THE PARTNERSHIP ACT

1932
 THE CONTENT
INTRODUCTION
WHAT IS PARTNERSHIP ACT, 1932 ?
DEFINITION
CAPACITY
MEANING OF PARTNERSHIP
ESSENTIALS OF PARTNERSHIP
MODES OF DETERMININIG EXISTENCEOF PARTNERSHIP
CONCLUSION
 INTRODUCTION
The Indian Partnership Act 1932 defines a partnership as a
relation between two or more persons who agree to share
the profits of a business run by them all or by one or more
persons acting for them all. As we go through the Act we will
come across five essential elements that every partnership
must contain
 WHAT IS PARTNERSHIP ACT, 1932 ?
Partnership results from a contract and is governed by the
Partnership Act 1932. The partnership is also governed by the
general provision of the Indian Contract Act on such matters
where the Partnership Act is silent. It is expressly mentioned
that the provision of India Contract Act which is not repealed
will be applicable on Partnership until and unless such
provision is in contrary to any provision of Partnership Act,
1932. The rules of contract regarding the capacity to contract,
offer, acceptance etc will also be applicable to the partnership.
But the rules regarding the status of minor will be governed by
the Partnership Act, 1932 since Section 30 of the Act talks
about the position of the minor.
 DEFINITION
Most of the businesses in India adopt a partnership business, so to
monitor and govern such partnership The Indian Partnership Act was
established on the 1st October 1932. Under this partnership act, an
agreement is made between two or more persons who agrees to
operate the business together and distribute the profits they gain from
this business.
 CAPACITY
According to the Indian Partnership Act, there is no limit on the
maximum number of partners that can be there in partnership but
there must be a minimum of two partners. However, according to
Companies Act 2013, the maximum number of partners must not
exceed 100 in case of a partnership. If the number of members in a
partnership exceeds 100 then it is termed as an illegal association
as per Section 464 of the Companies Act, 2013.
 MEANING OF PARTNERSHIP
In a partnership firm, two or more people come together to carry out a
business for the purpose of earning profits and sharing those profits. The
partners combine their capital resources and work jointly to carry on the
business. According to Section 12 of the Indian Partnership Act, a
partnership must be formed for the purpose of carrying a business that is
legal in nature. Co-ownership of a property is not considered as a
partnership.
 ESSENTIALS OF PARTNERSHIP
There must be an agreement between the partners to carry on
the business of the partnership firm.

The aim of the formation of the partnership should be to earn profits

and share them among partners. The sharing of profit and losses can
either be according to the ratio of the capital contributed by each
partner or be equally among all the partners unless otherwise
specified.
 The partnership agreement must state that the business will be
jointly carried on by all of them or some of them acting on the behalf
of all. According to Section 13 of the Partnership Act, 1932, the
mutual agency exists between the partners. Every partner in a
partnership acts as a principal as well as an agent for other partners.
The actions of a partner are binding on the actions of all the other
partners.

Unlimited Liability- The partners can be held liable jointly for any
debts of the firm. They have an unlimited liability that extends to
their private assets for the disposal of the firm’s debts.
MODES OF DETERMINING EXISTENCE OF PARTNERSHIP

THERE MUST BE A CONTRACT

Partnership is the relationship between the persons. It is formed by the

partnership agreement. So, here the question arises that is this a valid
agreement or will this agreement form a contract. The answer is yes. Thus,
there is a contract between the partners which is called the Partnership deed.
The partners must agree to carry on a business which means there must be a
contract be it either oral or written.
 FORMED BETWEEN TWO OR MORE PERSONS

Partnership is the association between two or

more legal persons. The word ‘legal person’
here includes both natural and artificial
person. Therefore, both natural and artificial
person may be partners of a partnership firm.
 SHARING OF PROFITS

Another significant component of the partnership is, the accord

between partners has to share gains and losses of a trading concern.
However, the definition held in the Partnership Act elucidates –
partnership as an association between people who have consented to
share the gains of a business, the sharing of loss is implicit. Hence,
sharing of gains and losses is vital.
 MUTUAL AGENCY

Mutual agency is the legal relationship between partners in a

partnership where each partner has authorization powers and the
ability to enter the partnership into business contracts. In other words,
each partner in the partnership is an agent in the business and the
authority to make business decisions that commit or bind the
partnership, as a whole, to a business agreement with a third party or
entity.
 CONCLUSION

This Act was enacted to provide a legal framework to regulate

India’s formation and dissolution and partnerships. It can
explain the guidelines of the partnership’s capital, duties,
liabilities and ownership rights. The law also provides that any
partnership formed under this Act may be converted into
another form of the business entity if it is not doing business
for three years after its formation.