Partnership Act, 1932

The Indian Partnership Act, 1932 or simply, The Partnership Act, 1932 is an act enacted by the Parliament of India in the year 1932. It received the assent of the Parliament on 8th of April, 1932, and the act commenced on 1st of October, 1932.

What is a Partnership?

A partnership is established when two or more individuals establish a formal business relationship between themselves. A partnership is different from a company.

A partnership is a result of a contract and is governed by the Partnership Act, 1932. The general provisions of the Contract Act also govern the partnership on those matters where the Partnership Act is silent. The rules of contract relating to the capacity of parties to contract, offer, acceptance, etc. will also be applicable to the partnership. However, the status of minor is governed by the Section 30 of the Partnership Act, 1932. The given Section 30 of the Act talks about the position of the minor.

As per Section 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 one of them acting for all”.

Essential Requirements of a Partnership

A partnership which possesses all the requirements of a successful business is an ideal partnership. The following essential conditions must be met to form an ideal partnership-

  1. Contract for Partnership

A partnership is the result of contract. It does not arise from operation of law, status or inheritance.

Thus, at the time of the death of any partner in the partnership firm, the son can claim in the shares, but cannot become a partner unless he enters into a contract for the same.

Thus, the basic foundation of the partnership is “a contract”.

  • Maximum number of Partners in a Partnership is 20

A partnership is a result of a contract, and thus at least two people are necessary to constitute a partnership. However, in the Partnership Act, 1932, there is no mention of the maximum number of partners for any partnership firm.

But, the Companies Act mentions the number of maximum number of partners for partnership firm under two heads, which are-

Type of PartnershipMaximum Number of Partners
Partnership for Banking Business10
Partnership for Other Business (Other Than Banking business)20
  • Carrying on of Business in a Partnership

Another essential element of the partnership is that the parties must have agreed to carry on a business. Here the word “business” is used in its widest sense and includes every trade, profession or occupation.

Thus, if the purpose is to carry on any business other than those mentioned above, and then it will not be a partnership.

  • Sharing of Profits

Another essential element of the partnership is the sharing of the profits. No partnership firm can be formed, whose intention is not to share profit. There would be no partnership firm, if the object of carrying on the business of the firm is philanthropic motive or where profit is to be shared by only one of the partner only.

To constitute the partnership, the profit sharing ratio of the partners is to be specifically mentioned in the partnership agreement.

In the absence of prior agreement of profit sharing ratio, the provisions of the Partnership Act, 1932 will apply, which states that the profit/losses should be shared equally among the partners.

  • Mutual Agency in a Partnership

The fifth element in the partnership is that there must be a mutual agency, i.e. the business must be carried on by all the partners or any one of them acting for all or any one or more acting on behalf of others.

Aishwarya Says:

I have always been against Glorifying Over Work and therefore, in the year 2021, I have decided to launch this campaign “Balancing Life”and talk about this wrong practice, that we have been following since last few years. I will be talking to and interviewing around 1 lakh people in the coming 2021 and publish their interview regarding their opinion on glamourising Over Work.

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