Can a partnership firm be a partner?
Vipul
(Querist) 23 December 2011
This query is : Resolved
Hello,
Can a Partnership Firm represented by a partner become a partner in another firm.
eg. A and B are individuals and form a Partnership firm called AB and co. Can the FIRM AB and co. enter into a partnership with individual C and form ABC and co ??
I had googled the question and got mixed results.
As per someone the partnership definition says 'person' includes any artificial legal entity and hence a partnership firm can become a partner.
As per someone else the supreme court has said in a case that its not possible. however case law name was not mentioned.
Please let me know what is the correct position
R.Ramachandran
(Expert) 23 December 2011
The answer to your query is a straight forward "NO".
Vipul
(Querist) 24 December 2011
Thank you very much sir for your reply
But could you explain why the answer is No?
If a company or Huf can become a partner in a firm why not a partnership firm itself?
prabhakar singh
(Expert) 24 December 2011
Dear vipul!
Mr. Ramachandran is right in telling you a straight "No",the reason is that in law a partnership is not a juristic person by it definition while a company is an artificial juristic person capable of holding all human rights except citizenship rights.In HUF cases its Karta is manager of HUF and have all exclusive control over HUF affairs and has powers to bind HUF by his all deeds and any opposition of its other member results in break down of HUF.
But such is not the case of a PARTNERSHIP.No case law is required for it.your googling result in negative is the correct view whether supported by case law or not.You are advised to carefully read the its definitionin section 4 of the partnership Act,which runs:
"4. DEFINITION OF "PARTNERSHIP", "PARTNER", "FIRM" AND "FIRM-NAME".
"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.
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"."
What do you find then that it's a collective name of individuals but the liability of partners with regard to its business is just like a proprietorship,not limited to their share in business but also personal properties of the partners are on stake.That is not the case of a company share holder,they are all togather different two legal entities and the liability of the share holder is limited to his capital invested in the company,his personal properties are not in stake.You can go with definition of a company in companies ACT.
Hence in your case A,B,and C can form a new partnership but Firm AB can not enter into as an entity with C to create any new partnership firm ABC.
M V Gupta
(Expert) 24 December 2011
I agree with the views of the experts above. If AB Firm wants to enter into pertnership arrangement with C, the only way is one of the partners of the firm or both the partners will have to become partners with C.
Vipul
(Querist) 24 December 2011
Thank you very much mr prabhakar singh, your answer with proper reasoning was very helpful indeed.
Jai Karan Nagwan
(Expert) 24 December 2011
Dear query is not very clear however specific reply can be given on the statemen (Can a Partnership Firm represented by a partner become a partner in another firm)
there can alwyas be joint venture and collaboration, however learned expert Mr. Prabhakar rightly said that "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.
so if constitution of the firm permits, entering in another venture place no bar, but loss and profit has to shred among the partners.
prabhakar singh
(Expert) 24 December 2011
The main premise of my answer Mr.Jai Karan Nagwan is that "a partnership firm is not a juristic person "There can not be a case to go legally as you are deriving.It is not any LLP matter.
Advocate. Arunagiri
(Expert) 24 December 2011
Companies Act, 1956.
Section 25...............
(4) A firm may be a member of any association or company licensed under this section, but on the dissolution of the firm, its membership of the association or company shall cease.
