Partnership : process

and procedure
Introduction
A partnership is an arrangement in which parties agree to cooperate
to advance their mutual interests.[1]
Since humans are social beings, partnerships between individuals,
businesses, interest-based organizations, schools, governments, and
varied combinations thereof, have always been and remain
commonplace. n the most fre!uently associated instance of the term,
a partnership is formed between two or more businesses in which
partners "owners# co-labor to achieve and share profits and losses "see
business partners#. $artnerships e%ist within, and across, sectors.
&on-profit, religious, and political organizations may partner together
to increase the li'elihood of each achieving their mission and to
amplify their reach. n what is usually called an alliance, governments
may partner to achieve their national interests, sometimes against
allied governments holding contrary interests, as occurred during
(orld (ar and the )old (ar. n education, accrediting agencies
increasingly evaluate schools by the level and !uality of their
partnerships with other schools and a variety of other entities across
societal sectors. Some partnerships occur at personal levels, such as
when two or more individuals agree to domicile together, while other
partnerships are not only personal, but private, 'nown only to the
involved parties.
*efinition
1. Partnership is defined as a relation between two or more persons who
have agreed to share the profits of a business carried on by all of them or any
of them acting for all. The owners of a partnership business are individually
known as the "partners" and collectively as a "firm".
Selection of topic
Having a partnership in business can help in several ways. The frst being: one partner may
have one set of talents and the other may have another set of talents. If you combine those
two together, this will allow the fow of ideas to come out. Since more than one person are
contributing resources the capital of the frm becomes larger than any other kind of bisiness
frm
Partnerships present the involved parties with special challenges that must be navigated
unto agreement. Overarching goals, levels of give-and-take, areas of responsibility, lines of
authority and succession, how success is evaluated and distributed, and often a variety of
other factors must all be negotiated. Once agreement is reached, the partnership is typically
enforceable by civil law, especially if well documented. Partners who wish to make their
agreement affirmatively eplicit and enforceable typically draw up !rticles of Partnership.
"t is good to take up with partnership firm and hence we have selected this topic partnership
firm process and procedure for detail study
Review of literature
www.wikipedia.com
www.meritnation.com
www.studymode.com
Organization of Commerce and Management STD-XII by
Maharashtra State Board
P.C.TULSAIN AND VISHAL PANDEY Business organization and
management pearson, education, private limited
Dr R. K. Singla , business studies global publication private limited
Relevance
1# A partnership firm is not a legal entity apart from the partners constituting it. "t has
limited identity for the purpose of ta law as per section $ of the Partnership !ct of 1%&'.
()*
'# Partnership is a concurrent subject. +ontracts of partnerships are included in the
,ntry no.) of -ist """ of The +onstitution of "ndia .the list constitutes the sub/ects on which
both the 0tate government and +entral .1ational# 2overnment can legislate i.e. pass laws
on#.
(3*
&# Unlimited Liability. The ma/or disadvantage of partnership is the unlimited liability of
partners for the debts and liabilities of the firm. !ny partner can bind the firm and the firm is
liable for all liabilities incurred by any firm on behalf of the firm. "f property of partnership firm
is insufficient to meet liabilities, personal property of any partner can be attached to pay the
debts of the firm.
(3*
$# Partners are Mutual Agents.The business of firm can be carried on by all or any of them
for all. !ny partner has authority to bind the firm. !ct of any one partner is binding on all the
partners. Thus, each partner is 4agent5 of all the remaining partners. 6ence, partners are
4mutual agents5. 0ection 13 of the Partnership !ct, 1%&' says "0ub/ect to the provisions of
this !ct, a partner is the agent of the firm for the purpose of the business of the firm"
(3*(%*
7# Oral or Written Agreements. The Partnership !ct, 1%&' nowhere mentions that the
Partnership !greement is to be in written or oral format. Thus the general rule of the
+ontract !ct applies that the contract can be in be 8oral8 or 8written8 as long as it satisfies the
basic conditions of being a contract i.e. the agreement between partners is legally
enforceable. ! written agreement is advisable to establish eistence of partnership and to
prove rights and liabilities of each partner, as it is difficult to prove an oral agreement.
(3*(19*
:# Number of Partners is minimum 2 and maximum ! in any "ind of business
acti#ities.0ince partnership is 4agreement5 there must be minimum two partners. The
Partnership !ct does not put any restrictions on maimum number of partners. 6owever,
section $:$ of +ompanies !ct '91&, and ;ule 19 of +ompanies .<iscellaneous# ;ules,
'91$ prohibits partnership consisting of more than 79 for any businesses, unless it
is registered as a company under +ompanies !ct, '91& or formed in pursuance of some
other law. 0ome other law means companies and corporations formed via some other law
passed by Parliament of "ndia.
)# Mutual agency is the real test. The real test of 4partnership firm5 is 4mutual agency5 set
by the +ourts of "ndia, i.e. whether a partner can bind the firm by his act, i.e. whether he can
act as agent of all other partners.
(3*
Methodology
Having a clear description of the methods that will be used to accomplish the
project objectives will make a strong application even more competitive. Mainly
there are four types of methods which can be followed:-
1)Historical method
2)Survey or case-study method
3)Descriptive method and lastly
4)Questionnaire method
Description of method
followed
This includes information documented through studies related to feasibility, nature analyses,
site control, surveys, data collection, and other forms of /ustification
The bulk of my methodology discussion contains detailed descriptions of what pro/ect
activities will be conducted and how they will be carried out. !s my =plan of attack,> my
proposed methodology shows a logical and well-thought-out plan to carry out
reasonable pro/ect activities that will lead to the desired outcome. discriptive method
describes in a coherent manner,data naturally progressing from start to finish.
Detail report
What constitutes a
partnership
A firm is strictly not a person+ t is an association of persons and the agreement by
which
a firm purports to enter into a partnership with an individual or another firm merely
ma'es the partners of that firm individual partners of the larger partnership. A firm as
such cannot enter into an agreement as a partner with another firm or individuals.
,herefore, when one partnership enters into a partnership agreement with another
partnership firm, the partnership is in fact between all the partners of both the firms.
,he Supreme )ourt has observed that a partnership agreement creates and defines
the
relation of partnership and, therefore, identifies the firm. if that conclusion is correct,
it
is only a further step to hold that each partnership agreement may constitute a
distinct
and separate partnership and, therefore, a distinct and separate firm.
,hat is not to say that a firm is a corporate entity or en-oys a -uristic personality in that
sense. ,he firm name is only a collective name for the individual partners and each
partnership is a distinct relationship. ,he partners may be different and yet the nature
of
the business may be the same, the business may be different and yet the partnership
may be the same. And agreement between partners to carry on a business and to
share
its profits may be followed by a separate agreement between the same partners to
carry
on another business and share the profits therein. ,he intention may be to constitute
two separate partnerships and two distinct firms or to e%tend merely the partnership
originally constituted to carry on one business or to carrying on another business. t
will
depend on the intention of the partners. ,he intention of the partners will have to be
decided with reference to the terms of the agreement and all the surrounding
circumstances
including evidence as to interlacing or interloc'ing of management, finance or
other incidentals of the respective businesses.
n other words, the same partners can form two different partnerships. ,he Supreme
)ourt has held that the word .person/ in section 0 of the $artnership Act contemplates
only natural or artificial or legal person and a firm is not a person and as such not
entitled to enter into a partnership with another firm or 1. 2. 3. or individual. n this
view
of the matter there can arise no !uestion of registration of a partnership purporting to
be between three parties viz. a firm, a 1.2.3. and an individual as a firm.
A partner in his individual capacity can legally be a partner in a firm and the fact that
he
has secured his capital from another firm or that he has entered into partnership with
other members of that firm in respect of his share in the first mentioned firm does not
show that the other firm is a partner of the first mentioned firm or that the latter firm
is
not validly constituted. A divided member or some of the divided members of an
erstwhile -oint 1indu family can enter into partnership with a third person, but under
some arrangement inter-se between other members of the divided family but the
partnership will have no concern with the obligations of such divided members to
other
members of their family in the partnership and their shares in the partnership have
nothing to do with their shares n the 4oint family/s divided properties.
&ot only that but it has been held that the 5arta of a 1.2.3 can enter into partnership
with an individual member of that very family provided the member has contributed
his
own self ac!uired capital by way of money or other property to the capital of the firm.
And the members personal s'ill and labour is held to be his property which can be a
contribution to the capital of such a firm./ Similarly if a benamidar, who has the
character of a trustee of the real owner, enters into partnership with another in his
own
name the share allotted to him in the partnership must be held to specify his
individual
share therein./ Shortly, therefore, the position is that partnership can be only between
individuals and6or any other legal entity, and those who are actually parties to a
partnership agreement will be considered as partners irrespective of their personal
relationship with others inter-se and with which the partnerships will not be
concerned,
such as the beneficiaries if their trustee is a partner or the real owner f his benamidar
is
a partner or members of a 123 if their 5arta is a partner or the partners of a firm if
one
of them is a partner of the other firm and so on.
Types of partnership
,he result of this summary of the Act is that a partnership is generally created by
agreement between the partners. A partnership can be formed between
one or more ndividuals or
between an ndividual and a person representing a 1.2.3. or
between an ndividual and other partner representing his firm, or
between two partnership firms or
between a 7imited )ompany or a )orporation and an ndividual or partnership firm or
between a partnership and a 1.2.3.
between members of 123 in their individual and independent capacity
between a 123 and a member of that 123 independently
Partnership under Companies Act
Section 4 of the )ompanies Act, 189:, provides that the number of partners in a firm
shall not e%ceed ;<, and a partnership having more than ;< persons will be illegal.
(hen there is partnership between two firms all the partners of each firm will he ta'en
into account for the purpose of this provision but if a partnership is between the 5arta
or any member of 123 on the one hand and another individual or ndividuals on the
other, the members of the -oint family will not be ta'en into account. A 1indu 2ndivided
family carrying on business as such, not being a partnership, S 11 of the )ompanies Act
will not apply even if the members of that family are more than ;<. =ut where two or
more 1indu 2ndivided families are carrying on business in partnership the number of
the members of those families e%cept minors will be ta'en into account for the purpose
of S. 11 of the )ompanies Act.
Partnership under Income Tax Act
A partnership to be recognised for the purpose of income ,a% liability of the partners
and their firm is re!uired to comply with certain provisions of the ncome ,a% Act. (hile
therefore drafting a deed of partnership the provisions of the Act are re!uired to be
ta'en in to account. 3or detail discussion on this !uestion See Chapter 3 part VIII.
Partnership and other bodies of Individuals
A partnership is distinguishable from several other associations or bodies of individuals.
A partnership is different from co-owners in several respects. ,he distinguishing features
are stated by the Supreme )ourt in )hamparan )ane )oncern )orporation v. State of
=ihar. t is different from a club which is an association of persons formed for the
purpose other than carrying on business and therefore there is no ob-ect to earn profit.
$artnership is differentfrom a company or any other corporate body which is a legal
entity. $artnership is also different from 1indu 4oint family firm, the latter being a
creation of law while the former is a creation of contract. t is not necessary to discuss
the sub-ect in more detail as each of these bodies are dealt with separately elsewhere
Partnership deed/
agreement
As stated above a partnership is constituted by an agreement between the partners. The
agreement may be in writing or oral. But from the practical point of view and particularly in
view of the provisions of other Acts such as the Income Tax Act as well as Partnership
Act an oral partnership is not practicable, and therefore, a partnership agreement is
necessarily required to be in writing.
Therefore, the mere fact that two persons as joint owners either as heirs or legatees are
carrying on abusiness it does not necessarily mean that they are partners and if they want to
carry on the business in partnership, then a Partnership agreement in writing becomes
necessary. For eample, if a person dies leaving a running business and his heirs continue to
carry on such business, it will not be a business carried on in partnership and if they want to
do so they will have to enter into a regular agreement of partnership.
Being an agreement and an agreement enforceable at law, such an agreement must fulfill
the basic requirements of a valid contract, as required by the !ontract Act. Therefore, a
minor or a mentally handicapped person cannot enter into a partnership agreement though
by virtue of the provisions of thePartnership Act a minor can be admitted only to the
benefits of the partnership. But that only means that a minor can have a share in
the profits of the business, but he cannot become a partner, and cannot eecute any
agreement of partnership.
"imilarly if a partnership deed provides that on the death of a partner his heirs or any one or
more of them should be admitted as partners or partner in place of the deceased partner
even in such a case on the death of a partner his heirs or any of them do not become
partners automatically on such death. But a fresh agreement of partnership will have to be
eecuted between the eisting partners and the heirs or heir of the deceased partner and if
the heir is a minor the new partnership will stand postponed till the minor attains majority
or if the surviving partners are more than one, the minor can only be admitted to the
benefits of partnership.
CLAUSS !R C!"#"#S
!$ PAR#"RS%&P DD
The partnership deed usually contains the following clauses.
1. 1ame and location of business.
'. The nature of the business.
&. The amount of capital to be contributed by each partner.
$. Provisions or reinvestment in business.
7. The duties, powers and obligations of all the partners.
:. -ength or life of business.
). The method of distribution of profit and sharing of the losses.
3. <ethod of admitting a new partner.
%. Procedure for withdrawal of a partner.
19. The method of valuation of goodwill on and orretirement or death of a partner.
11. <ethod of revaluation of assets or liabilities on admission, retirement or death of
a partner.
1'. Procedure to be followed for epulsion of a partner.
1&. !rrangements to be followed in case a partner becomes insolvent.
1$. 0alary, if any, payable to the partners for managing the firm.
17. The method of preparing accounts and arrangement for audit.
1:. Procedure for the dissolution of the firm and settlement of accounts.
1). !rbitration in case of disputes among partners.
13. Operation of bank account.
The above items are not the final list of clauses. !ny clause mutually agreed to by
the partners can be "ncluded in the agreement. "f the deed is silent on any point, then
the provisions of Partnership !ct of 1%&', will apply.
How to create a
Partnership Deed?
,he document in which the respective rights and obligations of the members of a
partnership is written is called the Partnership eed.
A partnership deed agreement may be written or oral. 1owever, practically oral agreement
does not have any value for ta% purposes and therefore the partnership a!reement should
be "ritten. ,he following are the essential characteristics of a partnership deed>-
&ame and Address of the firm as well as all the partners
&ature of business to be carried on
*ate of )ommencement of business
*uration of $artnership "whether for a fi%ed period6pro-ect#
)apital contribution by each partner
$rofit sharing ratio among the partners
,he above are the minimum essentials which are re!uired in all partnership deeds. ,he
partners may also mention any additional clauses. Some of the e%amples of additional
clauses which may be mentioned in the partnership deed are mentioned below>-
nterest on $artner/s )apital, $artners/ 7oan, and nterest, if any, to be charged on
drawings.
Salaries, )ommissions etc, if any, payable to partners
?ethod of preparing accounts and arrangement for audit
*ivision of tas' and responsibility i.e. the duties, powers and obligations of all the
partners.
@ules to be followed in case of retirement, death and admission of a partner
#S# !$ PAR#"RS%&P
As stated before, a partnership agreement can be oral or in writing. #t is not the general
practice to enter into a preliminary agreement to enter into a regular partnership
agreement. But if such a preliminary agreement is entered into and the partners start
business in anticipation of eecuting a formal deed of partnership, the partnership shall be
deemed to have commenced from the commencement of the business, unless the
preliminary agreement is conditional upon the happening or not happening of some event
in which case the partnership cannot be said to have come into eistence unless the event
has happened or not happened. Another test of partnership as mentioned above is that of
sharing profits, and which is an essential requirement of a partnership. Profits may be
shared in such proportions as the parties may agree, but sharing of profits is most essential.
As against that, sharing of losses only suffered in business is not a test to constitute a
partnership.
Therefore, the partnership agreement may provide that a particular partner or partners will
not be liable to bear any losses of the firm. As regards sharing in profits the agreement may
provide that a partner shall receive only a fied share in the profits or a fied periodical
amount and #t is not necessary that profits should be shared in certain proportions.
Section 6 of the Partnership Act provides that #n determining whether a group of persons
is or is not a firm or whether a person is or is not a partner in a firm regard shall be had to
the real relation between the parties as shown by all the relevant facts ta$en together.
#t further provides that sharing of profits or gross returns arising from property by persons
holding joint or common interest in that property does not of itself ma$e such persons
partners, that is, as stated above, mere joint ownership of business does not constitute a
partnership.
"imilarly, receipt by a person of a share of the profits of a business or a payment contingent
upon earning of profits or carrying with the profits earned by a business, does not of itself
ma$e him a partner with the person carrying on the business. For eample, the receipt of a
share or payment by a lender of money to persons engaged or about to engage in a business
does not ma$e such lender a partner.
"imilarly, a share given in profits to a servant or agent as remuneration does not ma$e him a
partner, or if a widow or child of a deceased partner is given any annuity in payment of the
share of the deceased partner #t does not ma$e the widow or child a partner, or if a business
is sold with goodwill and the seller is given a share in profits towards payment of the sale
price it will not ma$e him a partner of the firm. But otherwise wherever the agreement is for
sharing of business carried on by two or more persons the partnership relation will be
inferred.
The partnership business may consist of doing anything which is not illegal or against public
policy. Business may consist of carrying a continuous trade. or profession or any
manufacture and any other activity of which the object is to earn profits. %r it may be
limited to a single adventure.
PAR#"RS%&P A"
A'"C(
The third essential of a partnership is that a partnership business actually may be carried on by all
the partners together or by any one or more partners for all and on behalf of the others, in which case
each partner is an implied agent of the other partners. #t is not. therefore, necessary that all the
partners ta$e part in the business of the partnership firm. "ome partners can be active partners and
others can be sleeping partners. But it must be clear that there is an implied or epress agency
constituted in favour of one partner by the other partners. #f there is no element of agency, even if
there is any agreement to share profits, there will be no partnership. "o a partner has a double
capacity, he is the principal so far as he is concerned and the agent so far as other partners are
concerned
Limits on Agency of
partners
As stated above, every partner is an agent of the other partners and has implied authority to
do all acts and things necessary for the purpose of carrying on business of the firm. But such
an implied authority does not empower a partner to
&a' "ubmit a dispute relating to the business of the firm to arbitration or
&b' open a ban$ing account on behalf of the firm in his own name,
&c' compromise or relinquish any claim or a portion of a claim by the firm,
&d' withdraw a suit or proceeding on behalf of the firm,
&e' admit any liability in a suit or proceeding against the firm,
&f' acquire immoveable property on behalf of the firm,
&g' transfer any such property, or
&h' enter into any partnership on behalf of the firm.
These being the implied authorities they can be modified by epress provisions in the
partnership deed.
Period !$ PAR#"RS%&P
A partnership can be for a fied period of time or it may be limited to a particular adventure
as provided in Section 8 or it may be for a duration at the will of the partners. (here the
period of the partnership is not fied and the partnership is not for a particular adventure
then under section 7 of the Act the partnership shall be deemed to be a partnership at will.
CHOOSING
PARTNERSHIP IR!
NA!E
,he partners are free to choose any name as they desire for their partnership firm sub-ect to
the following rules>-
,he names must not be too identical or similar to the name of another e%isting firm
doing similar business so as to lead to confusion. ,he reason for this rule being that the
reputation or goodwill of a firm may be in-ured, if a new firm could adopt an allied
name.
1.
,he name must not contain words li'e )rown, Amperor, Ampress, Ampire or words
e%pressing or implying the sanction, approval or patronage of Bovt e%cept when the
State Bovt signifies its consent in writing to the use of such words as part of the firm
name [Section 9C"D#]
How to re"ister a
Partnership ir# in
India
$artnerships in ndia are governed by the ndian $artnership Act, 18D;. As per the
$artnership Act, #e!istration of Partnership $irms is optional and is entirely at the
discretion of the partners. ,he $artners may or may not register their $artnership
Agreement.
1owever, in case the partnership deed is not registered, they may not be able to en-oy the
benefits which a registered partnership firm en-oys.
@ecommended @ead> =enefits of @egistration of a $artnership 3irm
@egistration of $artnership 3irm may be done before starting the business or anytime during
the continuance of partnership. 1owever, where the firm intends to file a case in the court to
enforce rights arising from the contract, the registration should be done before filing the
case.
,he procedure for @egistration of $artnership 3irms in ndia is fairly simple. An application
and the prescribed fees are re!uired to be submitted to the @egistrar of 3irms of the State in
which the firm is situated. ,he following documents are also re!uired to be submitted along
with the application>-
1. Application for @egistration of $artnership in 3orm &o. 1
;. *uly filled specimen of Affidavit
D. )ertified ,rue )opy of the $artnership *eed
0. Ewnership proof of the principal place of business or rental6lease agreement thereof.
,he application or statement must be signed by all the partners, or by their agents especially
authorised in this behalf. (hen the registrar is satisfied with the points stated in the
partnership deed, he shall record an entry of the statement in a register called the @egister
of 3irms and issue a )ertificate of @egistration "Sec 98#.
,he @egister of 3irms maintained at the office of the @egistrar contains complete and
up-to-date information about each registered firm. ,his @egister of 3irms is open to
inspection by any person on payment of the prescribed fees "Sec ::#.
Any person interested in viewing the details of any firm can re!uest the @egistrar of 3irms for
the same and on payment of the prescribed fees, a copy of all details of with 3irm registered
with the @egistrar would be given to the applicant
t should however be noted that registration with the @egistrar of 3irms is different from
@egistration with the ncome ,a% *eptt. t is mandatory for all firms to apply for @egistration
with the ncome ,a% *epartment and have a $A& )ard.
After obtaining a $A& )ard, the $artnership 3irm would be re!uired to open a )urrent
Account in the name of the $artnership 3irm and operate all its operations through this =an'
Account.
@A,@?A&,
2nder the $artnership Act no person can be admitted into
partnership without the consent of the other partner or partners
unless there is any contract to the contrary "S. D1#.
Any partner may. with the consent of all the other partners or in
terms of the deed of partnership where the partnership is at will,
by giving notice in writing to all other partners, to that effect,
dissolve the partnership or retire from partnership.
A retiring partner, however, continues to be liable to third parties
even f the liability s ta'en over by the remaining partners "S.D;#.
,herefore in a deed of retirement it is necessary to provide that n
the event of the retiring partner being held liable by a third party,
the remaining partners shall indemnify him to that e%tent, when
the liabilities are ta'en over by the remaining partners.
nsolvency of a partner also causes compulsory retirement of an
insolvent partner "S. D9#. t is, therefore, generally provided in a
deed of partnership when there are more than two partners that
the insolvency of any partner will not dissolve the partnership. f a
partner retires, unless there is contract. to the contrary, the
retiring partner cannot use the firm name, represent himself as
carrying on the business of the firm or solicit the customers of the
3irm. "S.D:#.
,herefore, in a deed of retirement t is generally not necessary to
ma'e e%plicit that the retiring partner shall not do any of these
things. =ut if he is to be restrained from carrying on similar
business for a specified period or in a specified area, such
condition can be provided in the deed of retirement and it is legal
"S.D:";##.
Disso$ution
,he Act also provides that a partnership firm may be dissolved under the following
circumstances namely,
as a result of any agreement between all the partners
by ad-udication of all the partners or all partners but one as insolvent, or
by the happening of an event which ma'es it unlawful for the business of the firm to be
carried on in partnership or
sub-ect to agreement between the parties,
efflu% of time,
completion of the adventure,
death of a partner, and
insolvency of a partner.
n these last four cases the partnership agreement may provide whether the firm will be
dissolved or not on the happening of any of the four events. Aven if the deed provides
that the partnership will not be dissolved on the death or insolvency of a partner, it does
not mean that on the death or insolvency of a partner he ceases to have interest in the
partnership property. n such case his interest in the partnership property will survive to
his heirs in case of his death and to his assignees in case of insolvency. n the absence of
a term in the deed of partnership to that effect, it cannot be that, the partnership shall
continue, and notwithstanding the death of a partner it will operate to e%tinguish his
proprietary rights in the assets of the 3irm.
A partnership can also be dissolved by the )ourt under the circumstances mentioned in
Section 00 of the Act. (here the partnership is .at will/ the partnership can be dissolved
by any partner or partners giving notice of his6their intention to dissolve the firm.
E=SA@FA,E&
A $artnership is defined by the ndian $artnership Act, 18D;, as .the relation between
persons who have agreed to share profits of the business carried on by all or any of
them acting for all/. ,his definition gives three minimum re!uirements to constitute a
partnership, viz. "1# there must be an agreement entered into orally or in writing by the
persons who desire to form a partnership, ";# the ob-ect of the agreement must be to
share the profits of business intended to be carried on by the partnership, and "D# the
business must be carried on by all the partners or by any of them acting for all of them.
,he term .person/ is not defined by the $artnership Act. Section ;"0;# of the Beneral
)lauses Act defines .a person/ to include a company or an association or body of
individuals, whether incorporated or not. =ut the Supreme )ourt has held that this
definition cannot be imported into the $artnership Act, and the .person/ under the
$artnership Act means either an individual or any other legal entity such as a 7imited
)ompany registered under the )ompanies Act, or any other )orporation constituted by
or under any act of the 7egislature as a body corporate. ,he Supreme )ourt has
observed that it is now well settled that 1indu 2ndivided 3amily cannot as such enter
into a contract of partnership with another person or persons because it is a fleeting
body, its composition changes by births and deaths, marriages and divorces and such a
partner- ship is li'ely to have a precarious e%istence.
)E&)72SE&
t, therefore, follows that a body of
individuals such as an unincorporated society cannot as such become a partner in a
firm. t also follows that a partnership firm cannot as such enter into a partnership with
another individual or legal entity, or with any other partnership firm because a
partnership as such is not a .person. =ut in the case of 1.2.3. the 5arta of the family or a
member thereof can become partner with another individual or with other legal entity or
even with the partners or partner of a partnership firm because in such a case t is the
5arta or the individual member who is the partner for all purposes and not the -oint
family whom he represents and the family does not become a partner of the firm. t has
been held that when two 5artas of two 1.2.3s. enter into a partnership agreement, the
partnership though popularly 'nown as one between the two 123s, in the eye of law, it
is a partnership between two 5artas and the other members of the two families do not
.ipso facto/ become partners. ,here is nothing to prevent individual members of one 1.
2. 3. from entering into a partnership with the individual members of another 1.2.3. and
in such a case it is the partnership between the individual members and it is wholly
inappropriate to describe such a partnership as one between two 123s. (hen the 5arta
of a 1.2.3. enters into a partnership with a stranger the members of the family do not
ipso facto become partners in that firm and they have no right to ta'e part in its
management or to sue for its dissolution.