The law of partnership is contained in Indian Partnership Act, 1932(hereinafter referred as 'the Act'). Section 4 of the Act defines Partnership as 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 name". The nature of Partnership is detailed in Sections 4 to 8 of the Act. The essential conditions for a partnership is as follows:
There should be an express or implied agreement between all the partners.Even if there is no formal partnership agreement the intention of parties is to be taken into consideration to determine a partnership.
2. Carrying of Business by everyone
The above stated agreement is to share profits of a business which is carried on by all. Anyone can carry on the business for all. This business has to be a lawful one.
3. Profit sharing
Sharing of profit is one of the determinig factors of partnership. Even if the contract is formal, the intention of sharing profit determines the partnership. So it must be the primary object of the partners.The honourable apex Court of the nation has reiterated the provision in Section 6 of the Act in Girdharbhai v. Saiyed Mohmad Mirasaheb Kadri(AIR 1987 SC 1782) that in determining whether a group of persons is a firm or not, the real intention of the parties has to be taken into consideration. The Supreme Court had laid down the elements to determine a partnership as (a) there must be an agreement entered into by all parties concerned; (b) the agreement so entered into must be to share profits of a business;(3) the business must be carried on by all or any one for all.
The definition clearly states that any person can carry on the business for the benefit of all. It can also be carried on by all. So mutual understanding and agency is the lifeblood of partnership. One performs duties on behalf of another one in a partnership like an agent.
There is unlimited liability upon partners in a partnership. It is, of course, joint and several. Everyone has certain liability towards others in a partnership business.
6. No separate Legal Existence
The partnership is the association of persons. So it does not have a separate legal existence as in the case of a company. If there is no partners, there is no partnership. It is the partners who share the profit and loss of business and are liable for their acts.
7. Number of persons/partners.
Without any objection and confusion it can be said that there must be atleast two persons to constitute a partnership. There can be more than two, but never less than two. There is limit to the members in relation to banking and other business.