Associations of two or more persons: At least two persons should join together to constitute a partnership. Persons who have entered into partnerships with one another are called individual partners. Collectively they are called a firm. A firm is distinct from its members but is not a legal entity under the Indian Partnership Act, though under the Income Tax Act, it has an independence separate tax legal entity. The name under which their business is carried on is called the firm name. Persons may carry on business under any name and style they may choose to adopt provided it is not misleading.
Minimum and maximum number:
Minimum number to constitute a partnership is two. Maximum number in case of partnership firm carrying on banking business must not exceed ten and in case of any other partnership firm engaged in any other businesses the maximum number must not exceed twenty.
It will therefore, be seen that an individual cannot constitute a partnership. The business run by an individual alone would be a proprietary enterprise. If the number exceeds the maximum limit, the partnership firm should be immediately registered as a company under the Companies act 1956, otherwise it will be an illegal association.
The second important characteristic to determine the existence of partnership is that there must be an agreement entered into by all the persons who come together to form a partnership. The agreement may be express or implied . It can be inferred from the course of conduct of parties to the agreement There should be a contract to carry on the business . The contract may be for a fixed or certain period or for an uncertain period. It may also be a particular venture, or at will. The contract which may be in writing or may be implied from the acts of the parties must possess all the essential elements of an ordinary contract under the Indian Contract Act, 1872.
Co-owners or joint owners of any property cannot be called partners unless there is an agreement between them to carry on the business. Joint Hindu family partnership is not governed by the provisions of the Act, but by the Hindu law.
Business is another essential feature of the partnership. Where a few persons join together for some charitable purpose , the association cannot be termed as partnership. The term business includes every trade, occupation and profession. For example, a polyclinic can be started by two or more doctors in partnership .
Share profits of the business:
Profits mean net profits as distinguished from gross profits An agreement entered into by all the persons concerned must be of sharing the profits of a business. The business to be carried on must be lawful; Business includes every trade occupation and profession. The object for which the partnership exists is obviously to make profits and therefore the definition unequivocally makes sharing of profits a must to constitute a partnership.
An agreement may not mention anything regarding sharing of losses as an agreement to share the losses is not essential. Every man who has share in the profits of a trade ought to bear his share of loss. Through sharing of profits implicitly involves sharing of losses, the partner between themselves may agree that one or more of them shall not be liable for losses. Further partners may agree to share the profits in different proportions. They may also agree to receive fixed monthly or annual sums in lieu of an amount of profit. If any person is deprived of his rights to share in the profits of the business he is not a partner. However, it should be noted that mere sharing of profits between persons would not necessarily determine the existence of partnership. Joint owners of property who share the returns of the property will not be called partners.
Source: Business Law