Partnership Formation
Basic of Partnership
A partnership is an association of two or more persons to carry on, as co- owners, a business and to share its profits and losses. The persons who own the business are individually called partners and collectively called as Partnership Firm.
A partnership firms neither a legal entity nor a juristic person. It is only a compendious name given to partnership for the sake of convenience.
Though a partnership has no legal existence, it is recognized as a unit of assessment under income tax act and under some other tax laws.
Relation of partnership arises from contract not from status.
Who can become a partner?
- Only nature and legal person can become a partner.
- Only such persons who are competent to contract can enter into a partnership.
- A minor cannot be a partner in the firm but he can be admitted to the benefits of partnership through his guardian with consent of partners. Minor is entitled to a share in the profits but not losses. His share in the firm is liable for the act of the firm, but he is not personally liable.
- Hindu undivided family (HUF) cannot enter in to partnership, but a Karta of HUF may become partner with others in his representative capacity. However when a Karta of joint Family enters into a partnership with strangers, the other members of the family do not ipso facto become partner in that firm.
Essentials of valid partnership
To constitute a partnership:-
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There must be a lawful business.
- There must be an agreement to share the profits of the business, and
- The business must be carried on by all or any of the partners acting for all.
Admission of partner
A person can be introduced into a firm only with the consent of all existing partners. A partner so introduced does not so become liable for any act of the firm done before he becomes a partner.
Retirement of partner
A partner may retire from a firm with the consent of all other partners. In case of a partnership “at will “any partner can retire by giving notice in writing to all the other partners of his intention to retire.
Registration of firm
A firm can be registered under partnership act with the registrar of firms. Registration is optional. If a firm is not registered it cannot avail the following benefits:
- The firm cannot file a suit in any court against a third party to enforce any right arising from a contract.
- No partner of such a firm can file a suit in any court against the firm or another partner to enforce a right arising out of a contract or conferred by the act.
For all practical purposes , it is advisable to have firm duly registered.
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