When an Association of person is a Partnership

When an association of person is a partnership.

A partnership as defined in INDIAN PARTNERSIP ACT,1932 “ An relation between person who have agreed to share the profit of any business carried on by all or any of them acting for all.” So for any association of person to be a partnership necessary points are:

1. An association of person must be there. Thus a firm can never be a partner, as it is not an artificial person in the eyes of law. On the other hand a company can be a partner. As it is an artificial person in the eyes of law.

2. An agreement must be there. In order to create any kind of legal relationship, an agreement or operation of law is necessary. So a partnership must be a result of an agreement. Agreement can be expressed or implied. As agreement can also be derived from course of dealing between parties. An agreement as defined in THE INDIAN CONTRACT ACT, 1932 “Every promise and every set of promises forming consideration for each other.” As was given in section 6 of partnership act the true test of partnership is to be derived by taking all relevant facts together. So an association of person may be a partnership even though they do not call it so.

3. Community of interest must be there. Sharing the proceeds of any business is the prima facie evidence to support any partnership. Though, it is rebuttable by absence of certain other factors.

4. Mutual Agency. Mutual agency is the most important test for any partnership. What it means is that the partners are principals as well as agents of the other partners. Thus any act of any partner can be binding on the firm if the following points are present:

·     It must be done in normal due course of business or within his implied authority.

·    It must be done in the firm’s name.

As was defined in the case of Cox V. Hickman (1860), mutual agency between partners is the true test of partnership though sharing of profits is the prima facie evidence. What happened in the above mentioned case was that a trader carried business under the supervision of his creditors. The object of the business was to share profit of the business. It was held that it is not a partnership as mutual agency was absent.

5. For any partnership business is necessary. Any firm that conducts any activity which is without profit motive then it cannot be held as a partnership.

Akash Kapoor

[CA FINAL/ LLB (3^rd Yr)]