TOPIC- ELEMENTS OF PARTNERSHIP

DEFINITION OF ‘PARTNERSHIP’,
‘PARTNER’, ‘FIRM’ AND ‘FIRM
NAME’.-
According to sec 4 of the partnership act 1932 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.

Persons who have entered into partnership with one another are called
individually „partners‟ and collectively „a firm‟, and the name under
which their business is carried on is called the „firm name‟

According to section 11 of companies act the maximum no. of partners

in case of banking is 10 persons and for other purpose is 20 persons.
Elements of ‘Partnership’:-

It contains three elements:-

1- There must be an agreement entered into by all the persons concerned
 
2- The agreement must be to share the profits of a business
 
3- The business must be carried on by all or any of the persons concerned, acting for all.
 An Agreement -.
■ Partnership arises from an agreement between two or more persons for the creation of
this relation. If the basis of the relationship between certain persons is not an
agreement, the association would not be a partnership. Some associations may be
created without an agreement e.g., the association between certain persons may arise
from status as in the case of members of a Joint Hindu Family, the main reason being
that their association is not the result of an agreement between those people

■ Section 5 in the IPA-1932 states that that ‘the relation of partnership arises from
contract and not from status. Thus, it is the element of agreement which distinguishes
a partnership from various other relationships like members of a Joint Hindu Family,
joint owners or joint heirs.
 Partnership Agreement -Oral, Written or By
Conduct
An agreement of partnership need not be express, but can be inferred from the course of conduct of the
parties to the agreement. The Supreme Court in Tarsem Singh v Sukhminder Singh, has held that it is not
necessary under the law that every contract must be in writing. There can be an equally binding contract
between the parties on the basis of oral agreement, unless there is a law which requires the agreement to be
in writing.
Tarsem Singh vs sukhminder Singh case 1998-
 
Facts-

Tarsem Singh owner of 48 kanals of land entered into a contract of sale of that land to sukhminder Singh who made part payment as earnest money.
Sale deed was not executed in favor of sukhminder who filled a suit for specific performance against the owner
The court declined to pass a decree for specific performance .however decree for refund of the earnest money was passed.
There was a stipulation in the agreement: if the purchaser failed to make the balance of payment, the earnest money shall stand forfeited.

Issues-
wheather the parties to the contract were suffering from a mistake of fact as to the rea of land agreed to be sold and the rate thereof?
- what is the effect and impact of a mistake of fact on the agreement?
 
Decision –
 
1- Section 20 provides that an agreement would be void if both parties to the agreement were under a mistake as to matter of fact essential to the
agreement.

2- The two requirements of this section are –

The mistake should be by both parties
It should be in respect of matter which is essential to the agreement.

3 - In this case the mistake were regarding the area of land which was the subject matter of agreement for sale and the area of the land was essential to
the agreement for sale and the area of the land was essential to the agreement because the price was to be calculated on the basis of area.

4 – For forfeiture of earnest money section 74 of contract act is not applicable in this case because that section contemplates a valid and binding
agreement between the parties which is not case here.
Since the forfeiture clause is contained in an agreement which us void on account of the fact that the parties were not ad item and were suffering from a
mistake of fact in respect matter which was essential to the contract, it cannot be enforced. When an agreement is void, all its terms are void and none of
its terms can be enforced.
Persons capable of becoming partners

The Indian companies act, 2013 establish a limit on the number of partners in a company as
follows-
■ For banking business purpose partners must be less than equal to 10
■ For any other enterprise partners must be less than or equal to 20
■ The partnership become illegal of the no. of partner exceeds the limit
The following can enter into a partnership:-

1- A minor or a person of unsound mind, who are not competent to contract, cannot become partners.
But A minor has been permitted to be admitted to the benefits of partnership. Such minor has a right to such share of property
and profits as may be agreed upon. Moreover, such minor’s share is liable for the act of the firm, but the minor is not
personally liable for any such act.

2- INDIVIDUAL: An individual, who is competent to contract, can become a partner in the partnership firm. If there are more
than two partners in a firm, an individual can be a partner

3- FIRM: A partnership firm is not a person and therefore a firm cannot enter into partnership with any firm or individual. But
a partner of the partnership firm can enter into partnership with other persons and he can share the profits of the said firm with
his other co-partners of the parent firm.

4- HINDU UNDIVIDED FAMILY: A Karta of the Hindu undivided family can become a partner in a partnership in his
individual capacity, provided the member has contributed his self-acquired or personal skill and labor.
 
 
5- COMPANY: A company is a juristic person and therefore can become a partner in a partnership firm, if it is authorized to
do so by its objects.
 
 
6- TRUSTEES: Trustees of private religious trust, family trust and trustees of Hindu mutts or other religious endowments are
juristic persons and can therefore enter into partnership, unless their constitution or objects forbid.
 2- Sharing of profits
The main goal of a company is to earn profit these profits are shared in a predefined ratio
among the partners. If a persons not entitled to share income, he cannot be called a
partner but a partner is not liable according to an agreement to share the looses
every person who shares the profits need not always be a partner. For example, I may pay
a share of profits to the manager of my business instead of paying him fixed salary so
that he takes more interest in the progress of the business, such person sharing the profits
is simply my servant or agent but not my partner
Case- R.N. Kothare v Hormasjee-1927

Both enetred into an agreement, which described them as partners. Towards

profit Kothari was to received rs.500 /- p.m. and he was not responsible for
any losses. Later when the dispute arose between the parties kotare
contended that he was not the partner in the firm and was drawing only
salary

the court held – partner can agree to share the profit in way they like .this
also covers agreement to share fixed salary but not share the loss . Held that
both are partners in the firm.
 Carrying of business –
The object of every partnership must be carrying on a business and sharing its profits. It may be any business which is
not unlawful. The Act defines business as including „every trade, occupation or profession. ‟The definition is not
exhaustive and is capable of including any kind of commercial activity aimed at earning profits. The business, for
instance, may be of working as tailors, engaging in legal profession, rendering medical services, producing a film,
running a banking business, or pu
■ It is further necessary that the business must be carried on by all the partners or any of them acting for all of them.
Carrying on of a business involves a series of transactions. Merely a single isolated transaction of purchases and sale
by a number of persons does not mean carrying on of the business.
■ For example, A and B jointly purchase a building for a sum of Rs. 2,00,000 and after sometime they sell the
building for Rs. 3,00,000 and share the gain of Rs. 1,00,000 equally. This transaction is not the carrying on of the
business between A and B and, therefore, they are not partners. There is, however, a possibility that the partners may
engage in a single adventure or a single undertaking and that may involve the carrying on of a business
Case- k.jaggian vs kokumanu 1984

The decision of the A.P. High Court in K. Jaggaiah v Kokumanu, illustrates a single venture amounting to the carrying
on of business. In this case, the plaintiff and the two defendants joined together and obtained a contract for the
maintenance of a road. There was held to be partnership in the road building activity. Such activity though arising out
of a single contract was spread over a particular period and the firm had to employ certain workers, supervise the
work, prepare the bills and finalize the work and get the approval from the Government and finally receive the bills,
and all that meant carrying on of business. A firm constituted for managing the agency of a company would come to
an end when the managing agency is terminated
 
Mutual agency
 
A relation with a mutual agency means that all or any partner must conduct a company’s business. A partner is an agent of the
other partner and can thus bond another partner through his act. A partner is also principally responsible for the actions of the other
partner of the company.