BRF 2011 (Solved)

In India, Partnership firm is governed by the Indian Partnership Act 1932. Section 4 of this act defines partnership as:
"The relationship between persons, who have agreed to share the profits of a business carried on by all or any one of them acting for all."
According to Prof. Haney, partnership is "the relation between persons competent to make contract who agree to carry on a lawful business in common with a view to private gain."
Partnership in this way is an agreement, between two or more persons to carry on legal business with profit motive, which is carried on by all or any one of them acting for all.
From the above definition the following can be drawn as essentials or characteristics of a Partnership Firm.
a)      Association of two or more persons :- There must be atleast two persons to form a partnership. The maximum no. of persons in a partnership is not provided in the Partnership Act but Section 11 of the Companies Act, 1956 provides for the same. Accordingly, if the partnership firm is engaged in a banking business the maximum number of partners permissible is 10 and in case the partnership firm is in any other business the maximum number of partners permissible is 20.
b)      Presence of a Contract:- There is a contractual relationship between the partners. Therefore there must be a agreement between the partners. The agreement may be express or implied. This agreement must fulfill all the essentials of a valid contract under the Indian Contract Act.
c)       To conduct Business :- The idea of few persons coming together and doing some activity for charitable purpose cannot be termed as partnership. The intention to conduct business is essential for the partnership. The term business is defined in Section 2(b) as ‘business includes every trade, occupation and profession.’ The word business generally covers the intention of doing transactions to achieve some goal.
d)      Profit-Sharing: The agreement between/among partners must be to share profit or losses. It is not essential that all the partners must share the losses also. There may be specific provision in the partnership deed that a particular partner or partners shall not bear the losses.
e)      Motive: For a partnership firm there must be motive to earn profit. A partnership firm cannot be formed with service motive.