As per section 4 of Indian 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 of them acting for all."
Features of Partnership:
1. Business relation- The relation between the partners is business relation. It is not a social or family relation.
2. Persons/ Partners- Any individual who is competent to contract as per the provisions of Indian Contract Act,1872, can become a partner in partnership firm. Company is a juristic person, can become a partner in a partnership firm if so authorised by it's memorandum of association. The minimum number of partners in a partnership firm is Two. The maximum number of partners in a partnership firm has not been provided in the partnership act, but Section 464 of the Companies Act, 2013 read with Rule 10 of Companies (Miscellaneous) Rules, 2014 has prohibited the formation of partnership firm consisting of more than fifty partners for the purpose of carrying on any business.
3. Agreement- Partnership comes into existence by an agreement between the partners. Both oral and written agreements are perfectly valid. Written agreement among the partners is called partnership deed. Agreement either oral or written is the basis of relationship between the partners.
4. Profit sharing- Profits must be shared between the partners as per partnership agreement but if the agreement is silent then as per the provisions of Indian Partnership Act,1932 profits/losses shall be shared equally among the partners. It is not essential that all partners must share the losses. In the case of Ragunandan vs Harmasjee, it was held that it is open to one or more partners to agree to bear all the losses of the business. One more exception is that a minor as a partner shall share the profits only.
5. Lawful business- The partners must have agreed to carry on a business. Business includes every trade, occupation or profession and it must be lawful. Profit motive is an essential element of any business. If the purpose is to carry on a charitable work then it would not be a partnership.
6. Mutual Agency- The business of partnership can be carried on by all or any of the partners acting for all means there must be mutual agency. Thus, every partner is both an agent and principal for himself and other partners in the ordinary course of business. Mutual agency is the conclusive evidence of partnership because it is the feature of partnership business only. Other features of partnership can be there in other forms of business associations.
