Partnership Act Part-1 (The Indian Partnership Act, 1932)

1. Amrita Singh

3. I. Initially, partnership was governed by provisions contained in Sections
239 to 266 of chapter XI of the Indian Contract Act, 1872.
II. These sections were repealed in 1930 and a new act – the Indian
Partnership Act, 1932 was passed.
 The Act came in to force on the 1st of October 1932, except Section
69 which came into force on the 1stof October, 1933.
 It aims to define and amend the law relating to partnership.
 The Act extends to the whole of India except the state of Jammu and
Kashmir.
 The Act is not exhaustive.
 Partnership is a special kind of contract and thus, the provisions of
Indian Contract Act, 1872 also apply to a partnership firm unless
the Indian Partnership Act provides otherwise.
Introduction

4. The term can also
be broken down to
‘to part‘ which
means
to divide or
to share
The word ‘partner’ is also associated with the
French term parçener which means ‘joint heir’ or
‘one that shares or has a part with another’.
The term ‘partner’ is linked to various other words
It is said to be derived from the Latin term
partitionem which means ‘portion or division’ .

5. When a person works in his
individual capacity, he runs a
proprietary organization, also
known as a sole trader.
To carry on a business, a person may choose any
form of organization depending upon his needs.
‘Partnership’ is the most common form of organization . Law relating to partnership
is governed by the Indian Partnership Act, 1932 (the Act).
It extends to the whole of India except to the state of Jammu and Kashmir.
When he works
with some person,
they are running a
partnership.

6. Both, A and B are carpenters.
They decide to work together.
But they have an agreement under which A will keep all
the profits and pay B a pre-determined salary.
Here, A and B are not partners.
A is a goldsmith.
He agrees with B to buy and provide gold to B for making
ornaments.
They plan to sell the ornaments and share the profit.
Here, A and B are partners.

7. PARTNERSHIP
Partnership is the relationship between persons who have
agreed to share the profits of a business carried on by all
or any of them acting for all. (Section 4)
Relationship
(Between)
Persons
(Agreed)
Share the profits of the business
 Carried by all
 Any of them(acting for all)

8. Partners (Section 4)
Persons who have entered into partnership with one
another are called individually partners
Firm (Section 4)
Collectively a firm
Firm Name (Section 4)
The name under which their business is carried on is
called the firm name

9. There must be two or more persons as principals carrying on a
business.
Partnership is the result of an agreement.
It is organized to carry on a business.
The persons agree to share the profits of the business.
The business is carried on by all or any one of them acting for
all
IN SHORT

10. There must be at least two persons
natural or artificial
competent to contract
acting as principals
for the existence of partnership.
Section 11 of the Companies Act, 1956 provides that the
Maximum number of persons who can enter into a contract of
partnership in the case of banking business is Ten.
Any Other Business Twenty.
Any partnership formed in contravention of this section will be
treated as illegal association.
The section does not apply to joint Hindu family as such
carrying on a business and where a business is carried on by two
or more joint Hindu families, minor members shall be excluded
in computing the number of persons.
Two or more persons

11. The definition of the partnership stresses that
'partnership is the relation between persons who have
agreed......." therefore, there must be an agreement
entered by two or more persons to share the profits of
a business.
Business includes (section 2)
 EVERY TRADE
 OCCUPATION
 PROFESSION
A society for religious or charitable or social purposes is not a
partnership.
Agreement & Business

12. The word partnership is derived from the word to
part which means to divide.
The division of profits is an essential condition for
partnership.
Sharing of
Profits
A person can claim himself to be a partner in a business only
when he has a right to a share in the profits of the business.

13. The last words in the definition of
partnership in section 4 stress that
the business may be carried on by
all or any of them acting for all.
It means that partners when
carrying on the business of the firm
are agents as well as principals
Mutual
Agency

14. COX vs. HICKMAN [1860 8 HL Cas 268]
Facts
The business of Smith & Son into some financial problems. They
entered into an agreement with their creditors that five
representatives of the creditors would be appointed as trustees to
manage the business. A was one of the trustees. While the
trustees were managing the business, the firm was supplied some
goods on credit. The invoice was marked accepted by agents for
the trustees. This converted the invoice into a negotiable
instrument. The accepted invoice was then endorsed in favour of
B who paid a sum of money for the endorsement in his favour.
After all the debts of the creditors were repaid, the business was
returned to the owners. But the invoice remained unpaid and B an
action against the trustees including B for the price.

15. Held
A was not a partner in the firm of Smith & Son and thus,
he was not liable. Though the creditors had a share in the
profits of the firm and were managing the affairs of the
firm through their trustees, the nature of relationship
between them never changed. The trustees were managing
the business to recover money of the creditors and not as
partners of the firm helping it survive. The intention of
being partners was absent.

16. In the above case, House of Lords clarified that the sharing of profits
only created a rebuttable presumption of partnership.
Lord Cranworth elaborated further “Where two or more persons are
engaged as partners in any ordinary trade, each of them has an
implied authority from the other to bind all by contracts entered into
according to the usual course of business in that trade. ..The public
have a right to assume that every partner has authority from his co-
partner to bind the whole firm in contracts made according to the
ordinary usages of trade.”
Whether there was a partnership or not is a mixed question of fact
and law, depending upon the varying circumstances in different cases.