Partnership

When one person's money and skills are not enough, several people can join together. The Indian Partnership Act, 1932 defines partnership as "the relation between persons who have agreed to share the profits of a business carried on by all or any one of them acting for all."

Its features:

• Formation by an agreement among the partners, under the Partnership Act.
• Number of partners: at least 2; at present the maximum is 50 (Companies Act, 2013, section 464, and Rule 10).
• Unlimited liability, which is also joint and several: a creditor may recover the firm's debts from all partners together or from any one of them.
• Mutual agency: each partner is an agent of the others (can bind them by what he or she does for the firm) and also a principal (is bound by what the others do).
• Decisions and control are shared, usually by agreement.
• Lack of continuity: the death, retirement or insolvency of a partner may end the firm, unless the others agree to carry on.

Types of partners:

• Active: puts in capital and takes part in running the firm.
• Sleeping (dormant): puts in capital and shares profits but takes no part in running the firm.
• Secret: takes part in running the firm, but the public does not know he or she is a partner.
• Nominal: lends only his or her name to the firm, without capital or management.
• Partner by estoppel: acts in a way that makes others believe he or she is a partner, and so becomes liable as one.
• Partner by holding out: is declared a partner by the firm and does not deny it.

A minor cannot be a full partner, but can be admitted to the benefits of the firm with the consent of all partners.

Types of partnership: by duration, a partnership at will (it lasts as long as the partners wish) or a particular partnership (formed for one job or one period, and ending when that is over); by liability, a general partnership (all partners have unlimited liability) or a limited partnership (some partners have limited liability, but at least one has unlimited liability).

The written agreement is the partnership deed. It usually sets out the firm's name and business, each partner's capital, the profit-sharing ratio, interest on capital and drawings, partners' duties, and how to admit or retire a partner. Registration of the firm with the Registrar of Firms is optional, but an unregistered firm suffers: it cannot sue third parties to enforce its rights, and a partner cannot sue the firm or the other partners.