains and losses where everyone is liable for the illegal acts made in the name of the firm no matter one individual or every partner is running it.
CONCLUSION:
The partnership is a product of an agreement which not less than two individuals undertake binding themselves under the contractual obligation of sharing profits and losses, and being held liable for the acts of the other partners. The sole purpose of the partnership is to protect an individual from the clutches of sole proprietorship in which one faces certain limitation in financial and managerial resource while carrying out business activities. The partners provide the necessary capital and essential resources to carry out the firm business.
[1] Authored By: Mr. Pranav Tomar, B.A.LL.B, 1st Year Student at Rajiv Gandhi National University of Law & Research Writer at Law Audience: Edited By: Mr. Varun Kumar (Founder & CEO & Editor-In-Chief).
[2] Section 4, The Partnership Act, 1932, No. IX, Acts of Parliament, 1932 (India).
[3] Section 5, The Partnership Act, 1932, No. IX, Acts of Parliament, 1932 (India).
PARTNERSHIP NOT CREATED BY STATUS: The relation of partnership arises from contract and not from status; and, in particular, the members of a Hindu undivided family carrying on a family business as such, or a Burmese Buddhist husband and wife carrying on business as such are not partners in such business.
[4] Section 9, The Partnership Act, 1932, No. IX, Acts of Parliament, 1932 (India).
GENERAL DUTIES OF PARTNERS: Partners are bound to carry on the business of the firm to greatest common advantage, to be just and faithful to each other, and to render true accounts and full information of all things affecting the firm to any partner, his heir or legal representative.
[5] supra note 2.
[6] Section 464, The Companies Act, 2013, No. 18, Acts of Parliament, 1992 (India).
[7] Mirza Mal Bhargava Das v. Rameshwar, I. L. R.5 1 A.L.L. 827 (India).
