1. The Partnership Act lays down the important provisions relating to partnership contracts. However, the general principles of the Contract Act also continue to apply to the partnership contracts. A business can be carried on by a single individual by using his own funds or by two or more persons together in which case some of them would bring in money and some of them would use their business skills. These persons agree to share the profits and losses of their venture and it amounts to a contract. The rights and liabilities arising out of such a mode of carrying on business are governed by the Partnership Act.
2 MEANING AND NATURE OF PARTNERSHIP
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's name.
It must always be remembered that a partnership is not a separate legal entity like a company formed under the Companies Act, 1956. Let us try to understand the concept of a 'separate legal entity' little more clearly which is very important as this forms the basis for the difference between a company and a partnership.
In the case of a company formed by the members, who contribute the capital and start the business of the company, the wrongful acts of the company are not the wrongful acts of the individual members of the company. A person who is cheated by the company cannot file a case against each and every mem¬ber or even a single member of the company saying that the members of the company have cheated him. A company has its own separate existence and the person who is cheated can claim damages from the funds of the company and not from the pockets of the members forming the company.
A partnership is formed by the persons who have come together to carry on a business and share profits. However, if a particular partner cheats a customer and runs away with, say Rs. 1 lakh, then the other partners have to pay for his misdeed (and in fact the customer can catch any single partner and demand him to shell out the entire funds). If the partnership firm is left with no funds, the individual partners will have to pay the funds from their own pockets.
Hence, from the above it can be seen that there is a difference between the company and the members forming the company, while the partnership is seen clearly to be a group of persons who have joined together to do business. The partnership firm and the partners are not separate from each other.
The sharing of profits or returns arising from property by persons holding a common interest in that property does not mean that the persons have formed a partnership firm to carry on such business.
If a payment to a person is dependent upon the earning of profits or varying with the profits earned by a business, or he is given a share of the profits of the business then simply this fact does not make the person receiving such payment as a partner in the business.
Example: The receipt of a payment or share in profits of the business by a servant or agent as remuneration. Hence, to summarise the essentials of a partnership.
Partnership is the result of an agreement between the persons joining together to do some lawful business.
• The contract between the partners may be oral or written.
• The partnership must be formed to carry on some lawful business.
• The business must be carried on to earn and share the profits and returns of the business.
• There must be a mutual relation of 'agency' between the partners. This means that any partner can
by his acts bind all the partners of the firm. This is the meaning of 'business carried on by all or any
of them acting for all' in the definition of partnership.
Illustrations
(a) A and B buy ten boxes of mangoes agreeing to equally share the mangoes for personal consumption
and pay the purchase price thereof. This is not a partnership. However, if they further agree to
sell some mangoes and share the profits from the sale, it is a partnership.
(b) A and B are joint owners of a car. It is not a partnership. However, if they decide to give it on hire
and share the rentals it is a partnership between the two.
3 TYPES OF PARTNERSHIP
1. Partnership at will
Where no provision is made by a contract between the partners for the duration of their partnership or for the determination (i.e. the termination or end) of the partnership - the partnership is known as 'partnership at will'. A partnership at will can be dissolved by any partner by giving notice in writing to all the other partners of his intention to dissolve the firm. The firm gets dissolved from the date mentioned in the notice as the date of dissolution and if no date is mentioned, the/firm gets dissolved from the date of the commencement of the notice.
2. Partnership for a fixed period
When two or more persons enter into a partnership agreement for a fixed period of time, it is known as a partnership for a fixed term. In such a case, when the fixed period of partnership is over, it comes to an end. However, the partners can continue to carry on the business after the fixed period. In that case, the mutual rights and duties remain absolutely unaffected and the partnership is automatically transformed into a partnership at will.
3. Particular partnership
Such partnership is entered into, for completing a particular job or assignment taken up by two or more persons jointly and to share the profits arising there from. Hence, a person may become a partner with another person in particular adventures or undertakings.