Partnership under Indian Partnership Act, 1932. (Part-1)

The Indian Partnership Act was enacted in 1932 and it came into force on 1st October 1932.

A partnership is a form of business organisation, where two or more persons join together to jointly carrying on some business. It is an evolution of the ‘sole trade business’ where one single individual with his resources, skill and effort carries on his own business. Due to the limitation of the resources of only a single person is involved in the sole-trade business, a larger business requiring more investment and resources than available to a sole-trader cannot be thought of in such a form of business organisation. In a partnership, on the other hand, several persons could pool their resources and efforts and could start a much larger business than could be afforded by any of these partners individually. In case of loss also the burden gets divided amongst various partners in a Partnership.


Any two or more persons can join together for creating a partnership. Section 11 of the Companies Act,1956 imposes a limit as to the maximum number of persons in a partnership. In a partnership to carry on banking business, there can be a maximum of 10 partners whereas if the partnership is for carrying on any other business, there can be a maximum of 20 partners.

In certain respects, a partnership is a more suitable form of business organisation than a company. The creation of a partnership agreement between various persons is what is required whereas in the case of a company there is a lot of procedural formality which have to be gone through before a company is created.

Section 4 of The Indian Partnership 1932 defines ‘Partnership’ as under:
” 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 a 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”.

Essentials of Partnership:
(1) There should be an agreement between the person who wants to be partners.
(2) The purpose of creating a partnership should be carrying on of business.
(3) The motive for the creation of partnership should be earning and sharing profits.
(4) The business of the firm should be carried on by all of them or any of them acting for that is in the mutual agency.

Aishwarya Says:

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